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Amended Tax Return Forms

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Amended Tax Return Forms

Amended tax return forms Publication 504 - Main Content Table of Contents Filing StatusUnmarried persons. Amended tax return forms Married persons. Amended tax return forms Same-sex marriage. Amended tax return forms Exception. Amended tax return forms Married Filing Jointly Married Filing Separately Head of Household ExemptionsPersonal Exemptions Exemptions for Dependents Phaseout of Exemptions AlimonyInvalid decree. Amended tax return forms Amended instrument. Amended tax return forms General Rules Instruments Executed After 1984 Instruments Executed Before 1985 Qualified Domestic Relations OrderRollovers. Amended tax return forms Individual Retirement Arrangements Property SettlementsTransfer Between Spouses Gift Tax on Property Settlements Sale of Jointly-Owned Property Costs of Getting a Divorce Tax Withholding and Estimated Tax Community PropertyCommunity Income Alimony (Community Income) How To Get Tax Help Filing Status Your filing status is used in determining whether you must file a return, your standard deduction, and the correct tax. Amended tax return forms It may also be used in determining whether you can claim certain other deductions and credits. Amended tax return forms The filing status you can choose depends partly on your marital status on the last day of your tax year. Amended tax return forms Marital status. Amended tax return forms   If you are unmarried, your filing status is single or, if you meet certain requirements, head of household or qualifying widow(er). Amended tax return forms If you are married, your filing status is either married filing a joint return or married filing a separate return. Amended tax return forms For information about the single and qualifying widow(er) filing statuses, see Publication 501. Amended tax return forms Unmarried persons. Amended tax return forms   You are unmarried for the whole year if either of the following applies. Amended tax return forms You have obtained a final decree of divorce or separate maintenance by the last day of your tax year. Amended tax return forms You must follow your state law to determine if you are divorced or legally separated. Amended tax return forms Exception. Amended tax return forms If you and your spouse obtain a divorce in one year for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to remarry each other and do so in the next tax year, you and your spouse must file as married individuals. Amended tax return forms You have obtained a decree of annulment, which holds that no valid marriage ever existed. Amended tax return forms You must file amended returns (Form 1040X, Amended U. Amended tax return forms S. Amended tax return forms Individual Income Tax Return) for all tax years affected by the annulment that are not closed by the statute of limitations. Amended tax return forms The statute of limitations generally does not end until 3 years (including extensions) after the date you file your original return or within 2 years after the date you pay the tax. Amended tax return forms On the amended return you will change your filing status to single or, if you meet certain requirements, head of household. Amended tax return forms Married persons. Amended tax return forms   You are married for the whole year if you are separated but you have not obtained a final decree of divorce or separate maintenance by the last day of your tax year. Amended tax return forms An interlocutory decree is not a final decree. Amended tax return forms Same-sex marriage. Amended tax return forms   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Amended tax return forms The term "spouse" includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. Amended tax return forms However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. Amended tax return forms For more details, see Publication 501. Amended tax return forms Exception. Amended tax return forms   If you live apart from your spouse, under certain circumstances, you may be considered unmarried and can file as head of household. Amended tax return forms See Head of Household , later. Amended tax return forms Married Filing Jointly If you are married, you and your spouse can choose to file a joint return. Amended tax return forms If you file jointly, you both must include all your income, exemptions, deductions, and credits on that return. Amended tax return forms You can file a joint return even if one of you had no income or deductions. Amended tax return forms If both you and your spouse have income, you should usually figure your tax on both a joint return and separate returns (using the filing status of married filing separately) to see which gives the two of you the lower combined tax. Amended tax return forms Nonresident alien. Amended tax return forms   To file a joint return, at least one of you must be a U. Amended tax return forms S. Amended tax return forms citizen or resident alien at the end of the tax year. Amended tax return forms If either of you was a nonresident alien at any time during the tax year, you can file a joint return only if you agree to treat the nonresident spouse as a resident of the United States. Amended tax return forms This means that your combined worldwide incomes are subject to U. Amended tax return forms S. Amended tax return forms income tax. Amended tax return forms These rules are explained in Publication 519, U. Amended tax return forms S. Amended tax return forms Tax Guide for Aliens. Amended tax return forms Signing a joint return. Amended tax return forms   Both you and your spouse generally must sign the return, or it will not be considered a joint return. Amended tax return forms Joint and individual liability. Amended tax return forms   Both you and your spouse may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. Amended tax return forms This means that one spouse may be held liable for all the tax due even if all the income was earned by the other spouse. Amended tax return forms Divorced taxpayers. Amended tax return forms   If you are divorced, you are jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before your divorce. Amended tax return forms This responsibility applies even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. Amended tax return forms Relief from joint liability. Amended tax return forms   In some cases, a spouse may be relieved of the tax, interest, and penalties on a joint return. Amended tax return forms You can ask for relief no matter how small the liability. Amended tax return forms   There are three types of relief available. Amended tax return forms Innocent spouse relief. Amended tax return forms Separation of liability, which applies to joint filers who are divorced, widowed, legally separated, or who have not lived together for the 12 months ending on the date election of this relief is filed. Amended tax return forms Equitable relief. Amended tax return forms   Married persons who live in community property states, but who did not file joint returns, may also qualify for relief from liability arising from community property law or for equitable relief. Amended tax return forms See Relief from liability arising from community property law , later, under Community Property. Amended tax return forms    Each kind of relief has different requirements. Amended tax return forms You must file Form 8857 to request relief under any of these categories. Amended tax return forms Publication 971 explains these kinds of relief and who may qualify for them. Amended tax return forms You can also find information on our website at IRS. Amended tax return forms gov. Amended tax return forms Tax refund applied to spouse's debts. Amended tax return forms   The overpayment shown on your joint return may be used to pay the past-due amount of your spouse's debts. Amended tax return forms This includes your spouse's federal tax, state income tax, child or spousal support payments, or a federal nontax debt, such as a student loan. Amended tax return forms You can get a refund of your share of the overpayment if you qualify as an injured spouse. Amended tax return forms Injured spouse. Amended tax return forms   You are an injured spouse if you file a joint return and all or part of your share of the overpayment was, or is expected to be, applied against your spouse's past-due debts. Amended tax return forms An injured spouse can get a refund for his or her share of the overpayment that would otherwise be used to pay the past-due amount. Amended tax return forms   To be considered an injured spouse, you must: Have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments), or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return, and Not be legally obligated to pay the past-due amount. Amended tax return forms Note. Amended tax return forms If the injured spouse's permanent home is in a community property state, then the injured spouse must only meet (2). Amended tax return forms For more information, see Publication 555. Amended tax return forms    Refunds that involve community property states must be divided according to local law. Amended tax return forms If you live in a community property state in which all community property is subject to the debts of either spouse, your entire refund is generally used to pay those debts. Amended tax return forms   If you are an injured spouse, you must file Form 8379 to have your portion of the overpayment refunded to you. Amended tax return forms Follow the instructions for the form. Amended tax return forms   If you have not filed your joint return and you know that your joint refund will be offset, file Form 8379 with your return. Amended tax return forms You should receive your refund within 14 weeks from the date the paper return is filed or within 11 weeks from the date the return is filed electronically. Amended tax return forms   If you filed your joint return and your joint refund was offset, file Form 8379 by itself. Amended tax return forms When filed after offset, it can take up to 8 weeks to receive your refund. Amended tax return forms Do not attach the previously filed tax return, but do include copies of all Forms W-2, Wage and Tax Statement, and W-2G, Certain Gambling Winnings, for both spouses and any Forms 1099 that show income tax withheld. Amended tax return forms    An injured spouse claim is different from an innocent spouse relief request. Amended tax return forms An injured spouse uses Form 8379 to request an allocation of the tax overpayment attributed to each spouse. Amended tax return forms An innocent spouse uses Form 8857 to request relief from joint liability for tax, interest, and penalties on a joint return for items of the other spouse (or former spouse) that were incorrectly reported on or omitted from the joint return. Amended tax return forms For information on innocent spouses, see Relief from joint liability, earlier. Amended tax return forms Married Filing Separately If you and your spouse file separate returns, you should each report only your own income, exemptions, deductions, and credits on your individual return. Amended tax return forms You can file a separate return even if only one of you had income. Amended tax return forms For information on exemptions you can claim on your separate return, see Exemptions , later. Amended tax return forms Community or separate income. Amended tax return forms   If you live in a community property state and file a separate return, your income may be separate income or community income for income tax purposes. Amended tax return forms For more information, see Community Income under Community Property, later. Amended tax return forms Separate liability. Amended tax return forms   If you and your spouse file separately, you each are responsible only for the tax due on your own return. Amended tax return forms Itemized deductions. Amended tax return forms   If you and your spouse file separate returns and one of you itemizes deductions, the other spouse cannot use the standard deduction and should also itemize deductions. Amended tax return forms Table 1. Amended tax return forms Itemized Deductions on Separate Returns This table shows itemized deductions you can claim on your married filing separate return whether you paid the expenses separately with your own funds or jointly with your spouse. Amended tax return forms  Caution: If you live in a community property state, these rules do not apply. Amended tax return forms See Community Property. Amended tax return forms IF you paid . Amended tax return forms . Amended tax return forms . Amended tax return forms AND you . Amended tax return forms . Amended tax return forms . Amended tax return forms THEN you can deduct on your separate federal return. Amended tax return forms . Amended tax return forms . Amended tax return forms   medical expenses   paid with funds deposited in a joint checking account in which you and your spouse have an equal interest     half of the total medical expenses, subject to certain limits, unless you can show that you alone paid the expenses. Amended tax return forms     state income tax   file a separate state income tax return     the state income tax you alone paid during the year. Amended tax return forms         file a joint state income tax return and you and your spouse are jointly and individually liable for the full amount of the state income tax     the state income tax you alone paid during the year. Amended tax return forms         file a joint state income tax return and you  are liable for only your own share of state  income tax     the smaller of: the state income tax you alone paid during the year, or the total state income tax you and your spouse paid during the year multiplied by the following fraction. Amended tax return forms The numerator is your gross income and the denominator  is your combined gross income. Amended tax return forms     property tax   paid the tax on property held as tenants by the entirety     the property tax you alone paid. Amended tax return forms     mortgage interest   paid the interest on a qualified home1 held  as tenants by the entirety     the mortgage interest you alone paid. Amended tax return forms     casualty loss   have a casualty loss on a home you own  as tenants by the entirety     half of the loss, subject to the deduction limits. Amended tax return forms Neither spouse may report the total casualty loss. Amended tax return forms 1 For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. Amended tax return forms Dividing itemized deductions. Amended tax return forms   You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Amended tax return forms See Table 1, later. Amended tax return forms Separate returns may give you a higher tax. Amended tax return forms   Some married couples file separate returns because each wants to be responsible only for his or her own tax. Amended tax return forms There is no joint liability. Amended tax return forms But in almost all instances, if you file separate returns, you will pay more combined federal tax than you would with a joint return. Amended tax return forms This is because the following special rules apply if you file a separate return. Amended tax return forms Your tax rate generally will be higher than it would be on a joint return. Amended tax return forms Your exemption amount for figuring the alternative minimum tax will be half of that allowed a joint return filer. Amended tax return forms You cannot take the credit for child and dependent care expenses in most cases. Amended tax return forms You cannot take the earned income credit. Amended tax return forms You cannot take the exclusion or credit for adoption expenses in most cases. Amended tax return forms You cannot take the credit for higher education expenses (American opportunity and lifetime learning credits), the deduction for student loan interest, or the tuition and fees deduction. Amended tax return forms You cannot exclude the interest from qualified savings bonds that you used for higher education expenses. Amended tax return forms If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You will have to include in income more (up to 85%) of any social security or equivalent railroad retirement benefits you received. Amended tax return forms Your income limits that reduce the child tax credit, the retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are half of the limits for a joint return filer. Amended tax return forms Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). Amended tax return forms Your basic standard deduction, if allowable, is half of that allowed a joint return filer. Amended tax return forms See Itemized deductions , earlier. Amended tax return forms Joint return after separate returns. Amended tax return forms   If either you or your spouse (or both of you) file a separate return, you generally can change to a joint return within 3 years from the due date (not including extensions) of the separate return or returns. Amended tax return forms This applies to a return either of you filed claiming married filing separately, single, or head of household filing status. Amended tax return forms Use Form 1040X to change your filing status. Amended tax return forms Separate returns after joint return. Amended tax return forms   After the due date of your return, you and your spouse cannot file separate returns if you previously filed a joint return. Amended tax return forms Exception. Amended tax return forms   A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. Amended tax return forms The personal representative has 1 year from the due date (including extensions) of the joint return to make the change. Amended tax return forms Head of Household Filing as head of household has the following advantages. Amended tax return forms You can claim the standard deduction even if your spouse files a separate return and itemizes deductions. Amended tax return forms Your standard deduction is higher than is allowed if you claim a filing status of single or married filing separately. Amended tax return forms Your tax rate usually will be lower than it is if you claim a filing status of single or married filing separately. Amended tax return forms You may be able to claim certain credits (such as the dependent care credit and the earned income credit) you cannot claim if your filing status is married filing separately. Amended tax return forms Income limits that reduce your child tax credit, retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are higher than the income limits if you claim a filing status of married filing separately. Amended tax return forms Requirements. Amended tax return forms   You may be able to file as head of household if you meet all the following requirements. Amended tax return forms You are unmarried or “considered unmarried” on the last day of the year. Amended tax return forms You paid more than half the cost of keeping up a home for the year. Amended tax return forms A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). Amended tax return forms However, if the “qualifying person” is your dependent parent, he or she does not have to live with you. Amended tax return forms See Special rule for parent , later, under Qualifying person. Amended tax return forms Considered unmarried. Amended tax return forms   You are considered unmarried on the last day of the tax year if you meet all the following tests. Amended tax return forms You file a separate return. Amended tax return forms A separate return includes a return claiming married filing separately, single, or head of household filing status. Amended tax return forms You paid more than half the cost of keeping up your home for the tax year. Amended tax return forms Your spouse did not live in your home during the last 6 months of the tax year. Amended tax return forms Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. Amended tax return forms See Temporary absences , later. Amended tax return forms Your home was the main home of your child, stepchild, or foster child for more than half the year. Amended tax return forms (See Qualifying person , later, for rules applying to a child's birth, death, or temporary absence during the year. Amended tax return forms ) You must be able to claim an exemption for the child. Amended tax return forms However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rule described later in Special rule for divorced or separated parents (or parents who live apart) under Exemptions for Dependents. Amended tax return forms The general rules for claiming an exemption for a dependent are shown later in Table 3. Amended tax return forms    If you were considered married for part of the year and lived in a community property state (one of the states listed later under Community Property), special rules may apply in determining your income and expenses. Amended tax return forms See Publication 555 for more information. Amended tax return forms Nonresident alien spouse. Amended tax return forms   If your spouse was a nonresident alien at any time during the tax year, and you have not chosen to treat your spouse as a resident alien, you are considered unmarried for head of household purposes. Amended tax return forms However, your spouse is not a qualifying person for head of household purposes. Amended tax return forms You must have another qualifying person and meet the other requirements to file as head of household. Amended tax return forms Keeping up a home. Amended tax return forms   You are keeping up a home only if you pay more than half the cost of its upkeep for the year. Amended tax return forms This includes rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. Amended tax return forms This does not include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation for any member of the household. Amended tax return forms Qualifying person. Amended tax return forms    Table 2, later, shows who can be a qualifying person. Amended tax return forms Any person not described in Table 2 is not a qualifying person. Amended tax return forms   Generally, the qualifying person must live with you for more than half of the year. Amended tax return forms Table 2. Amended tax return forms Who Is a Qualifying Person Qualifying You To File as Head of Household?1 Caution. Amended tax return forms See the text of this publication for the other requirements you must meet to claim head of household filing status. Amended tax return forms IF the person is your . Amended tax return forms . Amended tax return forms . Amended tax return forms AND . Amended tax return forms . Amended tax return forms . Amended tax return forms THEN that person is . Amended tax return forms . Amended tax return forms . Amended tax return forms   qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2 he or she is single a qualifying person, whether or not you can claim an exemption for the person. Amended tax return forms     he or she is married and you can claim an exemption for him or her a qualifying person. Amended tax return forms     he or she is married and you cannot claim an exemption for him or her not a qualifying person. Amended tax return forms 3     qualifying relative4 who is your father or mother you can claim an exemption for him or her5 a qualifying person. Amended tax return forms 6     you cannot claim an exemption for him or her not a qualifying person. Amended tax return forms     qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests) he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and you can claim an exemption for him or her5 a qualifying person. Amended tax return forms     he or she did not live with you more than half the year not a qualifying person. Amended tax return forms     he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 and is your qualifying relative only because he or she lived with you all year as a member of your household not a qualifying person. Amended tax return forms     you cannot claim an exemption for him or her not a qualifying person. Amended tax return forms   1 A person cannot qualify more than one taxpayer to use the head of household filing status for the year. Amended tax return forms 2 See Table 3, later, for the tests that must be met to be a qualifying child. Amended tax return forms Note. Amended tax return forms If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of Divorced or Separated Parents (or Parents Who Live Apart) under Exemptions for Dependents, later. Amended tax return forms If you are the custodial parent and those rules apply, the child is generally your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. Amended tax return forms 3 This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. Amended tax return forms 4 See Table 3, later, for the tests that must be met to be a qualifying relative. Amended tax return forms 5 If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. Amended tax return forms See Multiple Support Agreement in Publication 501. Amended tax return forms 6 See Special rule for parent . Amended tax return forms Special rule for parent. Amended tax return forms   If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. Amended tax return forms However, you must be able to claim an exemption for your father or mother. Amended tax return forms Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. Amended tax return forms You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. Amended tax return forms Death or birth. Amended tax return forms   If the person for whom you kept up a home was born or died in 2013, you still may be able to file as head of household. Amended tax return forms If the person is your qualifying child, the child must have lived with you for more than half the part of the year he or she was alive. Amended tax return forms If the person is anyone else, see Publication 501. Amended tax return forms Temporary absences. Amended tax return forms   You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. Amended tax return forms It must be reasonable to assume that the absent person will return to the home after the temporary absence. Amended tax return forms You must continue to keep up the home during the absence. Amended tax return forms Kidnapped child. Amended tax return forms   You may be eligible to file as head of household even if the child who is your qualifying person has been kidnapped. Amended tax return forms You can claim head of household filing status if all the following statements are true. Amended tax return forms The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. Amended tax return forms In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping. Amended tax return forms You would have qualified for head of household filing status if the child had not been kidnapped. Amended tax return forms   This treatment applies for all years until the earlier of: The year the child is returned, The year there is a determination that the child is dead, or The year the child would have reached age 18. Amended tax return forms More information. Amended tax return forms   For more information on filing as head of household, see Publication 501. Amended tax return forms Exemptions You can deduct $3,900 for each exemption you claim in 2013. Amended tax return forms However, if your adjusted gross income is more than $150,000, see Phaseout of Exemptions , later. Amended tax return forms There are two types of exemptions: personal exemptions and exemptions for dependents. Amended tax return forms If you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim his or her personal exemption on his or her own tax return. Amended tax return forms Personal Exemptions You can claim your own exemption unless someone else can claim it. Amended tax return forms If you are married, you may be able to take an exemption for your spouse. Amended tax return forms These are called personal exemptions. Amended tax return forms Exemption for Your Spouse Your spouse is never considered your dependent. Amended tax return forms Joint return. Amended tax return forms   On a joint return, you can claim one exemption for yourself and one for your spouse. Amended tax return forms   If your spouse had any gross income, you can claim his or her exemption only if you file a joint return. Amended tax return forms Separate return. Amended tax return forms   If you file a separate return, you can take an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. Amended tax return forms If your spouse is the dependent of another taxpayer, you cannot claim an exemption for your spouse even if the other taxpayer does not actually claim your spouse's exemption. Amended tax return forms Alimony paid. Amended tax return forms   If you paid alimony to your spouse, you cannot take an exemption for your spouse. Amended tax return forms This is because alimony is gross income to the spouse who received it. Amended tax return forms Divorced or separated spouse. Amended tax return forms   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. Amended tax return forms This rule applies even if you provided all of your former spouse's support. Amended tax return forms Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. Amended tax return forms You can claim an exemption for a dependent even if your dependent files a return. Amended tax return forms The term “dependent” means: A qualifying child, or A qualifying relative. Amended tax return forms Table 3 shows the tests that must be met to be either a qualifying child or qualifying relative, plus the additional requirements for claiming an exemption for a dependent. Amended tax return forms For detailed information, see Publication 501. Amended tax return forms   Dependent not allowed a personal exemption. Amended tax return forms If you can claim an exemption for your dependent, the dependent cannot claim his or her own exemption on his or her own tax return. Amended tax return forms This is true even if you do not claim the dependent's exemption on your return. Amended tax return forms It is also true if the decedent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. Amended tax return forms Table 3. Amended tax return forms Overview of the Rules for Claiming an Exemption for a Dependent Caution. Amended tax return forms This table is only an overview of the rules. Amended tax return forms For details, see Publication 501. Amended tax return forms • You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer. Amended tax return forms • You cannot claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns. Amended tax return forms • You cannot claim a person as a dependent unless that person is a U. Amended tax return forms S. Amended tax return forms citizen, U. Amended tax return forms S. Amended tax return forms resident alien, U. Amended tax return forms S. Amended tax return forms national, or a resident of Canada or Mexico. Amended tax return forms 1 • You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. Amended tax return forms   Tests To Be a Qualifying Child   Tests To Be a Qualifying Relative 1. Amended tax return forms     2. Amended tax return forms       3. Amended tax return forms    4. Amended tax return forms    5. Amended tax return forms    The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Amended tax return forms   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse if filing jointly), or (c) any age if permanently and totally disabled. Amended tax return forms   The child must have lived with you for more than half of the year. Amended tax return forms 2   The child must not have provided more than half of his or her own support for the year. Amended tax return forms   The child is not filing a joint return for the year (unless that joint return is filed only as a claim for refund of withheld income tax or estimated tax paid). Amended tax return forms   1. Amended tax return forms    2. Amended tax return forms       3. Amended tax return forms    4. Amended tax return forms The person cannot be your qualifying child or the qualifying child of anyone else. Amended tax return forms   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you in Publication 501 or (b) must live with you all year as a member of your household 2 (and your relationship must not violate local law). Amended tax return forms   The person's gross income for the year must be less than $3,900. Amended tax return forms 3   You must provide more than half of the person's total support for the year. Amended tax return forms 4 If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. Amended tax return forms See Special Rule for Qualifying Child of More Than One Person , later, to find out which person is the person entitled to claim the child as a qualifying child. Amended tax return forms     1 Exception exists for certain adopted children. Amended tax return forms 2 Exceptions exist for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. Amended tax return forms 3 Exception exists for persons who are disabled and have income from a sheltered workshop. Amended tax return forms 4 Exceptions exist for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. Amended tax return forms See Publication 501. Amended tax return forms You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. Amended tax return forms For more information, see the instructions for your tax return if you file Form 1040A or 1040. Amended tax return forms Children of Divorced or Separated Parents (or Parents Who Live Apart) In most cases, because of the residency test (see item 3 under Tests To Be a Qualifying Child in Table 3), a child of divorced or separated parents is the qualifying child of the custodial parent. Amended tax return forms However, the child will be treated as the qualifying child of the noncustodial parent if the special rule (discussed next) applies. Amended tax return forms Special rule for divorced or separated parents (or parents who live apart). Amended tax return forms   A child will be treated as the qualifying child of his or her noncustodial parent if all four of the following statements are true. Amended tax return forms The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of the year, whether or not they are or were married. Amended tax return forms The child received over half of his or her support for the year from the parents. Amended tax return forms The child is in the custody of one or both parents for more than half of the year. Amended tax return forms Either of the following applies. Amended tax return forms The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. Amended tax return forms (If the decree or agreement went into effect after 1984, see Divorce decree or separation agreement that went into effect after 1984 and before 2009 , later. Amended tax return forms A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during 2013. Amended tax return forms See Child support under pre-1985 agreement , later. Amended tax return forms Custodial parent and noncustodial parent. Amended tax return forms   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. Amended tax return forms The other parent is the noncustodial parent. Amended tax return forms   If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year. Amended tax return forms   A child is treated as living with a parent for a night if the child sleeps: At that parent's home, whether or not the parent is present, or In the company of the parent, when the child does not sleep at a parent's home (for example, the parent and child are on vacation together). Amended tax return forms Equal number of nights. Amended tax return forms   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income. Amended tax return forms December 31. Amended tax return forms   The night of December 31 is treated as part of the year in which it begins. Amended tax return forms For example, December 31, 2013, is treated as part of 2013. Amended tax return forms Emancipated child. Amended tax return forms   If a child is emancipated under state law, the child is treated as not living with either parent. Amended tax return forms See Examples 5 and 6 . Amended tax return forms Absences. Amended tax return forms    If a child was not with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. Amended tax return forms But if it cannot be determined with which parent the child normally would have lived or if the child would not have lived with either parent that night, the child is treated as not living with either parent that night. Amended tax return forms Parent works at night. Amended tax return forms   If, due to a parent's nighttime work schedule, a child lives for a greater number of days but not nights with the parent who works at night, that parent is treated as the custodial parent. Amended tax return forms On a school day, the child is treated as living at the primary residence registered with the school. Amended tax return forms Example 1 – child lived with one parent greater number of nights. Amended tax return forms You and your child’s other parent are divorced. Amended tax return forms In 2013, your child lived with you 210 nights and with the other parent 156 nights. Amended tax return forms You are the custodial parent. Amended tax return forms Example 2 – child is away at camp. Amended tax return forms In 2013, your daughter lives with each parent for alternate weeks. Amended tax return forms In the summer, she spends 6 weeks at summer camp. Amended tax return forms During the time she is at camp, she is treated as living with you for 3 weeks and with her other parent, your ex-spouse, for 3 weeks because this is how long she would have lived with each parent if she had not attended summer camp. Amended tax return forms Example 3 – child lived same number of days with each parent. Amended tax return forms Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. Amended tax return forms Your adjusted gross income is $40,000. Amended tax return forms Your ex-spouse's adjusted gross income is $25,000. Amended tax return forms You are treated as your son's custodial parent because you have the higher adjusted gross income. Amended tax return forms Example 4 – child is at parent’s home but with other parent. Amended tax return forms Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. Amended tax return forms You become ill and are hospitalized. Amended tax return forms The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. Amended tax return forms Your son is treated as living with you during this 10-day period because he was living in your home. Amended tax return forms Example 5 – child emancipated in May. Amended tax return forms When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. Amended tax return forms As a result, he is not considered in the custody of his parents for more than half of the year. Amended tax return forms The special rule for children of divorced or separated parents (or parents who live apart) does not apply. Amended tax return forms Example 6 – child emancipated in August. Amended tax return forms Your daughter lives with you from January 1, 2013, until May 31, 2013, and lives with her other parent, your ex-spouse, from June 1, 2013, through the end of the year. Amended tax return forms She turns 18 and is emancipated under state law on August 1, 2013. Amended tax return forms Because she is treated as not living with either parent beginning on August 1, she is treated as living with you the greater number of nights in 2013. Amended tax return forms You are the custodial parent. Amended tax return forms Written declaration. Amended tax return forms    The custodial parent must use either Form 8332 or a similar statement (containing the same information required by the form) to make the written declaration to release the exemption to the noncustodial parent. Amended tax return forms The noncustodial parent must attach a copy of the form or statement to his or her tax return. Amended tax return forms   The exemption can be released for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. Amended tax return forms Divorce decree or separation agreement that went into effect after 1984 and before 2009. Amended tax return forms   If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Amended tax return forms To be able to do this, the decree or agreement must state all three of the following. Amended tax return forms The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. Amended tax return forms The custodial parent will not claim the child as a dependent for the year. Amended tax return forms The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. Amended tax return forms   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her return. Amended tax return forms The cover page (write the other parent's social security number on this page). Amended tax return forms The pages that include all of the information identified in items (1) through (3) above. Amended tax return forms The signature page with the other parent's signature and the date of the agreement. Amended tax return forms Post-2008 divorce decree or separation agreement. Amended tax return forms   If the decree or agreement went into effect after 2008, a noncustodial parent claiming an exemption for a child cannot attach pages from a divorce decree or separation agreement instead of Form 8332. Amended tax return forms The custodial parent must sign either a Form 8332 or a similar statement. Amended tax return forms The only purpose of this statement must be to release the custodial parent's claim to the child's exemption. Amended tax return forms The noncustodial parent must attach a copy to his or her return. Amended tax return forms The form or statement must release the custodial parent's claim to the child without any conditions. Amended tax return forms For example, the release must not depend on the noncustodial parent paying support. Amended tax return forms    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. Amended tax return forms Revocation of release of claim to an exemption. Amended tax return forms   The custodial parent can revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332 or a similar statement. Amended tax return forms In order for the revocation to be effective for 2013, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2012 or earlier. Amended tax return forms The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. Amended tax return forms Remarried parent. Amended tax return forms   If you remarry, the support provided by your new spouse is treated as provided by you. Amended tax return forms Child support under pre-1985 agreement. Amended tax return forms   All child support payments actually received from the noncustodial parent under a pre-1985 agreement are considered used for the support of the child, even if such amounts are not actually spent for child support. Amended tax return forms Example. Amended tax return forms Under a pre-1985 agreement, the noncustodial parent provides $1,200 for the child's support. Amended tax return forms This amount is considered support provided by the noncustodial parent even if the $1,200 was actually spent on things other than support. Amended tax return forms Parents who never married. Amended tax return forms   The special rule for divorced or separated parents also applies to parents who never married and lived apart at all times during the last 6 months of the year. Amended tax return forms Alimony. Amended tax return forms   Payments to your spouse that are includible in his or her gross income as either alimony, separate maintenance payments, or similar payments from an estate or trust, are not treated as a payment for the support of a dependent. Amended tax return forms Special Rule for Qualifying Child of More Than One Person If your qualifying child is not a qualifying child of anyone else, this special rule does not apply to you and you do not need to read about it. Amended tax return forms This is also true if your qualifying child is not a qualifying child of anyone else except your spouse with whom you file a joint return. Amended tax return forms If a child is treated as the qualifying child of the noncustodial parent under the Special rule for divorced or separated parents (or parents who live apart), earlier, see Applying this special rule to divorced or separated parents (or parents who live apart), later. Amended tax return forms Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. Amended tax return forms (For a description of these tests, see list items 1 through 5 under Tests To Be a Qualifying Child in Table 3). Amended tax return forms Although the child meets the conditions to be a qualifying child of each of these persons, only one person can actually use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Amended tax return forms The exemption for the child. Amended tax return forms The child tax credit. Amended tax return forms Head of household filing status. Amended tax return forms The credit for child and dependent care expenses. Amended tax return forms The exclusion from income for dependent care benefits. Amended tax return forms The earned income credit. Amended tax return forms The other person cannot take any of these benefits based on this qualifying child. Amended tax return forms In other words, you and the other person cannot agree to divide these tax benefits between you. Amended tax return forms The other person cannot take any of these tax benefits unless he or she has a different qualifying child. Amended tax return forms Tiebreaker rules. Amended tax return forms   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. Amended tax return forms If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Amended tax return forms If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Amended tax return forms If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Amended tax return forms If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Amended tax return forms If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Amended tax return forms If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' total AGI evenly between them; see Publication 501 for details. Amended tax return forms   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Amended tax return forms Example 1—separated parents. Amended tax return forms You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. Amended tax return forms In August and September, your son lived with you. Amended tax return forms For the rest of the year, your son lived with your husband, the boy's father. Amended tax return forms Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship, age, support, and joint return tests for both of you. Amended tax return forms At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. Amended tax return forms You and your husband will file separate returns. Amended tax return forms Your husband agrees to let you treat your son as a qualifying child. Amended tax return forms This means, if your husband does not claim your son as a qualifying child, you can claim your son as a dependent and treat him as a qualifying child for the child tax credit and exclusion for dependent care benefits, if you qualify for each of those tax benefits. Amended tax return forms However, you cannot claim head of household filing status because you and your husband did not live apart the last 6 months of the year. Amended tax return forms And, as a result of your filing status being married filing separately, you cannot claim the earned income credit or the credit for child and dependent care expenses. Amended tax return forms Example 2—separated parents claim same child. Amended tax return forms The facts are the same as in Example 1 except that you and your husband both claim your son as a qualifying child. Amended tax return forms In this case, only your husband will be allowed to treat your son as a qualifying child. Amended tax return forms This is because, during 2013, the boy lived with him longer than with you. Amended tax return forms If you claimed an exemption, the child tax credit, or the exclusion for dependent care benefits for your son, the IRS will disallow your claim to all these tax benefits, unless you have another qualifying child. Amended tax return forms In addition, because you and your husband did not live apart the last 6 months of the year, your husband cannot claim head of household filing status. Amended tax return forms And, as a result of his filing status being married filing separately, he cannot claim the earned income credit or the credit for child and dependent care expenses. Amended tax return forms Applying this special rule to divorced or separated parents (or parents who live apart). Amended tax return forms   If a child is treated as the qualifying child of the noncustodial parent under the special rule for divorced or separated parents (or parents who live apart) described earlier, only the noncustodial parent can claim an exemption and the child tax credit for the child. Amended tax return forms However, the noncustodial parent cannot claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. Amended tax return forms Only the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for those four tax benefits. Amended tax return forms If the child is the qualifying child of more than one person for those tax benefits, the tiebreaker rules determine which person can treat the child as a qualifying child. Amended tax return forms Example 1. Amended tax return forms You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Amended tax return forms Your AGI is $10,000. Amended tax return forms Your mother's AGI is $25,000. Amended tax return forms Your son's father does not live with you or your son. Amended tax return forms Under the rules for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child if he meets all the requirements to do so. Amended tax return forms Because of this, you cannot claim an exemption or the child tax credit for your son. Amended tax return forms However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit. Amended tax return forms You and your mother did not have any child care expenses or dependent care benefits, but the boy is a qualifying child of both you and your mother for head of household filing status and the earned income credit because he meets the relationship, age, residency, support, and joint return tests for both you and your mother. Amended tax return forms (Note: The support test does not apply for the earned income credit. Amended tax return forms ) However, you agree to let your mother claim your son. Amended tax return forms This means she can claim him for head of household filing status and the earned income credit if she qualifies for each and if you do not claim him as a qualifying child for the earned income credit. Amended tax return forms (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. Amended tax return forms ) Example 2. Amended tax return forms The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. Amended tax return forms Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Amended tax return forms Example 3. Amended tax return forms The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the earned income credit. Amended tax return forms Your mother also claims him as a qualifying child for head of household filing status. Amended tax return forms You, as the child's parent, will be the only one allowed to claim your son as a qualifying child for the earned income credit. Amended tax return forms The IRS will disallow your mother's claim to the earned income credit and head of household filing status unless she has another qualifying child. Amended tax return forms Phaseout of Exemptions The amount you can claim as a deduction for exemptions is reduced once your adjusted gross income (AGI) goes above a certain level for your filing status. Amended tax return forms These levels are as follows:    Filing Status AGI Level That Reduces Exemption Amount Married filing separately $150,000 Single 250,000 Head of household 275,000 Married filing jointly 300,000 Qualifying widow(er) 300,000 You must reduce the dollar amount of your exemptions by 2% for each $2,500, or part of $2,500 ($1,250 if you are married filing separately), that your AGI exceeds the amount shown above for your filing status. Amended tax return forms If your AGI exceeds the amount shown above by more than $122,500 ($61,250 if married filing separately), the amount of your deduction for exemptions is reduced to zero. Amended tax return forms If your AGI exceeds the level for your filing status, use the Deduction for Exemptions Worksheet found in the instructions for Form 1040 or Form 1040NR to figure the amount of your deduction for exemptions. Amended tax return forms Alimony Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. Amended tax return forms It does not include voluntary payments that are not made under a divorce or separation instrument. Amended tax return forms Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. Amended tax return forms Although this discussion is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. Amended tax return forms To be alimony, a payment must meet certain requirements. Amended tax return forms There are some differences between the requirements that apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. Amended tax return forms The general requirements that apply to payments regardless of when the divorce or separation instrument was executed and the specific requirements that apply to post-1984 instruments (and, in certain cases, some pre-1985 instruments) are discussed in this publication. Amended tax return forms See, Instruments Executed Before 1985 , later, if you are looking for information on where to find the specific requirements that apply to pre-1985 instruments. Amended tax return forms Spouse or former spouse. Amended tax return forms   Unless otherwise stated, the term “spouse” includes former spouse. Amended tax return forms Divorce or separation instrument. Amended tax return forms   The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. Amended tax return forms This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). Amended tax return forms Invalid decree. Amended tax return forms   Payments under a divorce decree can be alimony even if the decree's validity is in question. Amended tax return forms A divorce decree is valid for tax purposes until a court having proper jurisdiction holds it invalid. Amended tax return forms Amended instrument. Amended tax return forms   An amendment to a divorce decree may change the nature of your payments. Amended tax return forms Amendments are not ordinarily retroactive for federal tax purposes. Amended tax return forms However, a retroactive amendment to a divorce decree correcting a clerical error to reflect the original intent of the court will generally be effective retroactively for federal tax purposes. Amended tax return forms Example 1. Amended tax return forms A court order retroactively corrected a mathematical error under your divorce decree to express the original intent to spread the payments over more than 10 years. Amended tax return forms This change also is effective retroactively for federal tax purposes. Amended tax return forms Example 2. Amended tax return forms Your original divorce decree did not fix any part of the payment as child support. Amended tax return forms To reflect the true intention of the court, a court order retroactively corrected the error by designating a part of the payment as child support. Amended tax return forms The amended order is effective retroactively for federal tax purposes. Amended tax return forms Deducting alimony paid. Amended tax return forms   You can deduct alimony you paid, whether or not you itemize deductions on your return. Amended tax return forms You must file Form 1040. Amended tax return forms You cannot use Form 1040A, 1040EZ, or 1040NR. Amended tax return forms Enter the amount of alimony you paid on Form 1040, line 31a. Amended tax return forms In the space provided on line 31b, enter your spouse's social security number (SSN) or IRS individual taxpayer identification number (ITIN). Amended tax return forms If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. Amended tax return forms Show the SSN or ITIN and amount paid to each other recipient on an attached statement. Amended tax return forms Enter your total payments on line 31a. Amended tax return forms If you do not provide your spouse's SSN or ITIN, you may have to pay a $50 penalty and your deduction may be disallowed. Amended tax return forms Reporting alimony received. Amended tax return forms   Report alimony you received as income on Form 1040, line 11, or on Schedule NEC (Form 1040NR), line 12. Amended tax return forms You cannot use Form 1040A, 1040EZ, or 1040NR-EZ. Amended tax return forms    You must give the person who paid the alimony your SSN or ITIN. Amended tax return forms If you do not, you may have to pay a $50 penalty. Amended tax return forms Withholding on nonresident aliens. Amended tax return forms   If you are a U. Amended tax return forms S. Amended tax return forms citizen or resident alien and you pay alimony to a nonresident alien spouse, you may have to withhold income tax at a rate of 30% on each payment. Amended tax return forms However, many tax treaties provide for an exemption from withholding for alimony payments. Amended tax return forms For more information, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Amended tax return forms General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. Amended tax return forms Payments not alimony. Amended tax return forms   Not all payments under a divorce or separation instrument are alimony. Amended tax return forms Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained later under Community Property , Payments to keep up the payer's property, or Use of the payer's property. Amended tax return forms Example. Amended tax return forms Under your written separation agreement, your spouse lives rent-free in a home you own and you must pay the mortgage, real estate taxes, insurance, repairs, and utilities for the home. Amended tax return forms Because you own the home and the debts are yours, your payments for the mortgage, real estate taxes, insurance, and repairs are not alimony. Amended tax return forms Neither is the value of your spouse's use of the home. Amended tax return forms If they otherwise qualify, you can deduct the payments for utilities as alimony. Amended tax return forms Your spouse must report them as income. Amended tax return forms If you itemize deductions, you can deduct the real estate taxes and, if the home is a qualified home, you can also include the interest on the mortgage in figuring your deductible interest. Amended tax return forms However, if your spouse owned the home, see Example 2 under Payments to a third party, later. Amended tax return forms If you owned the home jointly with your spouse, see Table 4. Amended tax return forms For more information on a qualified home and deductible mortgage interest, see Publication 936, Home Mortgage Interest Deduction. Amended tax return forms Child support. Amended tax return forms   To determine whether a payment is child support, see the discussion under Instruments Executed After 1984 , later. Amended tax return forms If your divorce or separation agreement was executed before 1985, see the 2004 revision of Publication 504 available at www. Amended tax return forms irs. Amended tax return forms gov/formspubs. Amended tax return forms Underpayment. Amended tax return forms   If both alimony and child support payments are called for by your divorce or separation instrument, and you pay less than the total required, the payments apply first to child support and then to alimony. Amended tax return forms Example. Amended tax return forms Your divorce decree calls for you to pay your former spouse $200 a month ($2,400 ($200 x 12) a year) as child support and $150 a month ($1,800 ($150 x 12) a year) as alimony. Amended tax return forms If you pay the full amount of $4,200 ($2,400 + $1,800) during the year, you can deduct $1,800 as alimony and your former spouse must report $1,800 as alimony received. Amended tax return forms If you pay only $3,600 during the year, $2,400 is child support. Amended tax return forms You can deduct only $1,200 ($3,600 – $2,400) as alimony and your former spouse must report $1,200 as alimony received. Amended tax return forms Payments to a third party. Amended tax return forms   Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. Amended tax return forms These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. Amended tax return forms ), taxes, tuition, etc. Amended tax return forms The payments are treated as received by your spouse and then paid to the third party. Amended tax return forms Example 1. Amended tax return forms Under your divorce decree, you must pay your former spouse's medical and dental expenses. Amended tax return forms If the payments otherwise qualify, you can deduct them as alimony on your return. Amended tax return forms Your former spouse must report them as alimony received and can include them in figuring deductible medical expenses. Amended tax return forms Example 2. Amended tax return forms Under your separation agreement, you must pay the real estate taxes, mortgage payments, and insurance premiums on a home owned by your spouse. Amended tax return forms If they otherwise qualify, you can deduct the payments as alimony on your return, and your spouse must report them as alimony received. Amended tax return forms If itemizing deductions, your spouse can deduct the real estate taxes and, if the home is a qualified home, also include the interest on the mortgage in figuring deductible interest. Amended tax return forms However, if you owned the home, see the example under Payments not alimony , earlier. Amended tax return forms If you owned the home jointly with your spouse, see Table 4. Amended tax return forms Life insurance premiums. Amended tax return forms   Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. Amended tax return forms Payments for jointly-owned home. Amended tax return forms   If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse or former spouse, some of your payments may be alimony. Amended tax return forms See Table 4. Amended tax return forms   However, if your spouse owned the home, see Example 2 under Payments to a third party, earlier. Amended tax return forms If you owned the home, see the example under Payments not alimony , earlier. Amended tax return forms Table 4. Amended tax return forms Expenses for a Jointly-Owned Home Use the table below to find how much of your payment is alimony and how much you can claim as an itemized deduction. Amended tax return forms IF you must pay all of the . Amended tax return forms . Amended tax return forms . Amended tax return forms AND your home is . Amended tax return forms . Amended tax return forms . Amended tax return forms THEN you can deduct and your spouse (or former spouse) must include as alimony . Amended tax return forms . Amended tax return forms . Amended tax return forms AND you can claim as an itemized deduction . Amended tax return forms . Amended tax return forms . Amended tax return forms   mortgage payments (principal and interest) jointly owned half of the total payments half of the interest as interest expense (if the home is a qualified home). Amended tax return forms 1   real estate taxes and home insurance held as tenants in common half of the total payments half of the real estate taxes2 and none of the home insurance. Amended tax return forms     held as tenants by the entirety or in joint tenancy none of the payments all of the real estate taxes and none of the home insurance. Amended tax return forms 1 Your spouse (or former spouse) can deduct the other half of the interest if the home is a qualified home. Amended tax return forms  2 Your spouse (or former spouse) can deduct the other half of the real estate taxes. Amended tax return forms Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. Amended tax return forms Exception for instruments executed before 1985. Amended tax return forms   There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. Amended tax return forms A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. Amended tax return forms A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. Amended tax return forms   For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, see the 2004 revision of Publication 504 available at www. Amended tax return forms irs. Amended tax return forms gov/formspubs. Amended tax return forms Example 1. Amended tax return forms In November 1984, you and your former spouse executed a written separation agreement. Amended tax return forms In February 1985, a decree of divorce was substituted for the written separation agreement. Amended tax return forms The decree of divorce did not change the terms for the alimony you pay your former spouse. Amended tax return forms The decree of divorce is treated as executed before 1985. Amended tax return forms Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. Amended tax return forms Example 2. Amended tax return forms The facts are the same as in Example 1 except that the decree of divorce changed the amount of the alimony. Amended tax return forms In this example, the decree of divorce is not treated as executed before 1985. Amended tax return forms The alimony payments are subject to the rules for payments under instruments executed after 1984. Amended tax return forms Alimony Requirements A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. Amended tax return forms The payment is in cash. Amended tax return forms The instrument does not designate the payment as not alimony. Amended tax return forms The spouses are not members of the same household at the time the payments are made. Amended tax return forms This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance. Amended tax return forms There is no liability to make any payment (in cash or property) after the death of the recipient spouse. Amended tax return forms The payment is not treated as child support. Amended tax return forms Each of these requirements is discussed next. Amended tax return forms Cash payment requirement. Amended tax return forms   Only cash payments, including checks and money orders, qualify as alimony. Amended tax return forms The following do not qualify as alimony. Amended tax return forms Transfers of services or property (including a debt instrument of a third party or an annuity contract). Amended tax return forms Execution of a debt instrument by the payer. Amended tax return forms The use of the payer's property. Amended tax return forms Payments to a third party. Amended tax return forms   Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. Amended tax return forms See Payments to a third party under General Rules, earlier. Amended tax return forms   Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. Amended tax return forms The payments are in lieu of payments of alimony directly to your spouse. Amended tax return forms The written request states that both spouses intend the payments to be treated as alimony. Amended tax return forms You receive the written request from your spouse before you file your return for the year you made the payments. Amended tax return forms Payments designated as not alimony. Amended tax return forms   You and your spouse can designate that otherwise qualifying payments are not alimony. Amended tax return forms You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. Amended tax return forms For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). Amended tax return forms If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. Amended tax return forms   Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. Amended tax return forms The copy must be attached each year the designation applies. Amended tax return forms Spouses cannot be members of the same household. Amended tax return forms   Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. Amended tax return forms A home you formerly shared is considered one household, even if you physically separate yourselves in the home. Amended tax return forms   You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. Amended tax return forms Exception. Amended tax return forms   If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. Amended tax return forms Liability for payments after death of recipient spouse. Amended tax return forms   If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony whether made before or after the death. Amended tax return forms If all of the payments would continue, then none of the payments made before or after the death are alimony. Amended tax return forms   The divorce or separation instrument does not have to expressly state that the payments cease upon the
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Railroad Retirement Tax Act (RRTA) Desk Guide (January 2009)

LMSB-4-0908-048

1. Preface

  • Ground Transportation Technical Advisor

2.  Introduction

  • Role of RRB

The Railroad Retirement Systems

Types of Tax

  • RRTA - Tiers and Rates

Filing Requirements, IRS
  • Forms
  • Form CT-
  • Form CT-2
  • Form 941
  • Form W-2
  • Form W-3

Filing Requirements, RRB
  • RRB Reports

Deposit Requirements

3.  Interaction Between IRS and RRB

  • Memorandum of Understanding (Coordination and Implementation Agreements)
  • On-site Information Exchange
  • IRS Reports
  • RRB Determination of Coverage
  • RRB Audit Report
  • IRS Follow-up

4.  Definitions

Employer

  • RRA vs. RRTA
  • Employer
  • Owned Company
  • Controlled Companies
  • Stock Ownership
  • Licenses
  • Agreements
  • Any Railroad Service
  • Indirect Services
  • Indirect
  • Companies
  • Casual Service
  • Receiver or Trustee as Employer
  • Railroad Associations
  • Railway Labor Organizations
  • Exclusions From "Employer"

Employee

  • In the Service of One or More Employers
  • Officer
  • Special Categories
  • Exclusions

Compensation

  • Comparison of RRTA to FICA
  • Included and Excluded
  • Earned vs. Paid

5.  Audit Techniques

Audit Plan

  • Preliminary
  • Payroll System
  • Computer Audit Specialist (CAS) Applications
  • Reconciliation of CT-1's
  • Supplemental Annuity Tax
  • RURT
  • Fringe Benefits
  • Backup Withholding
  • Conversion Issues
  • FICA vs. RRTA.

6.  Potential Issues

General

  • General Comments
  • Employee vs. Independent Contractor
  • Section 530
  • General Issues

Industry Specific Issues:

  • Severance Pay/ Termination Pay
  • Annual Productivity Fund Payments
  • Productivity Fund Buyouts
  • Employee Achievement Awards
  • Housing Allowances
  • Meals, Travel, Lodging
  • SEGREGATION
  • Excluded Companies
  • Principally Engaged in Railroad Activities
  • Separate, Identifiable Enterprise
  • Court Cases

Employer Issues

  • Common Paymaster
  • Successor Employers

Related Corporations:

  • Car Repair Shops
  • Warehousing and Warehouse Companies
  • Construction Companies
  • Real Estate Companies
  • Data Processing Companies

Examination Techniques, Related Corporations

  • Subsidiary Records
  • Parent Records
  • Contractual Relationship
  • General Inquiries
  • Other Considerations

7.  Report Writing

  • General
  • ET Version 8.0
  • Form 4665, Form 4666, Form 886A, Form 2504, Form 2297, Form 3363
  • Form 4668-RT
  • Form 4667
  • Conversion Case
  • IRC § 3509

Computation of Tax

  • Tier I 
  • Tier II

8.  Other Considerations

  • Statutory Period of Limitations
  • Form SS-1O
  • RRB Report Title
  • BA-3a Annual Report of Creditable Compensation
  • BA-4 Report of Creditable Compensation Adjustments
  • BA-9 Report of Separation Allowance or Severance Pay
  • BA-10 Report of Miscellaneous Compensation and Sick Pay
  • Form G-241 Summary Statement of Quarterly Report of Railroad Retirement
  • Supplemental Annuity Tax Liabilities
  • Form G-245 Summary Statement of Quarterly Report of Railroad Retirement
  • Supplemental Tax Credits
  • Form G-440 Report Specifications Sheet
  • Penalties, Interest Free Adjustments, Abatements


1.  Preface

This Desk Reference Guide is intended as a resource tool to assist Revenue Agents who are assigned the examination of a railroad employer. The Guide was prepared presuming that the reader has already received employment tax training. The guide will provide:

  • An overview of the Railroad Retirement System.
  • An explanation of the role of the Railroad Retirement Board (RRB).
  • An explanation of the interaction of the IRS and the RRB.
  • Definitions specific to railroad retirement terminology.
  • A suggested audit plan.
  • A list of potential issues with possible position write-ups.

We have attempted to include as many citations as possible throughout the text to relevant court cases, revenue rulings, revenue procedures, private letter rulings, etc.

Ground Transportation Technical Advisor
Technical Advisors assist the field in identifying, developing and resolving industry specific and cross-industry issues; provide educational opportunities to internal and external customers as appropriate; and maintain and develop industry and issue expertise. The Ground Transportation  Technical Advisor (TA) provides these services for the railroad and trucking industries. The TA maintains a liaison with various functions within the IRS as well as in other governmental agencies, and may also be aware of issues being raised at various other examination sites throughout the country.  As a result, the TA may be able to provide the examiner with current information to consider during the course of the audit.

The TA also maintains a web site at: http://lmsb.irs.gov/hq/pftg/railroad/index.asp

This web site may be useful in obtaining information on topics of an even more current nature The railroad industry is unique in many ways and we encourage examiners to use the web site as a means of obtaining knowledge and understanding about the industry.

It is recommended that the examiner use four hours to review the guide during the planning stages of the examination. The guide can then be used on a continuing basis during the course of the examination as a reference tool.

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2.  Introduction

Railroad employers are subject to a separate and distinct system of employment taxes from the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA) systems covering most other employers.  Parts of the system are the responsibility of the IRS, and parts of the system are the responsibility of the Railroad Retirement Board, an independent governmental agency.

Because this is a separate system for railroad employers, payments subject to railroad retirement taxes are specifically excepted from FICA, FUTA, and the Self-Employment Contributions Act (SECA).

The Railroad Retirement Board (RRB) is an independent agency in the executive branch of the Federal Government.  The RRB is headed by a three member Board appointed by the President of the United States, with the advice and consent of the Senate.  One member is appointed upon the recommendation of railroad employers, one is appointed upon the recommendation of railroad labor organizations, and the third member, who is the Chairman, is appointed to represent the public interest.  The Board Members' terms of office are five years, and are scheduled to expire in different years.

The primary function of the Board is the determination and payment of benefits under the retirement-survivor and unemployment-sickness programs. To this end, the Board employs field representatives to assist railroad personnel and their families in filing claims for benefits, examiners to adjudicate the claims, and information technology staff to operate the data processing equipment and administer the automated programs needed to maintain earnings records, calculate benefits and process payments.

The Board also employs actuaries to predict the future income and outlays of the railroad retirement trust funds, statisticians and economists to provide vital data, and attorneys to interpret legislation and represent the Board in litigation. Internal administration requires a procurement staff, a budget and accounting staff, and personnel specialists. The Inspector General employs auditors and investigators to detect any waste, fraud or abuse in the benefit programs.

The Board's headquarters is located in Chicago, Illinois.  The Board maintains field offices across the United States in localities easily accessible to large numbers of railroad workers.

Role of RRB
The role of the RRB is to administer the benefits of the Railroad Retirement Act (RRA) and Railroad Unemployment Insurance Act (RUIA) systems. Thus, the RRB maintains earnings records for each railroad employee in a manner similar to those maintained by the Social Security Administration.   The RRB’s relationship with the Social Security Administration (SSA) is particularly extensive because of the coordination between the two systems.  Railroad retirement annuities may be based in part on social security credits and social security benefit amounts awarded after 1974 to railroad retirement annuitants are made through the Board as part of combined railroad retirement-social security monthly benefit payments.

The RRB and the Social Security Administration have an interagency agreement providing for system-to-system access between the two agencies.
 
The Railroad Retirement System
Railroad employment taxes consist of employer and employee taxes. The employer and employees pay certain taxes at different rates and some are only paid by one or the other, though all taxes are collected by the employer and the employer makes deposits of these taxes.

  1. Railroad Retirement Tax Act (RRTA) – RRTA taxes fund railroad worker retirement benefits.  Collection of these taxes is the responsibility of the IRS.  These taxes are imposed by chapter 22 of the Internal Revenue Code (IRC).
  2. Railroad Retirement Act (RRA) – RRA is the benefit system through which payments are made to retired railroad workers. Benefits are administered by the RRB.
  3. Railroad Unemployment Insurance Act (RUIA) - This system provides unemployment and sickness insurance benefit program for railroad workers. The system is administered, and the taxes are collected by, the RRB.
  4. Railroad Unemployment Repayment Tax (RURT) - in periods of economic downturn, when the RUIA account becomes insufficient to cover payments of unemployment benefits, funds are advanced to the RUIA account from the RRTA account.  RURT taxes are then collected as a means of repaying the advance, bringing the RUIA fund back into balance.  Thus, this tax goes into and out of effect, depending on the balance in the RUIA account.

    As of June 29, 1993, the RUIA account was fully funded and all advances from the RRTA account had been repaid.  As a result, the RURT was terminated effective with respect to wages paid on or after July 1, 1993.  This tax could be reinstated at some future date.  When in effect this tax is imposed by Chapter 23A of the IRC.
  5. Tax on Employee Representatives - Certain individuals perform services as an officer or official representative of a railway labor organization for purposes of representing employees under the Railway Labor Act.  These individuals are subject to RRTA taxes, and file a separate return to report the wage payments and RRTA taxes. Individuals subject to this tax will not be covered in detail in this desk guide due to the limited number of returns filed for this special situation.  Discussion of employee representatives will be limited to an awareness only basis.
  6. IRC 6103 (l) (1) (C) - The IRS is authorized to disclose tax information regarding RRTA taxes to the RRB for purposes of its administration of the RRA.  The RRB may not use such tax information to administer any other statutes.  Such tax information may not be disclosed to RRB contractors (in connection with the administration of the RRA).  The IRS may not disclose RURT information to the RRB.

RRTA – Tiers and Rates
Legislation was enacted in 1934, 1935, and 1937 to establish a railroad retirement system separate from the Social Security Act of 1935.  Under Railroad Retirement provisions, service was credited back to 1936 and rail workers received a somewhat higher benefit than they would have under Social Security.  Additional legislation passed in 1974 restructured railroad retirement benefits into two tiers to coordinate them more fully with social security benefits. 

Railroad retirement replaces the social security system for railroad workers. The taxes under the railroad retirement system are included in two tiers.  The first tier is based on combined railroad retirement and social security credits, using social security benefit formulas.  The second tier is based on railroad service only and is comparable to the pensions paid over and above social security benefits in other heavy industries.  These tiers and rates are as follows:

RRTA

2008

2007

2006

Tier I Wage Base/Rate *

$102,000/6.20%

$97,500/6.20%

$94,200/6.20%

Tier I Wage Base/Rate *

unlimited/1.45%

unlimited/1.45%

unlimited/1.45%

Tier II ER Wage Base/Rate

$75,900/12.1%

$72,600/12.1%

$69,900/12.6%

Tier II EE Wage Base/Rate

$75,900/3.9%

$72,600/3.9%

$69,900/4.4%

* Subject to both employer and employee

 

 


When looking at the rates for RRTA, and comparing them to the rates used for social security, it is readily apparent that a railroad employer is subject to a much higher rate of tax than a non-railroad employer.  Thus, there is a significant incentive for an employer to attempt to be classified as a non-railroad, to classify workers as independent contractors, or to classify payments as something other than wages.
 
Filing Requirements, IRS

Forms

Because railroad employers do not come under the social security system, they file different employment tax returns from those used to report FICA wages.

The forms used to report railroad employment taxes are presented below.

Form CT-1

Employer's Annual Railroad Retirement Tax Return

A railroad employer files an annual CT-1 to report RRTA taxes.  All CT-1 returns are filed with the IRS Cincinnati Campus, and must be filed by the last day of the second month following the end of the calendar year (normally, by February 28th).

The IRS Cincinnati Campus provides information to the RRB to allow the RRB to reconcile railroad employer accounts.

Note: For any year in which the RURT is applicable, a separate entry is provided in order for the RURT to be reported on the Form CT-1.

Form CT-2

Employee Representative's Quarterly Railroad Tax Return

A CT-2 is filed on a quarterly basis by individuals subject to the Tax on Employee Representatives.

Form 941

Employer’s Quarterly Federal Tax Return

Although railroad employers are not subject to FICA, they are still required to withhold income tax on behalf of their railroad employees; there is no provision on Form CT-l to report the income tax withholding, so railroad employers use Form 941 for this purpose.

It is also conceivable that an employer could have some employees covered by FICA, and other employees covered by RRTA. In this situation the employer would be reporting FICA wages on the Form 941.  (This subject will be discussed in greater detail in the “Potential Issues” section of the guide.)

Form W-2

Wage and Tax Statement

Railroad employers use Form W-2 to report wage payments to employees and to SSA.  RRTA taxes are shown in Box 14, and Boxes 3, 4, 5, 6 and 7, relating to FICA and Medicare, should be blank.

Form W-3

Transmittal of Income and Tax Statements

Railroad employers use Form W-3 to transmit Forms W-2 to SSA.  Form W-3 provides a box to indicate that the employer is a railroad, alerting SSA to the fact that the information reported reflects RRTA rather than FICA and Medicare.

If an employer has some employees covered under FICA and Medicare as well as RRTA, the Form W-2's must be segregated by type, and separate Forms  W-3 prepared for each batch.

Filing Requirements, RRB

RRB Reports

A railroad employer is also required to submit numerous reports to the RRB which can be used by the examiner as a cross check of the amounts reported on the Form CT-1. Some of the reports are as follows:

RRB Report

Title

BA-3a

Annual Report of Creditable Compensation

BA-4

Report of Creditable Compensation Adjustments

BA-9

Report of Separation Allowance or Severance Pay

BA-10

Report of Miscellaneous Compensation and Sick Pay

Form G-241

Summary Statement of Quarterly Report of Railroad Retirement Supplemental Annuity Tax Liabilities

Form G-245

Summary Statement of Quarterly Report of Railroad Retirement Supplemental Tax Credits

Form G-440

Report Specifications Sheet

Deposit Requirements

Railroads are under the same rules as any other business or employer for determining deposit requirements for all types of tax.  RRTA taxes are also subject to deposit requirements.  The “Instructions for Form CT-1”, contain a detailed discussion of deposit rules for RRTA taxes. There were major changes made to the deposit requirements in 1999.  See News Release IR-1999-27 and Notice 99-20, 1999-17 I.R.B. 16.

In general RRTA taxes are deposited with an authorized financial institution or a Federal Reserve Bank by using Form 8109, Federal Tax Deposit Coupon.  Based on a dollar threshold there is a mandatory electronic deposit requirement.  That threshold has been increased from $50,000 to $200,000. If the total Federal tax deposits made in 2006 exceed $200,000 they must use the Electronic Federal Tax Payment System (EFTPS) or RRBLINK beginning January 1,2007.   

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3.  Interaction Between IRS and RRB

Agreement Between the Railroad Retirement Board and Internal Revenue Service

The Agreement between the Railroad Retirement Board and Internal Revenue Service (Agreement)  facilitates the sharing of information between the two agencies.

The terms of the Agreement call for each agency to share the results of its investigations with the other agency and to provide supporting work papers or documentation on an as needed basis, to the extent authorized under IRC § 6103(l)(1)(c) and other applicable federal laws.

On-site Information Exchange

On occasion, the IRS and RRB may be simultaneously involved in an audit of the same employer.  In such an event, each agency may share information with the other as permitted by applicable federal laws.  The LMSB Ground Transportation Technical Advisor should be contacted before any information is shared

IRS Reports

The Agreement calls for the IRS to furnish a copy of any examination report to the RRB.  For an agreed case, the report is furnished when the examiner is closing the case. Unagreed reports are furnished after Appeals action.

It is important to note that the RRB is NOT entitled to receive any information with respect to RURT taxes and/or social security taxes. If an examination results in changes to RURT and/or social security taxes, the report should be sanitized so that RURT and/or social security information is not included in the copy being provided to the RRB.  Such sanitizing should be coordinated with the local IRS disclosure officer.
 
RRB Determination of Coverage

The RRB conducts investigations with regard to whether or not an employer is an RRA employer, the results of which are referred to as determinations of coverage.

The RRB employs a legal staff charged with the responsibility of submitting a recommendation to the Board concerning questions of coverage.  The Board then makes the final determination of coverage after analyzing the recommendation of legal counsel.

The results of a determination of coverage can fall into three categories, and are forwarded to the IRS for appropriate action, as shown below.

Note that while the Board makes the determination of coverage, the IRS must conduct any follow-up action since the assessment and collection of applicable RRTA taxes are the responsibility of the IRS.

RRB Audit Report

The RRB also conducts audits of existing RRA employers.  During the course of such audits, the RRB may identify compensation that is not being reported as wages for RRTA purposes. The RRB forwards a copy of its report to the IRS for follow-up since the IRS is responsible for the assessment and collection of applicable RRTA taxes.

IRS Follow-up

With regard to both determinations of coverage and RRB audit reports, the IRS must decide what action is appropriate relative to assessment and collection of RRTA. This decision should take into account the relative size of the potential adjustment, the year(s) involved, other workload priorities, etc.

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4.  Definitions

Employer  RRA vs. RRTA

RRTA, RRA and RUIA each contain a definition of the term "employer". The IRS has endorsed the policy of construing and applying the term "employer" for RRTA purposes in the same manner as that term is construed and applied for RRA and RUIA purposes.  See Rev. Rul. 77-445, 1977-2 C.B. 357 and Rev. Rul. 74-121, 1974-1 C.B. 300.  See also City of Galveston by and Through Board of Trustees v. United States, 33 Fed. Cl. 685 (1995); Standard Office Bldg. Corp. v. United States, 819 F.2d 1371 (7th Cir. Ill. 1987); Galveston by and Through Board of Trustees v. United States, 22 Cl. Ct. 600 (1991); Carland, Inc. v. United States, 75 A.F.T.R.2d 1234 (W.D. Mo. 1995).

Employer

A RRTA "employer" is a railroad carrier or any company that: (1) is "directly or indirectly owned or controlled by" a railroad carrier or is "under common control" with such a carrier; and (2) "operates any equipment or facility or performs any service (except trucking service, casual service, and the casual operation of equipment or facilities) in connection with the transportation of passengers or property by railroad, or the receipt, delivery, elevation, transfer in transit, refrigeration or icing, storage, or handling of property transported by railroad. (see  IRC § 3231(a))

Owned Company

The Surface Transportation Board requires companies involved in the transportation industry to file reports and to list in these reports all affiliated companies.  These reports provide information regarding the principal business activity, the form of control, the percentage of control, along with information regarding any other company that may own a portion of the affiliated company.  Any company listed in these schedules will generally be railroad employers set out in Treas. Reg. § 31.3231(a)-1.

Controlled Companies

Companies that perform railroad service and are controlled by one or more carriers are employers.  Control may be by means of:

  • Stock ownership
  • Agreements
  • Licenses.
  • Any other devices which insure that the operation of the company is in the   interest of one or more carriers

Stock Ownership

If this is the form of control used, then the examiner should be able to show that a majority of the stock owners are also stock owners of one or more companies that control a carrier.  The examiner should request from the controlled company a list of their stock owners and other companies that they own stock in.

Licenses

If this is the form of control used, then the examiner should be able to show that the licensor of the controlled company has the same licenses with those of one or more companies that control a carrier.

Agreements

This means of control may be present through a contract or agreement. For example, when a carrier enters into a cost plus contract, the carrier may step in and control management action to prevent cost overruns. Another example of this means of control may occur when the right to control is set out in an agreement even though the company is designated as an independent contractor. Look for a separate agreement, like a union agreement, that simply states that the carrier will maintain the control necessary to determine whether workers are employees. Also a contract or agreement may spell out the control over the manner and method of accomplishing results. Such control may be found in an addendum to the contract or in the form of general specifications which set out the results and the manner and method of accomplishing the results.

The examiner is looking for a situation in which a result could be accomplished by one or more different methods. When the contract spells out the results to be achieved, as well as the method of accomplishing that result, the company is not free to use its own method, and is controlled.

Any Railroad Service

In addition to being owned or controlled, a company must also be performing a railroad service.  The service may be direct or indirect.

Direct Services

Direct services are those that involve the transportation by rail of:

  • Passengers
  • Property

Indirect Services

Indirect services involve those that are connected with, or supportive of rail transportation and/or essential to its proper functioning, but which are not casual or trucking services. The following list represents examples of services that are included in indirect services:

  • Accounting services
  • Bookkeeping
  • Bridge services
  • Building services
  • Construction
  • Engineering
  • Equipment leasing and rental
  • Loading and unloading freight
  • Maintenance of way
  • Office building rental
  • Piggyback trailer ramping, deramping and repair
  • Purchasing department
  • Repair services
  • Servicing overhead trolley lines
  • Stenographic services

Listed below are the kinds of companies that may provide indirect services:

  • Communications Company - Look for those that use microwave relays such as TV antenna (Cable TV) companies or other companies that may handle the railroad's communication, signal, and switching operations.
  • Computer Company - Look for those owned by a carrier that are performing accounting services or use computers to operate signals, keep track of shipments, rolling stock; and other rail activities. See Revenue Ruling 77-445, 1977-2 C.B. 357.  See also City of Galveston by and Through Board of Trustees v. United States, 33 Fed. Cl. 685 (1995); Galveston by and Through Board of Trustees v. United States, 22 Cl.Ct. 600 (1991).
  • Concrete Company - Look for those that pour pre-stressed concrete.  Check to see if they make concrete cross ties.
  • Dock Company - Look for all types of terminal companies, including potential subdivisions of a state such as port authorities which may also be subject to RRTA tax. See Revenue Ruling 77-386, 1977-2 C.B. 356 and Revenue Ruling 82-64, 1982-1 C.B. 154.
  • Financial Companies - Look for those that own or lease rolling stock.
  • Fuel Companies - Check to see if they are fueling, heating, or cooling units on cars or piggyback trailers. See Revenue Ruling 74-552, 1974-2 C.B. 338.  But See Missouri Pacific Lines, Inc. v. United States, 3 Cl. Ct. 14 (1983).
  • Gravel Companies – Look for those that furnish ballast including crushed slag.
  • Ice Companies - Icing boxcars generally have been replaced by refrigerator cars but sometimes ice companies fuel these cars. Revenue Ruling 69-306 1969-1 C.B. 267.
  • Lumber Companies - Look for those that furnish railroad ties or plywood cut to fit in railroad boxcars.
  • Manufacturing Companies - Look for those owned by a carrier that manufacture or remanufacture railroad pans, accessories, or other equipment used by a carrier. See Revenue Ruling 85-177, 1985-2 C.B. 203.  See also Trans-Serve, Inc. v. United States, 521 F.3d 462 (5th Cir. 2008).
  • Real Estate Company - Look for those owned by a carrier that own office buildings, warehouses, terminal tracks, and furnish or lease these to or on behalf of the railroad. See Revenue Ruling 74-121, 1974-1 C.B. 300.  See also Standard Office Bldg. Corp. v. United States, 819 F.2d 1371 (7th Cir. Ill. 1987); Carland, Inc. v. United States, 75 A.F.T.R.2d 1234 (W.D. Mo. 1995).
  • Steel Companies - Look for those that repair or build rolling stock. See Despatch Shops, Inc. v. Railroad Retirement Board, 153 F.2d 644 (D.C. Cir. 1946) regarding RUIA and Despatch Shops v. Railroad Retirement Board, 154 F.2d 417 (2d Cir. 1946) regarding RRA.
  • Warehouse Company - Look at each of these very carefully. Include any produce terminal company buildings, grain elevators, etc.

Casual Service

Treas. Reg. § 31.3231(a)-1(c) states that:

"... the term casual applies when the service rendered or the operation of equipment or facilities by a controlled company or person in connection with the transportation of passengers or property by railroad is so irregular or infrequent as to afford no substantial basis for an inference that such service or operation will be repeated, or whenever such service or operation is insubstantial."

The RRB regulations define “casual service” essentially the same: “…whenever such service or operation is so irregular or infrequent as to afford no substantial basis for an inference that such service or operation will be repeated, or whenever such service or operation is insubstantial.”  As a guideline in applying the definition of “insubstantial”, the RRB uses less than 10 percent of total revenue, employees, and output. This guideline, however, is not part of the RRB regulations. 20 CFR 202.6.

When issuing its regulations, the IRS declined to implement a less than 10 percent rule.  The Service stated that situations can arise where one of the factors is less than 10 percent while the remaining factors are greater than 10 percent, (factors here refers to revenue, employees and output). It is not clear that the service or operation of equipment or facilities would be insubstantial in those situations.

Receiver or Trustee as Employer

The definition of employer, at IRC § 3231(a), also includes:

"...Any receiver, trustee, or other individual or body, judicial or otherwise, when in the possession of the property or operating all or any part of the business of any such employer;…”

This would only apply to individuals who would be employees if the property or business operation had continued in the possession of the preceding employer.  This situation could occur, for example, if a railroad sought protection through the bankruptcy court, and the bankruptcy court appointed a trustee to operate the company.  The trustee would be a railroad employer of the carrier's employees.

Railroad Associations

The definition of employer also includes railroad associations, tariff bureaus, demurrage bureaus, weighing and inspection bureaus, collection agencies, and other organizations that are:

  1. Controlled and maintained wholly or principally by two or more employers and
  2. Engaged in performing services in connection with or incidental to railroad transportation.  An organization is engaged in performing services incidental to railroad transportation when such function would normally, in the absence of the organization, be performed by the constituent employers.

Railway Labor Organizations

The term employer includes railway labor organizations that are national in scope and organized in accordance with the provisions of the Railway Labor Act. "Employer" also includes the following railway labor organization subordinate units established according to constitution and by laws:

  1. State and national legislative committees
  2. General committees
  3. Insurance departments
  4. Local lodges and divisions.

Exclusions From "Employer"

IRC § 3231(a) excludes certain companies from the definition of "employer".

  1. A street railway, or interurban or electric railway, unless it is operating as a part of a general steam-railroad system of transportation.  (This definition also includes a general rail transportation system operated by electric, diesel, or other means of power.)
  2. any company because it is engaged in mining coal, supplying coal to an employer if delivery is not beyond the mine tipple, and operating equipment or facilities therefore, or in any of these activities.

Employee

For purposes of RRTA, "employee” is defined at IRC § 3231(b), and Treas. Reg. § 31.3231(b)-1 provides that an employee includes any individual who is:

  1. In the service of one or more employers,
  2. An officer of an employer,
  3. An employee of a local lodge or division defined as an employer, or
  4. In the service of a general committee.

In the Service of One or More Employers

The definition of "employee”, for RRTA purposes, is very similar to the definition of an employee for FICA purposes.  Treas. Reg. § 31.3231(b)-1 defines a worker as an employee if he or she is:

  1. Subject to the continuing authority of the employer who supervises and directs the manner in which the employee's services are rendered,
  2. Rendering professional or technical services integrated into the staff of the employer
  3. Rendering other personal services on the property used in the operations of the employer which are an integral part of those operations.

With respect to 2 and 3 above, an individual performing services as an independent contractor may be, with regard to such services, in the service of an employer within the meaning of these paragraphs. See Treas. Reg. § 31.3231(b)-1(a)(3).

Treas. Reg. § 31.3231(b)-1 goes onto provide additional facts to be considered, including:

  • It is the right to control, not the actual exercise of this right, that is important
  • The right of the employer to discharge the worker is an important indication that the worker is subject to direction and control
  • The furnishing of tools and the furnishing of a place to work are important indications that the worker is subject to direction and control
  • If the worker is subject to control and direction merely as to the results to be achieved, and not as to the means for achieving those results, the worker would generally be considered an independent contractor
  • Whether or not a worker is an employee must be determined based upon an examination of the particular facts of the case
  • If a worker is an employee, it is of no consequence that the worker is designated as a partner, independent contractor, etc.
  • If a worker is an employee, it is of no consequence that the worker performs the services on a part-time basis.

Officer

Similar to the rules under FICA, an officer of an employer is one who performs the duties of his or her office for compensation.

Special Categories

The definition also includes provision to include as an employee those individuals performing services on behalf of a railway labor organization.  If you are involved in the examination of a labor organization, refer to the code and regulations for the rules to be applied.

Exclusions

The term "employee” excludes individuals engaged in certain coal mining operations, as follows:

  • Coal mining
  • Preparing coal
  • Loading coal at the tipple
  • Handling coal between the mine and the tipple, unless the handling consists of movement by rail with standard locomotives.

Compensation

Comparison of RRTA to FICA

The definition of compensation for RRTA purposes is found at IRC § 3231(e), and, while there are historical differences between the FICA and RRTA statutes, there are also significant similarities. Legislation enacted over the years has made the RRTA Tier I tax identical to the FICA tax as well as conforming the Tier I wage ceiling to the FICA wage ceiling.

Along with conforming the structure of the RRTA to parallel that of the FICA, the exclusions from the definition of compensation under RRTA, with few exceptions, mirror the exclusions from the definition of wages under FICA.  These exclusions from compensation include non-monetary benefits such as fringe benefits, meals and lodging excludable under IRC § 119, and employer-paid life insurance premiums for group-term life insurance under $50,000.

In amending RRTA, Congress often indicated the purpose was to provide conformity to FICA.  Congress has added references to FICA provisions in the RRTA definition of successor employer and the rules for non-qualified deferred compensation (IRC §§ 3231(e)(2)(C) and 3231(e)(8), respectively).  In addition, Tier I benefits are designed to be equivalent to social security benefits, and are subject to federal income taxation in the same manner as social security benefits.

For calendar years after December 31, 1992, Treas. Reg. § 31.3231(e)-1(a)(1) provides that "compensation" for computation of RRTA taxes has the same meaning as the term "wages" under IRC § 3121(a), except as specifically limited by the Railroad Retirement Act or regulations

Included and Excluded

The Code provides for the inclusion or exclusion of the following items:

  • IRC § 3231(e)(1) -

Include -
1. Money remuneration for services rendered 
Exclude -
2. Payment for health insurance plan
3. Tips (but see IRC 3231(e)(3) below)
4. Employee business expense advance or reimbursement

  • IRC § 321l(e)(2) - provides for the application of the Tier I and II wage base amounts
  • IRC § 3231(e)(3) -
    includes cash tips unless the amount of cash tips is less than $20 for any calendar month
  • IRC § 3231(e)(4) -
    excludes payments from Tier I taxes that are made on account of sickness or accident disability to the extent they are received under a workmen's compensation law or RUIA.
  • IRC § 3231(e)(5) -
    excludes amounts for employee achievement awards, scholarship and fringe benefits, if the employee will meet the requirements or IRC §§ 74(C), 117, and 132, respectively.
  • IRC § 3231(e)(6) -
    excludes educational assistance program payments if the employee will meet the requirements of IRC § l27,
  • IRC § 3231(e)(7) -
    excludes qualified group legal service plan if the employee will meet the requirements of IRC § 120.
  • IRC § 323l(e)(8) -
    includes amounts contributed to a 401(k) plan in general, conforms RRTA rules with FICA rules with respect to non-qualified deferred compensation.
  • IRC § 3231(e)(9) -
    excludes meals and lodging if the employee will meet the requirements of IRC § 119.

Earned vs. Paid

As a historical note, in prior years RRTA was computed at the time of payment using the tax rates in effect when the compensation was earned.  RRTA also used a monthly wage base limitation rather than an annual wage base.

The statute was eventually modified to bring RRTA into conformity with FICA. Since 1985, the tax has been computed using rates in effect at the time of payment, regardless of when the compensation was earned. In addition, RRTA uses the annual wage base limitations rather than monthly limits.

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5.  Audit Techniques

Audit Plan

This chapter provides a suggested audit plan for the examination of a railroad for employment tax purposes.  The audit plan presented would result in a fairly complete review of the employer for compliance with filing requirements, correct treatment of various types of payments, employee/independent contractor issues, etc.  Depending on the time allotted to your specific examination, or prior examination history, it may be necessary to tailor the plan to your case by eliminating certain steps.

  1. Preliminary
    • Request copies of the following reports from the taxpayer
    • ICC Form A & B
    • RRB Form BA-3a
    • RRB Form BA-4
    • RRB Form BA-9
    • RRB Form BA-10
  2. Request a listing of all payroll returns filed by company and by type (i.e. Forms CT-1, 941, 940).
  3. Establish which companies and/or employees are covered by each return.

Payroll System

  1. Ask the taxpayer the following questions:
    • Are there any known errors on the returns under examination?
    • Are there any outstanding amended/corrected returns in regard to the Forms CT-1/941 for the years under examination?
    • Are there any amended/corrected returns being prepared or contemplated by the taxpayer regarding the Forms CT-1/941?
    • Are there any work papers or summaries available reconciling the return to the books or showing the account summaries for reporting the various taxable components on the Form CT-1?
    • Are there any work papers or summaries relating to payroll from other sources, such as audits or examinations by Internal Audit, State Agencies, RRB, other internal/external sources?

      Follow-up to secure copies of any of the above information, as appropriate.
  2. Have the taxpayer explain the payroll and accounting process with regard to:
    • How the determination is made as to whether an employee is covered by RRTA or FICA.
    • Payroll payments that may be excluded from Tier I and Tier II tax.
    • Whether compensation is reported on an earned or paid basis.
    • How the work hours for the supplemental annuity tax are determined.

Computer Audit Specialist (CAS) Applications

  1. Obtain the following computer information:
    • Form W-2 tapes
    • Form 1099 tapes
    • RRB Forms BA-3a, BA-4, BA-9 and BA-10 tapes
    • Payroll master file or record layouts
  2. Have the CAS:
    • Reconcile the W-2's to the 1099's to identify the conversion of workers from employees to independent contractors and/or to identify payments being made to employees who have been excluded from RRTA taxation.
    • Reconcile the Form W-2 tape to the BA-3a tape, taking into account 401(k) contributions and group term life insurance calculations.  This may identify payments reported on the BA-3a but excluded from RRTA taxation.
    • Reconcile the W-2 tape to the BA-9 tape. Discrepancies may indicate severance or dismissal payments which have been excluded from RRTA taxation.
    • Reconcile the W-2 tape to the BA-3a tape. Discrepancies may indicate sick pay payments which have been excluded from RRTA taxation.

Reconciliation of CT-1's

Determine whether or not Tier I and Tier II wage and tax amounts have been correctly reported by conducting the following tests:

  • Reconcile CT-1, line 5, to BA-3a. (Tier I)
  • Reconcile CT-1, line 6, to BA-3a. (Tier I)
  • Reconcile CT-1, line 11, to BA-4. (Tier I)
  • Reconcile CT-1, line 11, to BA-4. (Tier II)
    Note: request all Forms BA-4 filed with the RRB during the year and identify the reason for each adjustment.  Consider only those adjustments with a RRTA tax affect.  Compare this total to the railroad’s supporting work papers for line 11 of the CT-1.  Watch for statute of limitations, cash vs. earned, correction of errors, and incorrectly reported compensation
  • Verify that the correct wage base and tax rates have been used.
  • Review the chart of accounts for account titles that are related to employee compensation.  If any are found, test to determine whether or not they were included in taxable compensation.  Be aware of payments being made through accounts payable or voucher accounts.

Supplemental Annuity Tax

Determine whether or not the Supplemental Annuity Tax (SAT) has been correctly reported.  A safe harbor method of computing SAT is available for years after 12-31-93.  See the Section on SAT in the "Definitions" section of this guide.

RURT

Railroad Unemployment Repayment Tax - This tax was terminated effective with respect to payments made on or after July 1, 1993.  However, in the event it is reinstated, the following audit techniques are suggested:

  • Ask the taxpayer how the tax was computed.
  • Reconcile CT-1 RURT wages to Form BA-3a RUIA wages.
  • Select a sample of employees from the Form BA-3a to test for proper RURT computation.
  • Determine the impact of any discrepancies found for Tier I and/or Tier II purposes for RURT purposes.

Fringe Benefits

  1. Review the chart of accounts for account titles that indicate which fringe benefits are being offered.
  2. Request policy statements for fringe benefits that are offered to employees.  The policy should describe the following:
    • The benefit.
    • Which employees or group of employees are entitled to the benefit.
    • The requirements any employee must satisfy to qualify for the benefit.
    • Any limitations that are placed on any employee or group of employees in regard to use of the benefit.
    • The accountability requirements, if any, an employee is required to follow.
    • The RRTA Tier I and Tier II treatment of the benefit.
    • The federal income tax withholding treatment of the benefit.
    • How the benefit is reported to the recipient (i.e W-2, Form 1099, no reporting, etc.).
  3. Determine whether the fringe benefits are being treated properly for RRTA Tier I, Tier II and income tax withholding purposes. Consider:
    • Is a nontaxable benefit being offered that is not covered by IRC § 3121(a)?  If so, pursue further.
    • Is a nontaxable benefit being offered that appears to discriminate in favor of highly compensated individuals?  If so, pursue further.
    • Is a nontaxable benefit being offered on a flat rate basis without proper accountability? If so, pursue further.

Backup Withholding

Backup withholding applies to a railroad employer just as to any other type of employer.

The filed 1099's should be inspected, either by hard copy or tape, to determine whether or not any were filed with missing, incomplete, or obviously incorrect taxpayer identification numbers.  Take appropriate action with respect to any discrepancies discovered.

The taxpayer’s policies and procedures for determining when a 1099 must be issued should be reviewed and tested by comparison to accounts payable vendor listings.  The agent will have to make a decision on the necessity and/or depth of this compliance check based on such factors as prior audit history with the taxpayer, completeness and accuracy of policies and procedures, availability of computerized records for conducting the compliance test, etc.

Conversion Issues

Section 530 of the Revenue Act of 1978 applies to a railroad employer just as to any other type of employer, and must be considered prior to initiating any conversion issues.  This section, as amended through the years, provides an employer with relief from Federal employment taxes with respect to workers who have been reclassified as employees.  Section 530 relieves the employer from paying and withholding any employment taxes (including withholding on income tax) with respect to these employees not only for the period covered by the audit, but for future periods as well.

The Classification Settlement Program (CSP) is also available to railroad employers in the event of a reclassification issue.

The examiner should refer to the materials relating to worker classification that are included in this desk guide.

FICA vs. RRTA.

Determine whether the taxpayer has a group of employees who are covered by FICA rather than RRTA and if this is appropriate. Consider reclassifying for RRTA coverage under IRC Section 3231(a) and (b).

Determine whether the taxpayer owns or directly controls any entities that meet the definition of a carrier under IRC Section 3231(a) and has employees that are covered for FICA rather than RRTA.  Consider reclassifying for RRTA coverage under IRC Section 3231(a) and (b).

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6. Potential Issues

General

General Comments

Almost any issue that might be present in a FICA employment tax case may also be present with respect to a railroad employer.  Therefore, the examiner should consider current issues from other types of cases whenever examining a railroad employer.

Employee vs. Independent Contractor

The method of determining a worker to be an independent contractor or an employee is the same for a railroad employer as it is for any non-railroad employer.

Reference materials concerning worker classification have been included in this guide to assist the examiner in developing these issues.

The Classification Settlement Program would also apply to a railroad employer.

Section 530

Section 530 has the same application to a railroad employer as it does to any other type of employer.  The taxpayer should be provided the handout concerning Section 530 before beginning any conversion issues.

General Issues

Consider the following during the course of the employment tax examination:

  • Treatment of severance pay as non-qualified deferred compensation
  • Treatment of bonus and award payments as other-than compensation
  • Treatment of employees as independent contractors
  • Treatment of medical reimbursement plans
  • Treatment of employee relocation expense reimbursements
  • Treatment of related entities as FICA employers

This list is not meant to be all-inclusive.  It is only meant to demonstrate the fact that issues present in non-railroad employment tax cases may also be present, and should be considered, in a railroad employer examination.

Industry Specific Issues:

Severance Pay/ Termination Pay

Railroad employers have been very aggressive in attempts to treat severance pay and/or termination pay as not subject to RRTA.

Some of the arguments for this are...

  1. Severance/termination pay represents the buyout of a contract right, and is not taxable based on Revenue Ruling 58-301, 1958-1 C.B. 23.
  2. Severance payments are not subject to RRTA tax because the payments represent supplement unemployment benefit payments (SUB pay).  See CSX Corp. et. al v. United States, 518 F.3d 1328 (Fed. Cir. 2008).  
  3. Severance payments made after the year of termination constitute nonqualified deferred compensation under IRC § 3121(v)(2) as incorporated in IRC § 3231(e)(8)(B). 

With regard to the first argument, the government takes the position that Revenue Ruling 75-44, 1975-1 C.B. 15, is controlling, and that the payments represent compensation for past services rather than the buyout of contract rights.

With regard to the employer's secondary argument, there is no statutory provision for SUB-pay under IRC § 3221(e).  SUB-pay is excluded administratively from compensation for RRTA purposes as a result of the Service’s issuance of a series of FICA and FUTA revenue rulings dating back to 1956.  Revenue Ruling 56-249, 1956-1 C.B. 488, provides a limited exception from the definition of wages for FICA, FUTA and federal income tax withholding for certain payments made upon the involuntary separation of an employee from the service of the employer.  Rev. Rul. 56-249 sets forth eight criteria for determining if payments meet the limited exception. By extending the application of this revenue ruling to the railroad employer's severance/termination plan, it can usually be demonstrated that the plan fails most, if not all, of the eight criteria. Thus the payments made to the employees are not excludable from RRTA.

The third argument is that the payments are compensation in the form of periodic severance pay and if made beyond the year of termination constitutes nonqualified deferred compensation under IRC § 3121(v)(2) as incorporated in IRC § 3231(e)(8)(B). The Service’s position is that payments made under a severance plan are not deferred compensation (see Treas. Regs. § 31.3121(v)(2)-1, and Kraft Foods v. United States, 58 Fed. Cl. 507(2003))

Annual Productivity Fund Payments

In order to reduce costs, some railroad employers have negotiated agreements with their employees to reduce the size of the crew operating the train. In return for agreeing to reduce the size of the crew, the employees receive additional payments from the employer.

The employer agrees to set aside a certain amount of money throughout the course of the year, based on the number of trains operated with a reduced crew. Then, after year-end, each employee who participated in the operation of a train with a reduced crew receives a pro rata share of the funds set aside by the employer.

Employers have attempted to classify these payments as other than compensation for services, and therefore as not subject to RRTA. Employers generally base their position on Revenue Ruling 58-301, 1958-1 C.B. 23, modified and superseded by, Rev. Rul. 2004-110, 2004-2 C.B. 960.

The service has taken the position that these payments represent compensation for services rendered, and are subject to RRTA.  The service position is based on Revenue Ruling 75-44, 1975-1 C.B. 15.  In Rev. Rul. 75-44, the Service expressly distinguished the unexplained holding in Rev. Rul. 58-301 by pointing out that lump sum payments "for the past performance of services reflected in the employment rights [an employee] was giving up" are wages, whereas the relinquishment of a purely contractual right is not "wages."  STA of Baltimore – ILA Container Royalty Fund v. United States, 621 F. Supp. 1567 (1985), aff’d, 804 F.2d 296 (4th Cir. 1986).  This case held that payments made by employers into a “royalty fund” that were subsequently shared by eligible employees were “wages” for FICA and FUTA purposes.

If these types of payments are found, it is suggested that a request for Technical Advice be submitted because of the fact intensive nature of this issue.  Revenue Ruling 75-44, is not sufficient to support this type of issue.

Productivity Fund Buyouts

Some employers, having negotiated a productivity fund system, have subsequently offered employees a lump sum payment in exchange for the employees’ giving up any rights to receive future payments from the productivity fund.  These plans generally call for a payment to be made to the employee at the time the employee accepts the buyout, with an additional payment to be made to the employee at the time the employee leaves the service of the employer.

As with the issue presented above, employers have attempted to classify these payments as other than compensation for services, and therefore as not subject to RRTA, basing their position on Revenue Ruling 58-301.

The Service relies on Rev. Rul. 75-44 and Rev. Rul. 2004-110 to support its position that these payments represent compensation for services rendered, and are subject to RRTA.

Employee Achievement Awards

Employers frequently institute programs to recognize and reward employees for safety, perfect attendance, and other similar types of achievement.  In at least a few cases, railroads have chosen to give the employees shares of stock as the reward under these programs.  A dispute has arisen concerning the taxability of the stock for RRTA purposes.  The railroads are taking the position that stock does not meet the definition of compensation. (Other railroads may be taking this same position with respect to other forms of remuneration such as “reward points”, "bonus points”, etc.)

The argument of the railroad employers can be summarized as follows:

Both the RRA and RRTA define compensation as ”money remuneration". "Money" is a well defined term referring to coin and paper currency, and stock does not meet this definition.

For FICA purpose, compensation is defined as all remuneration, including the cash value of remuneration paid in some medium other than cash.  Stock would meet this broader definition of compensation.

Over the years Congress has had many opportunities to conform the definition of compensation for RRTA and FICA purposes, and in fact has done so with respect to some aspects of the definition.  However, Congress has never chosen to remove the term “money" from either the RRTA or RRA definition.

Since Congress included “money" in the definition of compensation, it must have had a reason for doing so, and the RRB and/or IRS cannot ignore the use of the word when issuing regulations.

Therefore, payments made to employees in the form of shares of stock are excludable from compensation for RRTA and RRA purposes.

The IRS and RRB position, on the other hand, is as follows:

While there are historical differences between the FICA and RRTA statutes, there are also significant similarities.  Legislation enacted over the years has made the RRTA Tier I tax identical to the FICA tax as well as conforming the Tier I wage ceiling to the FICA wage ceiling.  See, e.g., T.D. 8582, 1995-1 C.B. 187.

Along with conforming the structure of the RRTA to parallel that of the FICA, the exclusions from the definition of compensation under RRTA, with few exceptions, mirror the exclusions from the definition of wages under FICA.  These exclusions from compensation include non-monetary benefits such as fringe benefits, meals and lodging excludable under section 119 of the Internal Revenue Code, and employer-paid life insurance premiums for group-term life Insurance under $50,000.

In amending RRTA, Congress often indicated the purpose was to provide conformity to FICA.  Congress has added references to FICA provisions in the RRTA definition of successor employer and the rules for non-qualified deferred compensation (323l(e)(2)(C) and 323l(e)(8), respectively).  In addition, Tier I benefits are designed to be equivalent to social security benefits, and are subject to federal income taxation in the same manner as social security benefits.

Although the two statutes are not completely identical, the language of the regulations for RRTA indicates that the term compensation has the same meaning as the term wages for FICA.

It should be noted that new regulations regarding the definition of compensation were issued in 1994, clarifying that compensation for RRTA and FICA purposes was essentially the same. See Treas. Reg. § 31.3231(e)-1(a).

If you encounter this issue contact the Ground Transportation Technical Advisor for current information on our position.

Housing Allowances

See Rev. Rul. 69-391; 1969-2 C.B. 191, concerning of the value of housing provided to railroad employees.

Meals, Travel, Lodging

See Rev. Rul. 75-279, 1975-2 C.B. 409. Generally, allowances for travel expenses are not wages subject to RRTA taxes if the employee is required to take a period for substantial rest away from home, or if the employee is away from home overnight while on service, and made a full accounting for the allowance.

Other allowances for shorter trips when the employee does not require substantial rest away from home or is not away from home overnight are includible in wages subject to RRTA taxes.

Segregation

Segregation is a concept used for the separation of employees subject to FICA taxes from those subject to RRTA taxes.  Although the concept of segregation at one time was not present in the IRC or Regulations, the Service had used the concept in publishing rulings.  In 1994, Treas. Reg. § 31.3231(a)-1 was amended, by adding paragraph (f).  This new paragraph incorporated the concept of segregation into the regulations.

The purpose of segregation is to obtain a fair and reasonable application of law, but it cannot be used in all cases.  For example, it cannot be used if the records are inadequate or if the railroad and non-railroad work is so commingled that it cannot be separately identified.

Segregation is permitted only if the employer in question is principally engaged in non-railroad activities.  "Principally engaged," for this purpose, is 50 percent or more.  This determination requires consideration of relative revenues, number of employees, payrolls, output, facilities in use, and the character of customers.  Sound judgment will dictate the test or combination of tests to use for your determination.  You may want to incorporate into your determination process consideration of relative net profits and the amount of control over such profits exercised by the parent railroad; also, you may take into consideration the demonstrated purpose for creation of the company and the principal occupation and interest of company executives.

Excluded Companies

Segregation cannot be used for express companies, sleeping car companies, or carrier railroads.  Segregation can be used when, for example, a company has two different businesses and there is a definite separation between them.

Principally Engaged in Railroad Activities

Since, as stated, segregation is not applicable to a company that is principally engaged in railroad activities, you will have to determine the status of a given company by some or all of the following comparisons.

  • Revenues
  • Number of employees
  • Payrolls
  • Output
  • Facilities in use
  • Character of customers

Because the objective is to cover under RRTA all employees that perform some railroad services, it is important that the tests clearly reflect the business activities of the company.  The best tests to accomplish this purpose must be selected on a case-by-case basis.

  • Illustration - In the case of an office building, test by output (relative occupancy) and character of tenants (relative number of RRTA and non-RRTA employers).  It is immaterial to the latter test that non-RRTA employers include those owned or controlled by RRTA employers.  The ultimate test is whether the building primarily serves RRTA employers and if so, it is not eligible for segregation.

Separate, Identifiable Enterprise

Segregation can be applied only to a separate identifiable enterprise. Therefore, when a company's records are commingled so that the enterprise cannot be separately identified, segregation cannot be applied.

In some cases, the records for railroad activities and for non-railroad activities must, in order to meet the test, be kept as if the company were operating two separate divisions.  In other cases, the records do not need to be as separate.  In determining the extent to which records need to be separately maintained, consider the extent, scope, and inter-relationship of the railroad and non-railroad operations.  The larger the size of the company and the territory covered, and the more the railroad and non-railroad operations are related, the more independent the records should be in order for the railroad operation to quality as a separate identifiable enterprise for purposes of segregation.

Court Cases

A number of court cases and revenue rulings have dealt with the issue of segregation.  See in general, the discussion that follows concerning related corporations.
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Employer Issues

Common Paymaster

The common paymaster rules apply when the total wages of an employee of two or more related RRTA employers are paid by one of the RRTA employers.  The common paymaster is treated as the sole employer for purposes of the RRTA taxes and the annual wages base.

The common paymaster rule, however, does not apply if the employers are not related, or if the employers are not all RRTA employers.  Thus, an RRTA employer cannot be a common paymaster for FICA purposes and a FICA employer cannot be a common paymaster for RRTA purposes.

Successor Employers

The RRTA adopts the successor provisions found under FICA at IRC § 3121(a)(1), allowing an employer that acquires and continues a business of another employer to include wages paid by the prior employer for purposes of determining the annual wage base limitation.  However, the RRTA requires that the terms "employer", "service" and "compensation" be given their meaning under RRTA.  As a result, successor employer issues involving FICA and RRTA employers cannot be commingled.
 
Related Corporations:

“Employer” is defined by IRC § 3231(a) for RRTA purposes as a company under some kind of control by a railroad that provides a railroad-related service that is not a trucking service, casual service, or the casual operation of equipment or facilities.  This definition has generated a long line of court cases dealing with the issue of whether or not a related company should be considered a railroad employer.  The courts have generally held that if an entity’s operations are related both “functionally” and “economically” to a carrier under common control with the entity, the entity is an “employer” within the meaning of the RRTA.

Some of the related corporation issues that have been considered by the courts are presented below.

Car Repair Shops

Car repair shops – Despatch Shops, Inc. v. Railroad Retirement Board, 153
F.2d 644 (D.C. Cir. 1946) regarding RUIA and Despatch Shops, Inc. v. Railroad Retirement Board, 154 F.2d 417 (2d Cir. 1946) regarding RRA.  The taxpayer argued that it should not be treated as a railroad employer because it was a separately incorporated manufacturing company distinct from its parent, a railroad, and because it was doing heavy repairs and manufacturing similar to that done by other, similar non-railroad companies.  The court rejected this argument, stating:

“If Despatch, in this situation, is not an 'employer' under the Act it can be readily seen that the railroads would be free to take from under the Act virtually all of their workers whose employment is in the ‘supporting’ activities, through the simple expedient of setting up wholly owned corporate affiliates to perform these services.  It is conceivable that everything from maintenance-of-way through engineering or bookkeeping might be done by so called 'independent' corporations.”

Warehousing and Warehouse Companies

Warehousing and warehouse companies - Railroad Retirement Board v. Duquesne Warehouse Co., 326 U.S. 446(1946).

Construction Companies

Construction companies - Southern Development Company v Railroad Retirement Board, 243 F.2d 351 (8th Cir. 1957).

Real Estate Companies

Real estate companies - Standard Office Building Corp. v. United States, 819 F.2d 1371 (7th Cir. 1987).  In this case, the position of the Service was that employees of Standard, owner and operator of an office building, were RRTA employees because the company was controlled by a railroad and the building was more than half occupied by offices of the railroad.

Although the position of the Service was sustained by the district court, that court was reversed by the appellate court on the basis that the taxpayer was not covered by RRTA because it was incorporated prior to the passage in 1937 of the RRTA, and because its employees would have secured a pension windfall if covered under RRTA. The portion of the building occupied by the railroad did not exceed 57 percent during the period in question.

By contrast, in the Southern Development case, cited earlier, Southern was controlled by a railroad and owned an office building, 64 percent of which was occupied by offices of the railroad.  The railroad paid 73 percent of the total rents of the building equal to 39 percent of Southern's total income.  Although Southern owned other properties all of its employees were engaged in the operation of the office building.  Based on these facts, Southern was held to be an RRTA employer. The rationale of Southern was adopted in Rev. Rul. 74-121, l974-l C.B. 300.

These contrasting decisions highlight the fact that it cannot be assumed that any subsidiary corporation performing a railroad related function will be held to be an RRTA employer, even though it appears to meet the two tests of IRC § 3231(a). The result will depend on how the subsidiary unit fits into the general scheme of corporate operations.  If its service is truly significant to transportation, a good case can be made and, if not, all attempts to classify it as an RRTA employer may be fruitless.

Data Processing Companies

Issues involving these companies do not markedly differ from the preceding ones, particularly if the data processing company is controlled by a railroad and appears to have little reason for coming into existence other than to take a group of employees out of RRTA and make them subject to the lesser FICA taxes.

However, assume for discussion that a subsidiary of a railroad conglomerate provides data processing services to the railroad while also providing such services to banks, mutual funds, and other non-railroad clients.  In addition, another subsidiary is formed to provide computer programmers and software to the first subsidiary to the extent of 3O percent of its services, with the balance being provided to non-railroad clients.

Taxability of the subsidiaries for RRTA purposes is not dependent on the percentage of service as much as it is dependent on the degree to which the services are integrated into the normal functions of the railroad.

It can be argued that computer programming and design of software is as essential to railroad operations as is the leasing of office space or the furnishing of accounting services.  It would follow then that employees of the subsidiaries who render such services are subject to RRTA taxes.  However, it does not necessarily follow that the companies are RRTA employers with respect to all of their operations or all of their employees.

Examination Techniques, Related Corporations

Most issues concerning a parent and subsidiary relationship can be developed in a similar fashion. The guidelines presented below present a suggested method that can be modified, as appropriate, to fit the circumstances of your specific case. Also remember that while a subsidiary of a railroad employer may also be a railroad employer, the parent of a railroad employer is not a railroad employer under Union Pacific Corporation v. United States, 26 Cl. Ct. 739 (1992), aff'd, 5 F.3d 523 (Fed. Cir. 1993).

Subsidiary Records

Review the subsidiary's corporate minute book and stock record book to ascertain:

  • The date of incorporation
  • The stated corporate purpose
  • The exact location of the subsidiary
  • The stock authorized and issued, including a complete stock history from inception to the present

Parent Records

Analyze the following schedules on Form R-1, Annual Report to the Surface Transportation Board, of the parent corporation:

  • Schedule A, Identity of Respondent with Affiliated Companies
  • Schedule 310, Investments in Affiliated Companies
  • Schedule 310A, Investments in Common Stock of Affiliated Companies
  • Schedules 352A to 352B, Road and Equipment Property (These schedules can help in reconciling and locating property used by the entity under examination)
  • Schedule 410, Railway Operating Expenses (Look for expenses paid to a subsidiary that is supposedly not an RRTA company)
  • Schedule 512, Transactions Between Respondent and Companies or Persons Affiliated with Respondent for Services Received or Provided

Review the corporate minute book for:

  • Advances from the parent to the affiliate (Note date, amount, terms and purpose)
  • Financial forecasts for the affiliate, including monthly, quarterly, semiannual, annual, and other long-range forecasts
  • Budgets, proposed and actual, prepared by or for the company

Contractual Relationship

Determine the contractual relationship between the parent and subsidiary by examining all intercorporate contracts.  Pay particular attention to those for services to be rendered by the parent company.  Compare the contracts with similar contracts between non-affiliated companies and ascertain:

  • Whether transactions were at arms length
  • The amount of income derived by the subsidiary from the parent as compared with income from other sources
  • Contractual amounts expended by the parent to its affiliate, compared with similar amounts expended to non-affiliated companies
  • Whether persons presently under contract with the affiliate were formerly employed by the parent

General Inquiries

Make the following general inquiries:

  • Were private letter rulings obtained with reference to the issue? (If so, obtain copies and determine whether or not the facts as presented were complete and accurate in their presentation of the situation in question.)
  • Was the entity in question ever subject to RRTA taxes? (If so, determine why and when it was removed from coverage.)
  • Were letter opinions obtained from the Railroad Retirement Board? (If so, obtain copies and determine whether or not the facts as presented were complete and accurate in their presentation of the situation in question.)

Note: Letter opinions on coverage were issued by the RRB’s General Counsel prior to 1992.  After 1991, the RRB’s Board Members made such coverage rulings referred to as Board Determinations on coverage.

  • Obtain a copy of the Employer Status Listing published by the RRB, and, if necessary, secure more specific information from the Board via the Ground Transportation Technical Advisor
  • Refer to Moody's Transportation manuals for other useful information
  • Compute the operating ratio of the company in question for several years, if possible, and make further studies if the ratio exceeds 100 for a sustained period

Other Considerations

Analyze any statistical, financial, profitability, and feasibility studies made by or on behalf of the parent company.  Such studies would generally provide a basis for important decisions that may affect the subsidiary in question.

Review the Authority for Expenditures (AFE's) or at least the AFE logbook for acquisitions that affect the subsidiary in question and, if found, determine if they were subsequently charged back to the parent.

Review correspondence and filed records if the company maintains an index or log of such documentation.

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7. Report Writing

General

Report writing for RRTA purposes is similar to report writing for any other type of employment tax examination.  However, certain forms must be modified  for differences between RRTA and FICA rates and tax categories.

Form 4665, Form 4666, Form 886A, Form 2504, Form 2297, Form 3363

The forms listed above are used in a similar fashion for an RRTA report as in any other type of employment tax report.  In an unagreed case the report should include a complete narrative write up of facts, law, and argument.  Refer to general employment tax report writing instructions when completing these forms.

Form 4668

Form 4668 must be modified to account for Tier I and Tier II taxes.

Care should be taken to ensure that the appropriate wage base and tax rate amounts are used when completing this form.

Form 4667

Since railroad employers are not subject to FUTA, Form 4667 is not used. However, if workers were treated by the employer as being subject to FUTA and those workers are being converted to railroad employees, the examiner should prepare a report reflecting the over assessment of FUTA.  The examiner should include a recommendation to transfer the FUTA to any RUIA liability. See IRM 4.23.8.6.2.

Conversion Case

If an employer treated certain workers as employees subject to FICA, and it is determined that the workers should correctly be treated as employees subject to RRTA, or vice versa, it may be necessary to prepare two reports: one to process the deficiency, and one to process the over assessment.

Refer in general to IRM 4.23.8.6.2 for special rules concerning this type of case.

Prior to making a conversion, consideration must be given to the statutory period of limitations. Some employers may already have filed 941 returns as well as CT-1 returns. Do not undertake a conversion issue unless the statute on the return for which additional tax is due has been protected.

Where the conversion case involves a delinquent return, follow the usual substitute for return/delinquent return procedures.

In an agreed conversion case, where wages are converted from FICA to RRTA, only the net additional tax due will be assessed.

If the conversion is unagreed, the taxpayer should be advised to file a claim under IRC § 3503 for the FICA.  The examiner will propose the assessment of the full amount of the RRTA taxes, and the claim will not be acted upon until the final resolution of the unagreed case.

IRC § 3509

The provisions of IRC § 3509 do not apply to RRTA taxes.
 
Computation of Tax

Tier I
Tier I tax is the equivalent of FICA and Medicare, and is computed in the same manner, using the same annual wage base and tax rates.  It is assessed equally on the employer and employee.

Tier II
Tier II tax uses a separate annual wage base and tax rate from those applicable for Tier I.  In addition, the tax is not assessed equally on the employer and employee. Instead, the employer pays a significantly greater share of this tax.

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8. Other Considerations

Statutory Period of Limitations

Form CT-1 is an annual return, due by the last day of the second month following the end of the calendar year (i.e., February 28th) see Treas. Reg.   § 31.6071(a)-1(b). The normal statutory period of limitations expires three years after the due date, or the date filed, whichever is later.

The presumptive filing date pertaining to Form 941, found at IRC § 6501(b)(2), DOES NOT apply to Form CT-1.

Various courts have considered the question of whether or not the filing of Form 941 starts the running of the statute of limitations with respect to Form CT-1. Although the IRS has been sustained in some courts in its position that the filing of a Form 941 does not start the running of the statutory period of limitations with respect to the CT-1 at least one court has ruled otherwise. The court found that the Form 941 provided sufficient information for the IRS to assess the RRTA taxes, and, therefore, the three year statute for the Form CT-1 had started with the filing of the Form 941. As a result, aggressive action should be taken to protect the statutory period of limitations in all situations.

Form SS-1O
The statutory period of limitations for RRTA purposes is extended using Form SS-10.

Form SS-10 must be modified in order to extend the statutory period of limitations with regard to RURT taxes.  Line 1(a), which is normally used to extend the statutory period of limitations with respect to FUTA taxes, will not be effective for extending the statute with respect to RURT taxes.  Since FUTA taxes do not normally apply to a railroad employer, Line (1)(a) on Form SS-l0 should be changed to state: "The Railroad Unemployment Repayment Tax for Calendar years".

Questions or concerns with regard to extending the RURT statute should be discussed with the Ground Transportation Technical Advisor.  The Ground Transportation Technical Advisor can assist in obtaining advice from Counsel.

Penalties, Interest Free Adjustments, Abatements

Penalties, the provisions for interest free adjustments, and abatements apply to RRTA cases in the same manner as in any other type of employment tax examination.
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Page Last Reviewed or Updated: 24-Jan-2014

The Amended Tax Return Forms

Amended tax return forms 1. Amended tax return forms   403(b) Plan Basics Table of Contents What Is a 403(b) Plan? What Are the Benefits of Contributing to a 403(b) Plan?Excluded. Amended tax return forms Deducted. Amended tax return forms Who Can Participate in a 403(b) Plan?Ministers. Amended tax return forms Who Can Set Up a 403(b) Account? How Can Contributions Be Made to My 403(b) Account? Do I Report Contributions on My Tax Return? How Much Can Be Contributed to My 403(b) Account? This chapter introduces you to 403(b) plans and accounts. Amended tax return forms Specifically, the chapter answers the following questions. Amended tax return forms What is a 403(b) plan? What are the benefits of contributing to a 403(b) plan? Who can participate in a 403(b) plan? Who can set up a 403(b) account? How can contributions be made to my 403(b) account? Do I report contributions on my tax return? How much can be contributed to my 403(b) account? What Is a 403(b) Plan? A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. Amended tax return forms Individual accounts in a 403(b) plan can be any of the following types. Amended tax return forms An annuity contract, which is a contract provided through an insurance company, A custodial account, which is an account invested in mutual funds, or A retirement income account set up for church employees. Amended tax return forms Generally, retirement income accounts can invest in either annuities or mutual funds. Amended tax return forms We use the term “403(b) account” to refer to any one of these funding arrangements throughout this publication, unless otherwise specified. Amended tax return forms What Are the Benefits of Contributing to a 403(b) Plan?  There are three benefits to contributing to a 403(b) plan. Amended tax return forms The first benefit is that you do not pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. Amended tax return forms Allowable contributions to a 403(b) plan are either excluded or deducted from your income. Amended tax return forms However, if your contributions are made to a Roth contribution program, this benefit does not apply. Amended tax return forms Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free. Amended tax return forms Note. Amended tax return forms Generally, employees must pay social security and Medicare tax on their contributions to a 403(b) plan, including those made under a salary reduction agreement. Amended tax return forms See chapter 4, Limit on Elective Deferrals , for more information. Amended tax return forms The second benefit is that earnings and gains on amounts in your 403(b) account are not taxed until you withdraw them. Amended tax return forms Earnings and gains on amounts in a Roth contribution program are not taxed if your withdrawals are qualified distributions. Amended tax return forms Otherwise, they are taxed when you withdraw them. Amended tax return forms The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account. Amended tax return forms See chapter 10, Retirement Savings Contributions Credit (Saver's Credit) . Amended tax return forms Excluded. Amended tax return forms   If an amount is excluded from your income, it is not included in your total wages on your Form W-2. Amended tax return forms This means that you do not report the excluded amount on your tax return. Amended tax return forms Deducted. Amended tax return forms   If an amount is deducted from your income, it is included with your other wages on your Form W-2. Amended tax return forms You report this amount on your tax return, but you are allowed to subtract it when figuring the amount of income on which you must pay tax. Amended tax return forms Who Can Participate in a 403(b) Plan? Any eligible employee can participate in a 403(b) plan. Amended tax return forms Eligible employees. Amended tax return forms   The following employees are eligible to participate in a 403(b) plan. Amended tax return forms Employees of tax-exempt organizations established under section 501(c)(3). Amended tax return forms These organizations are usually referred to as section 501(c)(3) organizations or simply 501(c)(3) organizations. Amended tax return forms Employees of public school systems who are involved in the day-to-day operations of a school. Amended tax return forms Employees of cooperative hospital service organizations. Amended tax return forms Civilian faculty and staff of the Uniformed Services University of the Health Sciences. Amended tax return forms Employees of public school systems organized by Indian tribal governments. Amended tax return forms Certain ministers (explained next). Amended tax return forms Ministers. Amended tax return forms   The following ministers are eligible employees for whom a 403(b) account can be established. Amended tax return forms Ministers employed by section 501(c)(3) organizations. Amended tax return forms Self-employed ministers. Amended tax return forms A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer. Amended tax return forms Ministers (chaplains) who meet both of the following requirements. Amended tax return forms They are employed by organizations that are not section 501(c)(3) organizations. Amended tax return forms They function as ministers in their day-to-day professional responsibilities with their employers. Amended tax return forms   Throughout this publication, the term chaplain will be used to mean ministers described in the third category in the list above. Amended tax return forms Example. Amended tax return forms A minister employed as a chaplain by a state-run prison and a chaplain in the United States Armed Forces are eligible employees because their employers are not section 501(c)(3) organizations and they are employed as ministers. Amended tax return forms Who Can Set Up a 403(b) Account? You cannot set up your own 403(b) account. Amended tax return forms Only employers can set up 403(b) accounts. Amended tax return forms A self-employed minister cannot set up a 403(b) account for his or her benefit. Amended tax return forms If you are a self-employed minister, only the organization (denomination) with which you are associated can set up an account for your benefit. Amended tax return forms How Can Contributions Be Made to My 403(b) Account? Generally, only your employer can make contributions to your 403(b) account. Amended tax return forms However, some plans will allow you to make after-tax contributions (defined below). Amended tax return forms The following types of contributions can be made to 403(b) accounts. Amended tax return forms Elective deferrals . Amended tax return forms These are contributions made under a salary reduction agreement. Amended tax return forms This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. Amended tax return forms Except for Roth contributions, you do not pay income tax on these contributions until you withdraw them from the account. Amended tax return forms If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free. Amended tax return forms Nonelective contributions . Amended tax return forms These are employer contributions that are not made under a salary reduction agreement. Amended tax return forms Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions from your employer. Amended tax return forms You do not pay income tax on these contributions until you withdraw them from the account. Amended tax return forms After-tax contributions . Amended tax return forms These are contributions (that are not Roth contributions) you make with funds that you must include in income on your tax return. Amended tax return forms A salary payment on which income tax has been withheld is a source of these contributions. Amended tax return forms If your plan allows you to make after-tax contributions, they are not excluded from income and you cannot deduct them on your tax return. Amended tax return forms A combination of any of the three contribution types listed above. Amended tax return forms Self-employed minister. Amended tax return forms   If you are a self-employed minister, you are considered both an employee and an employer, and you can contribute to a retirement income account for your own benefit. Amended tax return forms Do I Report Contributions on My Tax Return? Generally, you do not report contributions to your 403(b) account (except Roth contributions) on your tax return. Amended tax return forms Your employer will report contributions on your 2013 Form W-2. Amended tax return forms Elective deferrals will be shown in box 12 and the Retirement plan box will be checked in box 13. Amended tax return forms If you are a self-employed minister or chaplain, see the discussions next. Amended tax return forms Self-employed ministers. Amended tax return forms   If you are a self-employed minister, you must report the total contributions as a deduction on your tax return. Amended tax return forms Deduct your contributions on line 28 of the 2013 Form 1040. Amended tax return forms Chaplains. Amended tax return forms   If you are a chaplain and your employer does not exclude contributions made to your 403(b) account from your earned income, you may be able to take a deduction for those contributions on your tax return. Amended tax return forms    However, if your employer has agreed to exclude the contributions from your earned income, you will not be allowed a deduction on your tax return. Amended tax return forms   If you can take a deduction, include your contributions on line 36 of the 2013 Form 1040. Amended tax return forms Enter the amount of your deduction and write “403(b)” on the dotted line next to line 36. Amended tax return forms How Much Can Be Contributed to My 403(b) Account? There are limits on the amount of contributions that can be made to your 403(b) account each year. Amended tax return forms If contributions made to your 403(b) account are more than these contribution limits, penalties may apply. Amended tax return forms Chapters 2 through 6 provide information on how to determine the amount that can be contributed to your 403(b) account. Amended tax return forms Worksheets are provided in Chapter 9 to help you determine the maximum amount that can be contributed to your 403(b) account each year. Amended tax return forms Chapter 7, Excess Contributions , describes how to prevent excess contributions and how to get an excess contribution corrected. Amended tax return forms Prev  Up  Next   Home   More Online Publications