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Free 2011 Taxes

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Free 2011 Taxes

Free 2011 taxes 4. Free 2011 taxes   Filing U. Free 2011 taxes S. Free 2011 taxes Tax Returns Table of Contents Who Must FileFiling Requirement if Possession Income Is Excluded When To FileExtension of Time To File Where To File Special Rules for Completing Your U. Free 2011 taxes S. Free 2011 taxes Tax ReturnU. Free 2011 taxes S. Free 2011 taxes Armed Forces. Free 2011 taxes Deductions if Possession Income Is Excluded Foreign Tax Credit if Possession Income Is Excluded Self-Employment Tax Additional Medicare Tax Net Investment Income Tax Paying Your TaxesEstimated Tax Double TaxationCompetent Authority Assistance The information in chapter 3 will tell you if a U. Free 2011 taxes S. Free 2011 taxes income tax return is required for your situation. Free 2011 taxes If a U. Free 2011 taxes S. Free 2011 taxes return is required, your next step is to see if you meet the filing requirements. Free 2011 taxes If you do meet the filing requirements, the information presented in this chapter will help you understand the special procedures involved. Free 2011 taxes This chapter discusses: Filing requirements, When to file your return, Where to send your return, How to adjust your deductions and credits if you are excluding income from American Samoa or Puerto Rico, How to make estimated tax payments and pay self-employment tax, and How to request assistance in resolving instances of double taxation. Free 2011 taxes Who Must File If you are not required to file a possession tax return that includes your worldwide income, you must generally file a U. Free 2011 taxes S. Free 2011 taxes income tax return if your gross income is at least the amount shown in Table 4-1, later, for your filing status and age. Free 2011 taxes If you were a bona fide resident of American Samoa or Puerto Rico and are able to exclude your possession income from your U. Free 2011 taxes S. Free 2011 taxes tax return, your filing requirement may be less than the amount in Table 4-1. Free 2011 taxes For details, see the information under Filing Requirement if Possession Income Is Excluded , later. Free 2011 taxes Some individuals (such as those who can be claimed as a dependent on another person's return or who owe certain taxes, such as self-employment tax) must file a tax return even though the gross income is less than the amount shown in Table 4-1 for their filing status and age. Free 2011 taxes For more information, see the Form 1040 instructions. Free 2011 taxes Filing Requirement if Possession Income Is Excluded If you were a bona fide resident of American Samoa or Puerto Rico and qualify to exclude possession income on your U. Free 2011 taxes S. Free 2011 taxes tax return, you must determine your adjusted filing requirement. Free 2011 taxes Generally, your filing requirement is based on the total of your (and your spouse's if filing a joint return) personal exemption(s) plus your standard deduction. Free 2011 taxes Personal exemption. Free 2011 taxes   When figuring your filing requirement, your personal exemption is allowed in full. Free 2011 taxes Do not reduce it for this purpose. Free 2011 taxes Do not include exemptions for your dependents. Free 2011 taxes Allowable standard deduction. Free 2011 taxes   Unless your filing status is married filing separately, the minimum income level at which you must file a return is based, in part, on the standard deduction for your filing status and age. Free 2011 taxes Because the standard deduction applies to all types of income, it must be divided between your excluded income and income from other sources. Free 2011 taxes Multiply the regular standard deduction for your filing status and age (this is zero if you are married filing a separate return; all others, see Form 1040 instructions) by the following fraction:      Gross income subject to U. Free 2011 taxes S. Free 2011 taxes income tax     Gross income from all sources (including excluded possession income)   Example. Free 2011 taxes Barbara Spruce, a U. Free 2011 taxes S. Free 2011 taxes citizen, is single, under 65, and a bona fide resident of American Samoa. Free 2011 taxes During 2013, she received $20,000 of income from American Samoa sources (qualifies for exclusion) and $8,000 of income from sources outside the possession (subject to U. Free 2011 taxes S. Free 2011 taxes income tax). Free 2011 taxes Her allowable standard deduction for 2013 is figured as follows:   $8,000 $28,000 × $6,100 (regular standard deduction) = $1,743   Adjusted filing requirement. Free 2011 taxes   Figure your adjusted filing requirement by adding the amount of your allowable standard deduction to the amount of your personal exemption. Free 2011 taxes You must file a U. Free 2011 taxes S. Free 2011 taxes income tax return if your gross income is at least the amount shown on line 3 of the following worksheet. Free 2011 taxes    1. Free 2011 taxes Enter the allowable standard deduction you figured earlier under Allowable standard deduction . Free 2011 taxes If your filing status is married filing separately, enter -0-   2. Free 2011 taxes Personal exemption. Free 2011 taxes If your filing status is married filing jointly, enter $7,800; if someone can claim you as a dependent, enter -0-; otherwise, enter $3,900   3. Free 2011 taxes Add lines 1 and 2. Free 2011 taxes You must file a U. Free 2011 taxes S. Free 2011 taxes income tax return if your gross income from sources outside the relevant possession is at least this amount   Table 4-1. Free 2011 taxes 2013 Filing Requirements Chart for Most Taxpayers IF your filing status is. Free 2011 taxes . Free 2011 taxes . Free 2011 taxes AND at the end of 2013 you were*. Free 2011 taxes . Free 2011 taxes . Free 2011 taxes THEN file a return if your gross income** was at least. Free 2011 taxes . Free 2011 taxes . Free 2011 taxes single under 65 $10,000 65 or older $11,500 married filing jointly*** under 65 (both spouses) $20,000 65 or older (one spouse) $21,200 65 or older (both spouses) $22,400 married filing separately any age $3,900 head of household under 65 $12,850 65 or older $14,350 qualifying widow(er)  with dependent child under 65 $16,100 65 or older $17,300 * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Free 2011 taxes ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States (even if you can exclude part or all of it). Free 2011 taxes Do not include social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time during 2013, or (b) one-half of your social security benefits plus your other gross income is more than $25,000 ($32,000 if married filing jointly). Free 2011 taxes If (a) or (b) applies, see the instructions for Form 1040 or Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure the taxable part of social security benefits you must include in gross income. Free 2011 taxes *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900 you must file a return regardless of your age. Free 2011 taxes Example 1. Free 2011 taxes James and Joan Thompson, one over 65, are U. Free 2011 taxes S. Free 2011 taxes citizens and bona fide residents of Puerto Rico during the entire tax year. Free 2011 taxes They file a joint income tax return. Free 2011 taxes During 2013, they received $35,000 of income from Puerto Rico sources (qualifies for exclusion) and $6,000 of income from sources outside Puerto Rico (subject to U. Free 2011 taxes S. Free 2011 taxes income tax). Free 2011 taxes Their allowable standard deduction for 2013 is figured as follows:   $6,000 $41,000 × $13,400 ( standard deduction for 65 or older (one spouse) ) = $1,961   The Thompsons do not have to file a U. Free 2011 taxes S. Free 2011 taxes income tax return because their gross income subject to U. Free 2011 taxes S. Free 2011 taxes tax ($6,000) is less than their allowable standard deduction plus their personal exemptions ($1,961+ $7,800= $9,761). Free 2011 taxes Example 2. Free 2011 taxes Barbara Spruce (see Example under Allowable standard deduction, earlier), however, must file a U. Free 2011 taxes S. Free 2011 taxes income tax return because her gross income subject to U. Free 2011 taxes S. Free 2011 taxes tax ($8,000) is more than her allowable standard deduction plus her personal exemption ($1,743 + $3,900 = $5,643). Free 2011 taxes If you must file a U. Free 2011 taxes S. Free 2011 taxes income tax return, you may be able to file a paperless return using IRS e-file. Free 2011 taxes See your form instructions or visit our website at IRS. Free 2011 taxes gov. Free 2011 taxes When To File If you file on a calendar year basis, the due date for filing your U. Free 2011 taxes S. Free 2011 taxes income tax return is April 15 following the end of your tax year. Free 2011 taxes If you use a fiscal year (a year ending on the last day of a month other than December), the due date is the 15th day of the 4th month after the end of your fiscal year. Free 2011 taxes If any due date falls on a Saturday, Sunday, or legal holiday, your tax return is due on the next business day. Free 2011 taxes For your 2013 tax return, the due date is April 15, 2014. Free 2011 taxes If you mail your federal tax return, it is considered timely if it bears an official postmark dated on or before the due date, including any extensions. Free 2011 taxes If you use a private delivery service designated by the IRS, generally the postmark date is the date the private delivery service records in its database or marks on the mailing label. Free 2011 taxes See your form instructions for a list of designated private delivery services. Free 2011 taxes Extension of Time To File You can get an extension of time to file your U. Free 2011 taxes S. Free 2011 taxes income tax return. Free 2011 taxes Special rules apply for those living outside the United States. Free 2011 taxes Automatic 6-Month Extension If you cannot file your 2013 return by the due date, you can get an automatic 6-month extension of time to file. Free 2011 taxes Example. Free 2011 taxes If your return must be filed by April 15, 2014, you will have until October 15, 2014, to file. Free 2011 taxes Although you are not required to make a payment of the tax you estimate as due, Form 4868 does not extend the time to pay taxes. Free 2011 taxes If you do not pay the amount due by the regular due date (generally April 15), you will owe interest on any unpaid tax from the original due date to the date you pay the tax. Free 2011 taxes You may also be charged penalties (see the Instructions for Form 4868). Free 2011 taxes How to get the automatic extension. Free 2011 taxes   You can get the automatic 6-month extension if you do one of the following by the due date for filing your return. Free 2011 taxes E-file Form 4868 using your personal computer or a tax professional. Free 2011 taxes E-file and pay by credit or debit card. Free 2011 taxes Your payment must be at least $1. Free 2011 taxes You may pay by phone or over the Internet. Free 2011 taxes Do not file Form 4868. Free 2011 taxes File a paper Form 4868. Free 2011 taxes If you are a fiscal year taxpayer, you must file a paper Form 4868. Free 2011 taxes See Form 4868 for information on getting an extension using these options. Free 2011 taxes When to file. Free 2011 taxes   You must request the automatic extension by the due date for your return. Free 2011 taxes You can file your return any time before the 6-month extension period ends. Free 2011 taxes When you file your return. Free 2011 taxes   Enter any payment you made related to the extension of time to file on Form 1040, line 68. Free 2011 taxes If you file Form 1040A, U. Free 2011 taxes S. Free 2011 taxes Individual Income Tax Return, or Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, include that payment in your total payments on Form 1040A, line 41, or Form 1040EZ, line 9. Free 2011 taxes Also enter “Form 4868” and the amount paid in the space to the left of the entry space for line 41 or line 9. Free 2011 taxes You cannot ask the Internal Revenue Service to figure your tax if you use the extension of time to file. Free 2011 taxes Individuals Outside the United States and Puerto Rico You are allowed an automatic 2-month extension (until June 16, 2014, if you use the calendar year) to file your 2013 return and pay any federal income tax due if: You are a U. Free 2011 taxes S. Free 2011 taxes citizen or resident, and On the due date of your return: You are living outside of the United States and Puerto Rico, and your main place of business or post of duty is outside the United States and Puerto Rico, or You are in military or naval service on duty outside the United States and Puerto Rico. Free 2011 taxes However, if you pay the tax due after the regular due date (generally April 15), interest will be charged from April 15 until the date the tax is paid. Free 2011 taxes If you serve in a combat zone or qualified hazardous duty area, you may be eligible for a longer extension of time to file. Free 2011 taxes For more information, see Publication 3, Armed Forces' Tax Guide. Free 2011 taxes Married taxpayers. Free 2011 taxes   If you file a joint return, only one spouse has to qualify for this automatic extension. Free 2011 taxes However, if you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies. Free 2011 taxes How to get the extension. Free 2011 taxes   To use this special automatic extension, you must attach a statement to your return explaining what situation qualified you for the extension. Free 2011 taxes (See the situations listed under (2), earlier. Free 2011 taxes ) Extension beyond 2 months. Free 2011 taxes   If you cannot file your 2013 return within the automatic 2-month extension period, you can get an additional 4-month extension, for a total of 6 months. Free 2011 taxes File Form 4868 by the end of the automatic extension period (June 16, 2014 for calendar year taxpayers). Free 2011 taxes Be sure to check the box on Form 4868, line 8, if appropriate. Free 2011 taxes   In addition to this 6-month extension, taxpayers who are out of the country (as defined under (2) earlier) can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). Free 2011 taxes   To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2 months. Free 2011 taxes Send the letter by the extended due date (October 15 for calendar year taxpayers) to:  Department of the Treasury Internal Revenue Service Austin, TX 73301-0215 USA   You will not receive any notification from the IRS unless your request is denied for being untimely. Free 2011 taxes Where To File Use the addresses listed below if you have to file Form 1040 with the United States and you are excluding possession income from American Samoa or Puerto Rico. Free 2011 taxes If you are not including a check or a money order, send your U. Free 2011 taxes S. Free 2011 taxes tax return and all attachments to:   Department of the Treasury Internal Revenue Service Austin, TX 73301-0215 USA If you are including a check or a money order, send your U. Free 2011 taxes S. Free 2011 taxes tax return and all attachments to:  Internal Revenue Service P. Free 2011 taxes O. Free 2011 taxes Box 1303 Charlotte, NC 28201-1303 USA Also send your U. Free 2011 taxes S. Free 2011 taxes return to these addresses if you are attaching Form 5074 or Form 8689. Free 2011 taxes If you are not in either of the above categories, send your return to the address shown in the Form 1040 instructions for the possession or state in which you reside. Free 2011 taxes Special Rules for Completing Your U. Free 2011 taxes S. Free 2011 taxes Tax Return If you are not excluding possession income from your U. Free 2011 taxes S. Free 2011 taxes tax return, follow the instructions for the specific forms you file. Free 2011 taxes However, you may not qualify to claim the earned income credit (EIC). Free 2011 taxes Earned income credit. Free 2011 taxes   Even if you maintain a household in one of the possessions discussed in this publication that is your main home and the home of your qualifying child, you cannot claim the earned income credit on your U. Free 2011 taxes S. Free 2011 taxes tax return. Free 2011 taxes This credit is available only if you maintain the household in the United States or you are serving on extended active duty in the U. Free 2011 taxes S. Free 2011 taxes Armed Forces. Free 2011 taxes U. Free 2011 taxes S. Free 2011 taxes Armed Forces. Free 2011 taxes   U. Free 2011 taxes S. Free 2011 taxes military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. Free 2011 taxes Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Free 2011 taxes Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. Free 2011 taxes Income from American Samoa or Puerto Rico excluded. Free 2011 taxes   You will not be allowed to take deductions and credits that apply to the excluded income. Free 2011 taxes The additional information you need follows. Free 2011 taxes Deductions if Possession Income Is Excluded Deductions that specifically apply to your excluded possession income, such as employee business expenses, are not allowable on your U. Free 2011 taxes S. Free 2011 taxes income tax return. Free 2011 taxes Deductions that do not specifically apply to any particular type of income must be divided between your excluded income from sources in the relevant possession and income from all other sources to find the part that you can deduct on your U. Free 2011 taxes S. Free 2011 taxes tax return. Free 2011 taxes Examples of such deductions are alimony payments, the standard deduction, and certain itemized deductions (such as medical expenses, charitable contributions, real estate taxes, and mortgage interest on your home). Free 2011 taxes Figuring the deduction. Free 2011 taxes   To find the part of a deduction that is allowable, multiply the deduction by the following fraction. Free 2011 taxes   Gross income subject to U. Free 2011 taxes S. Free 2011 taxes income tax     Gross income from all sources (including excluded possession income)   Adjustments to Income Your adjusted gross income equals your gross income minus certain deductions (adjustments). Free 2011 taxes Moving expense deduction. Free 2011 taxes   Generally, expenses of a move to a possession are directly attributable to wages, salaries, and other earned income from that possession. Free 2011 taxes Likewise, the expenses of a move back to the United States are generally attributable to U. Free 2011 taxes S. Free 2011 taxes earned income. Free 2011 taxes   If you are claiming expenses for a move to a relevant possession, how and where you will deduct the expenses depends on your status as a bona fide resident and if any of your possession income is excluded on your U. Free 2011 taxes S. Free 2011 taxes tax return. Free 2011 taxes For more information, see Moving expense deduction in chapter 3 under the name of the relevant possession. Free 2011 taxes   If you are claiming expenses for a move from a U. Free 2011 taxes S. Free 2011 taxes possession to the United States, use Form 3903 to figure your deductible expenses and enter the amount on Form 1040, line 26. Free 2011 taxes For purposes of deducting moving expenses, the possessions are considered part of the United States. Free 2011 taxes See Publication 521, Moving Expenses, for information about what expenses are deductible. Free 2011 taxes Self-employment tax deduction. Free 2011 taxes   Generally, if you are reporting self-employment income on your U. Free 2011 taxes S. Free 2011 taxes return, you can include the deductible part of your self-employment tax on Form 1040, line 27. Free 2011 taxes This is an income tax deduction only; it is not a deduction in figuring net earnings from self-employment (for self-employment tax). Free 2011 taxes   However, if you are a bona fide resident of American Samoa or Puerto Rico and you exclude all of your self-employment income from gross income, you cannot take the deduction on Form 1040, line 27, because the deduction is related to excluded income. Free 2011 taxes   If only part of your self-employment income is excluded, the part of the deduction that is based on the nonexcluded income is allowed. Free 2011 taxes This would happen if, for instance, you have two businesses and only the income from one of them is excludable. Free 2011 taxes   For purposes of the deduction only, figure the self-employment tax on the nonexcluded income by multiplying your total self-employment tax (from Schedule SE (Form 1040)), Self-Employment Tax) by the following fraction. Free 2011 taxes   Self-employment income subject to U. Free 2011 taxes S. Free 2011 taxes income tax     Total self-employment income (including excluded possession income)   The result is your self-employment tax on nonexcluded income. Free 2011 taxes Include the deductible part of this amount on Form 1040, line 27. Free 2011 taxes Individual retirement arrangement (IRA) deduction. Free 2011 taxes   Do not take excluded income into account when figuring your deductible IRA contribution. Free 2011 taxes Standard Deduction The standard deduction is composed of the regular standard deduction amount and the additional standard deduction for taxpayers who are blind or age 65 or over. Free 2011 taxes To find the amount you can claim on Form 1040, line 40, first figure your full standard deduction according to the Instructions for Form 1040. Free 2011 taxes Then multiply your full standard deduction by the following fraction. Free 2011 taxes   Gross income subject to U. Free 2011 taxes S. Free 2011 taxes income tax     Gross income from all sources (including excluded possession income)   In the space above line 40, enter “Standard deduction modified due to income excluded under section 931 (if American Samoa) or section 933 (if Puerto Rico). Free 2011 taxes ” This calculation may not be the same as the one you used to determine if you need to file a U. Free 2011 taxes S. Free 2011 taxes tax return. Free 2011 taxes Itemized Deductions Most itemized deductions do not apply to a particular type of income. Free 2011 taxes However, itemized deductions can be divided into three categories. Free 2011 taxes Those that apply specifically to excluded income, such as employee business expenses, are not deductible. Free 2011 taxes Those that apply specifically to income subject to U. Free 2011 taxes S. Free 2011 taxes income tax, which might also be employee business expenses, are fully allowable under the Instructions for Schedule A (Form 1040), Itemized Deductions. Free 2011 taxes Those that do not apply to specific income must be allocated between your gross income subject to U. Free 2011 taxes S. Free 2011 taxes income tax and your total gross income from all sources. Free 2011 taxes The example given later shows how to figure the deductible part of each type of expense that is not related to specific income. Free 2011 taxes Example. Free 2011 taxes In 2013, you and your spouse are both under 65 and U. Free 2011 taxes S. Free 2011 taxes citizens who are bona fide residents of Puerto Rico during the entire tax year. Free 2011 taxes You file a joint income tax return. Free 2011 taxes During 2013, you earned $20,000 from Puerto Rican sources (excluded from U. Free 2011 taxes S. Free 2011 taxes gross income) and your spouse earned $60,000 from the U. Free 2011 taxes S. Free 2011 taxes Government. Free 2011 taxes You have $16,000 of itemized deductions that do not apply to any specific type of income. Free 2011 taxes These are medical expenses of $4,000, real estate taxes of $5,000, home mortgage interest of $6,000, and charitable contributions of $1,000 (cash contributions). Free 2011 taxes You determine the amount of each deduction that you can claim on your Schedule A (Form 1040), Itemized Deductions, by multiplying the deduction by the fraction shown under Figuring the deduction , earlier under Deductions if Possession Income is Excluded. Free 2011 taxes   Medical Expenses   $60,000$80,000 × $4,000 = $3,000  (enter on line 1  of Schedule A)     Real Estate Taxes   $60,000$80,000 × $5,000 = $3,750  (enter on line 6  of Schedule A)     Home Mortgage Interest   $60,000$80,000 × $6,000 = $4,500  (enter on line 10 or 11 of  Schedule A)     Charitable Contributions (cash contributions)   $60,000$80,000 × $1,000 = $750  (enter on line 16 of Schedule A)   Enter on Schedule A (Form 1040) only the allowable portion of each deduction. Free 2011 taxes Overall limitation on itemized deductions. Free 2011 taxes   If your adjusted gross income (discussed earlier) is over $300,000 if married filing jointly or qualifying widow(er); $275,000 if head of household; $250,000 if single; or $150,000 if married filing separately; see the Itemized Deductions Worksheet in the Instructions for Schedule A (Form 1040), to figure your itemized deductions. Free 2011 taxes Personal Exemptions Personal exemptions are allowed in full even if excluding possession income. Free 2011 taxes However, depending upon your adjusted gross income and filing status, the amount you can deduct may be reduced. Free 2011 taxes See the Deduction for Exemptions Worksheet—Line 42 in the instructions for Form 1040. Free 2011 taxes Foreign Tax Credit if Possession Income Is Excluded If you must report American Samoa or Puerto Rico source income on your U. Free 2011 taxes S. Free 2011 taxes tax return, you can claim a foreign tax credit for income taxes paid to the possession on that income. Free 2011 taxes However, you cannot claim a foreign tax credit for taxes paid on possession income that is excluded on your U. Free 2011 taxes S. Free 2011 taxes tax return. Free 2011 taxes The foreign tax credit is generally figured on Form 1116. Free 2011 taxes If you have income, such as U. Free 2011 taxes S. Free 2011 taxes Government wages, that is not excludable, and you also have possession source income that is excludable, you must figure the credit by reducing your foreign taxes paid or accrued by the taxes based on the excluded income. Free 2011 taxes You make this reduction for each separate income category. Free 2011 taxes To find the amount of this reduction, use the following formula for each income category. Free 2011 taxes Excluded income from possession sources less deductible expenses based on that income x Tax paid or accrued to the possession = Reduction in foreign taxes Total income subject to possession tax less deductible expenses based on that income Enter the amount of the reduction on Form 1116, line 12. Free 2011 taxes For more information on the foreign tax credit, see Publication 514. Free 2011 taxes Example. Free 2011 taxes Jason and Lynn Reddy are U. Free 2011 taxes S. Free 2011 taxes citizens who were bona fide residents of Puerto Rico during all of 2013. Free 2011 taxes They file a joint tax return. Free 2011 taxes The following table shows their excludable and taxable income for U. Free 2011 taxes S. Free 2011 taxes federal income tax purposes. Free 2011 taxes   Taxable   Excludable Jason's wages from  U. Free 2011 taxes S. Free 2011 taxes Government $25,000     Lynn's wages from Puerto Rico  corp. Free 2011 taxes     $15,000 Dividend from Puerto Rico corp. Free 2011 taxes doing business in Puerto Rico     200 Dividend from U. Free 2011 taxes S. Free 2011 taxes  corp. Free 2011 taxes doing business  in U. Free 2011 taxes S. Free 2011 taxes * 1,000     Totals $26,000   $15,200 * Income from sources outside Puerto Rico is taxable. Free 2011 taxes   Jason and Lynn must file 2013 income tax returns with both Puerto Rico and the United States. Free 2011 taxes They have gross income of $26,000 for U. Free 2011 taxes S. Free 2011 taxes tax purposes. Free 2011 taxes They paid taxes to Puerto Rico of $4,000 ($3,980 on their wages and $20 on the dividend from the Puerto Rico corporation). Free 2011 taxes They figure their foreign tax credit on two Forms 1116, which they must attach to their U. Free 2011 taxes S. Free 2011 taxes return. Free 2011 taxes They fill out one Form 1116 for wages and one Form 1116 for the dividend. Free 2011 taxes Jason and Lynn figure the Puerto Rico taxes on excluded income as follows. Free 2011 taxes   Wages: ($15,000 ÷ $40,000) × $3,980 = $1,493   Dividend: ($200 ÷ $200) × $20 = $20 They enter $1,493 on Form 1116, line 12, for wages and $20 on the second Form 1116, line 12, for the dividend. Free 2011 taxes Self-Employment Tax Self-employment tax includes both social security and Medicare taxes for individuals who are self-employed. Free 2011 taxes A U. Free 2011 taxes S. Free 2011 taxes citizen or resident alien who is self-employed must pay self-employment tax on net self-employment earnings of $400 or more. Free 2011 taxes This rule applies whether or not the earnings are excludable from gross income (or whether or not a U. Free 2011 taxes S. Free 2011 taxes income tax return must otherwise be filed). Free 2011 taxes Bona fide residents of the possessions discussed in this publication are considered U. Free 2011 taxes S. Free 2011 taxes residents for this purpose and are subject to the self-employment tax. Free 2011 taxes Forms to file. Free 2011 taxes   If you have net self-employment income and are subject to self-employment tax, file one of the following with the United States. Free 2011 taxes If you are required to file Form 1040 with the United States, complete Schedule SE (Form 1040) and attach it to your Form 1040. Free 2011 taxes If you are not required to file Form 1040 with the United States and you are a bona fide resident of American Samoa, the CNMI, Guam, Puerto Rico, or the USVI, file Form 1040-SS. Free 2011 taxes If you are a resident of Puerto Rico, you can file the Spanish-language Form 1040-PR instead. Free 2011 taxes Do not file forms 1040-SS or 1040-PR with Form 1040. Free 2011 taxes If you are required to pay Additional Medicare Tax (discussed later) on your self-employment income, attach Form 8959, Additional Medicare Tax to Form 1040, Form 1040-SS, or Form 1040-PR, as applicable. Free 2011 taxes Chapter 11 Bankruptcy cases. Free 2011 taxes   While you are a debtor in a chapter 11 bankruptcy case, your net profit or loss from self-employment will be included on the income tax return (Form 1041, U. Free 2011 taxes S. Free 2011 taxes Income Tax Return for Estates and Trusts) of the bankruptcy estate. Free 2011 taxes However, you—not the bankruptcy estate—are responsible for paying self-employment tax on your net earnings from self-employment. Free 2011 taxes   Use Schedule SE (Form 1040), Form 1040-SS, or Form 1040-PR, as determined above, to figure your correct amount of self-employment tax. Free 2011 taxes   For other reporting requirements, see Chapter 11 Bankruptcy Cases in the Instructions for Form 1040. Free 2011 taxes Additional Medicare Tax Beginning in 2013, a 0. Free 2011 taxes 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 if single, head of household, or qualifying widow(er). Free 2011 taxes Medicare wages and self-employment income are combined to determine if income exceeds the threshold. Free 2011 taxes A self-employment loss should not be considered for purposes of this tax. Free 2011 taxes RRTA compensation should be separately compared to the threshold. Free 2011 taxes Your employer is responsible for withholding the 0. Free 2011 taxes 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000. Free 2011 taxes You should consider this withholding, if applicable, in determining whether you need to make estimated tax payments. Free 2011 taxes There are no special rules for U. Free 2011 taxes S. Free 2011 taxes citizens and nonresident aliens living abroad for purposes of this provision. Free 2011 taxes Wages, RRTA compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold. Free 2011 taxes For more information, see Form 8959, Additional Medicare Tax, and its instructions or visit www. Free 2011 taxes irs. Free 2011 taxes gov and enter the following words in the search box: Additional Medicare Tax. Free 2011 taxes You cannot include the Additional Medicare Tax as a deductible part of your self-employment tax. Free 2011 taxes Net Investment Income Tax Beginning in 2013, the Net Investment Income Tax (NIIT) imposes a 3. Free 2011 taxes 8% tax on the lesser of an individual’s net investment income or the excess of the individual’s modified adjusted gross income over a specified threshold amount. Free 2011 taxes Bona fide residents of Puerto Rico and American Samoa who may have a federal income tax return filing obligation may be liable for the NIIT if the taxpayer’s modified adjusted gross income from non-territory sources exceeds a specified threshold amount. Free 2011 taxes The NIIT does not apply to any individual who is a nonresident alien with respect to the United States. Free 2011 taxes Bona fide residents must take into account any additional tax liability associated with the NIIT when calculating your estimated tax payments. Free 2011 taxes Forms to file. Free 2011 taxes   If you are a bona fide resident of American Samoa and Puerto Rico and you are required to pay the NIIT, you must file Form 1040 with the United States and attach Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts. Free 2011 taxes For more information, see Form 8960 and its instructions. Free 2011 taxes Paying Your Taxes You may find that not all of your income tax has been paid through withholding by either the United States or the possession. Free 2011 taxes This is often true if you have income that is not subject to withholding, such as self-employment, interest, or rental income. Free 2011 taxes In this situation, you may need to make estimated tax payments. Free 2011 taxes Estimated Tax If your estimated income tax obligation is to the United States, use the worksheet in the Form 1040-ES package to figure your estimated tax, including self-employment tax. Free 2011 taxes Include the Additional Medicare Tax and Net Investment Income Tax if applicable. Free 2011 taxes If you are paying by check or money order, use the payment vouchers in the Form 1040-ES package. Free 2011 taxes Or, you can make your payments electronically and not have to file any paper forms. Free 2011 taxes See the Form 1040-ES instructions for information on making payments. Free 2011 taxes Double Taxation Mutual agreement procedures exist to settle issues where there is inconsistent tax treatment between the IRS and the taxing authorities of the following possessions. Free 2011 taxes American Samoa. Free 2011 taxes The Commonwealth of Puerto Rico. Free 2011 taxes The Commonwealth of the Northern Mariana Islands. Free 2011 taxes Guam. Free 2011 taxes The U. Free 2011 taxes S. Free 2011 taxes Virgin Islands. Free 2011 taxes These issues usually involve allocations of income, deductions, credits, or allowances between related persons; determinations of residency; and determinations of the source of income and related expenses. Free 2011 taxes Competent Authority Assistance The tax coordination agreements between the United States and the possession tax departments contain provisions allowing the competent authorities of the United States and the relevant possession to resolve, by mutual agreement, inconsistent tax treatment by the two jurisdictions. Free 2011 taxes How to make your request. Free 2011 taxes   Your request for competent authority assistance must include all the information listed in Revenue Procedure 2006-23, 2006-20 I. Free 2011 taxes R. Free 2011 taxes B. Free 2011 taxes 900 available at www. Free 2011 taxes irs. Free 2011 taxes gov/pub/irs-irbs/irb06-49. Free 2011 taxes pdf. Free 2011 taxes    Also, see Notice 2013-78, which provides proposed updates to the procedures for requesting U. Free 2011 taxes S. Free 2011 taxes competent authority assistance under tax treaties. Free 2011 taxes As noted, an update to Revenue Procedure 2006-23 will be published in the future. Free 2011 taxes   Your request must be in the form of a letter addressed to the Deputy Commissioner (International) LB&I. Free 2011 taxes It must contain a statement that competent authority assistance is requested under the mutual agreement procedure with the possession. Free 2011 taxes You (or a person having authority to sign your federal return) must sign and date the request. Free 2011 taxes    Send your written request for U. Free 2011 taxes S. Free 2011 taxes assistance under this procedure to:   Deputy Commissioner (International) Large Business and International Division Internal Revenue Service 1111 Constitution Avenue, N. Free 2011 taxes W. Free 2011 taxes  Routing: M4-365 Washington, DC 20224 (Attention: TAIT) Nonresident aliens generally must present their initial request for assistance to the relevant possession tax agency. Free 2011 taxes Credit or Refund In addition to the tax assistance request, if you seek a credit or refund of any overpayment of U. Free 2011 taxes S. Free 2011 taxes tax paid on the income in question, you should file a claim on Form 1040X, Amended U. Free 2011 taxes S. Free 2011 taxes Individual Income Tax Return. Free 2011 taxes Indicate on the form that a request for assistance under the mutual agreement procedure with the possession has been filed. Free 2011 taxes Attach a copy of the request to the form. Free 2011 taxes Also, you should take whatever steps must be taken under the possession tax code to prevent the expiration of the statutory period for filing a claim for credit or refund of a possession tax. Free 2011 taxes See Revenue Procedure 2006-54 (or its successor), section 9, for complete information. Free 2011 taxes Prev  Up  Next   Home   More Online Publications
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Understanding Your CP102 Notice

We made changes to your return because we believe there’s a miscalculation. You owe money on your taxes as a result of these changes.


What you need to do

  • Read your notice carefully—it will explain why you owe.
  • Compare the figures on the notice with your tax return.
  • Pay the amount owed by the date on the notice’s payment coupon.
  • Make payment arrangements if you can’t pay the full amount you owe.
  • Contact us within 60 days of the date of your notice if you disagree with the change(s) we made.
  • If you agree with our change(s), correct the copy of your tax return that you kept for your records.

You may want to...


  • Answers to common questions

    How can I find out what caused my tax return to change?
    Please contact us at the number listed on your notice for specific information about your tax return.

    What should I do if I disagree with the changes you made?
    If you disagree, contact us at the toll free number listed on the top right corner of your notice. If you contact us in writing within 60 days of the date of this notice, we’ll reverse the change we made to your account. However, if you’re unable to provide us additional information that justifies the reversal and we believe the reversal is in error, we’ll forward your case for audit. This step gives you formal appeal rights, including the right to appeal our decision in court before you have to pay the additional tax. After we forward your case, the audit staff will contact you within five to six weeks to fully explain the audit process and your rights. If you don’t contact us within the 60-day period, you’ll lose your right to appeal our decision before payment of tax. If you don’t contact us within 60 days, the change won’t be reversed and you must pay the additional tax. You may then file a claim for refund. You must submit the claim within three years of the date you filed the tax return, or within two years of the date of your last payment for this tax.

    What happens if I can’t pay the full amount I owe?
    You can arrange to make a payment plan with us if you can’t pay the full amount you owe.

    Am I charged interest on the money I owe?
    Not if you pay the full amount you owe by the date on the payment coupon. However interest accrues on the unpaid balance after that date.

    Will I receive a penalty if I can’t pay the full amount?
    Yes, you will receive a late payment penalty. You can contact us at the number given on your notice if you’re unable to pay the full amount shown in your specific notice because of circumstances beyond your control. Contact us by the due date of your payment and, depending on your situation, we may be able to remove the penalty.


    Tips for next year

    Consider filing your taxes electronically. Filing online can help you to avoid mistakes and to find credits and deductions for which you may qualify. In many cases you can file electronically for free. Learn more about e-file.

Page Last Reviewed or Updated: 24-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Free 2011 Taxes

Free 2011 taxes 1. Free 2011 taxes   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Free 2011 taxes  You can set up and make contributions to an IRA if you receive taxable compensation. Free 2011 taxes Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Free 2011 taxes For more information about IRAs, see Publication 590. Free 2011 taxes Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Free 2011 taxes The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Free 2011 taxes Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Free 2011 taxes Many types of educational assistance are tax free if they meet the requirements discussed here. Free 2011 taxes Special rules apply to U. Free 2011 taxes S. Free 2011 taxes citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Free 2011 taxes For information about these rules, see Publication 54, Tax Guide for U. Free 2011 taxes S. Free 2011 taxes Citizens and Resident Aliens Abroad. Free 2011 taxes Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Free 2011 taxes A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Free 2011 taxes Amount of scholarship or fellowship. Free 2011 taxes   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Free 2011 taxes This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Free 2011 taxes The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Free 2011 taxes Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Free 2011 taxes Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Free 2011 taxes A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Free 2011 taxes (But for exceptions, see Payment for services,later. Free 2011 taxes Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Free 2011 taxes Candidate for a degree. Free 2011 taxes   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Free 2011 taxes Eligible educational institution. Free 2011 taxes   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Free 2011 taxes Qualified education expenses. Free 2011 taxes   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Free 2011 taxes These items must be required of all students in your course of instruction. Free 2011 taxes Expenses that do not qualify. Free 2011 taxes   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Free 2011 taxes Payment for services. Free 2011 taxes   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Free 2011 taxes This applies even if all candidates for a degree must perform the services to receive the degree. Free 2011 taxes (See exceptions next. Free 2011 taxes ) Exceptions. Free 2011 taxes   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Free 2011 taxes Example 1. Free 2011 taxes You received a scholarship of $2,500. Free 2011 taxes The scholarship was not received under either of the exceptions mentioned above. Free 2011 taxes As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Free 2011 taxes Of the $2,500 scholarship, $1,000 represents payment for teaching. Free 2011 taxes The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Free 2011 taxes Your qualified education expenses were at least $1,500. Free 2011 taxes Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Free 2011 taxes The $1,000 you received for teaching is taxable. Free 2011 taxes Example 2. Free 2011 taxes You are a candidate for a degree at a medical school. Free 2011 taxes You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Free 2011 taxes The terms of your scholarship require you to perform future services. Free 2011 taxes A substantial penalty applies if you do not comply. Free 2011 taxes The entire amount of your grant is taxable as payment for services in the year it is received. Free 2011 taxes Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Free 2011 taxes Worksheet 1-1. Free 2011 taxes    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Free 2011 taxes    Worksheet 1-1. Free 2011 taxes Taxable Scholarship and Fellowship Income 1. Free 2011 taxes Enter the total amount of any scholarship or fellowship for 2013. Free 2011 taxes See Amount of scholarship or fellowship, earlier. Free 2011 taxes 1. Free 2011 taxes       If you are a degree candidate at an eligible educational institution, go to line 2. Free 2011 taxes If you are not a degree candidate at an eligible educational institution, stop here. Free 2011 taxes The entire amount is taxable. Free 2011 taxes For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Free 2011 taxes       2. Free 2011 taxes Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Free 2011 taxes (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Free 2011 taxes ) 2. Free 2011 taxes     3. Free 2011 taxes Subtract line 2 from line 1 3. Free 2011 taxes     4. Free 2011 taxes Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Free 2011 taxes     5. Free 2011 taxes Subtract line 4 from line 3 5. Free 2011 taxes     6. Free 2011 taxes Enter the amount of your qualified education expenses 6. Free 2011 taxes     7. Free 2011 taxes Enter the smaller of line 5 or line 6. Free 2011 taxes This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Free 2011 taxes     8. Free 2011 taxes Subtract line 7 from line 5 8. Free 2011 taxes     9. Free 2011 taxes Taxable part. Free 2011 taxes Add lines 2, 4, and 8. Free 2011 taxes See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Free 2011 taxes     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Free 2011 taxes You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Free 2011 taxes Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Free 2011 taxes If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Free 2011 taxes If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Free 2011 taxes You must report the taxable amount whether or not you received a Form W-2. Free 2011 taxes If you receive an incorrect Form W-2, ask the payer for a corrected one. Free 2011 taxes For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Free 2011 taxes How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Free 2011 taxes Form 1040EZ. Free 2011 taxes   If you file Form 1040EZ, include the taxable amount in the total on line 1. Free 2011 taxes If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Free 2011 taxes Form 1040A. Free 2011 taxes   If you file Form 1040A, include the taxable amount in the total on line 7. Free 2011 taxes If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Free 2011 taxes Form 1040. Free 2011 taxes   If you file Form 1040, include the taxable amount in the total on line 7. Free 2011 taxes If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Free 2011 taxes Schedule SE (Form 1040). Free 2011 taxes   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Free 2011 taxes If your net earnings are $400 or more, you must pay self-employment tax. Free 2011 taxes Use Schedule SE, Self-Employment Tax, to figure this tax. Free 2011 taxes Form 1040NR. Free 2011 taxes   If you file Form 1040NR, report the taxable amount on line 12. Free 2011 taxes Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Free 2011 taxes S. Free 2011 taxes Source Income Subject to Withholding. Free 2011 taxes See the Instructions for Form 1040NR for more information. Free 2011 taxes Form 1040NR-EZ. Free 2011 taxes   If you file Form 1040NR-EZ, report the taxable amount on line 5. Free 2011 taxes Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Free 2011 taxes See the Instructions for Form 1040NR-EZ for more information. Free 2011 taxes Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Free 2011 taxes Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Free 2011 taxes Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Free 2011 taxes They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Free 2011 taxes Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Free 2011 taxes Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Free 2011 taxes Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Free 2011 taxes Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Free 2011 taxes Do not include these payments as income on your federal tax return. Free 2011 taxes If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Free 2011 taxes This applies only to the part of your VA payments that is required to be used for education expenses. Free 2011 taxes You may want to visit the Veteran's Administration website at www. Free 2011 taxes gibill. Free 2011 taxes va. Free 2011 taxes gov for specific information about the various VA benefits for education. Free 2011 taxes Example. Free 2011 taxes You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Free 2011 taxes Neither of these benefits is taxable and you do not report them on your tax return. Free 2011 taxes You also want to claim an American opportunity credit on your return. Free 2011 taxes You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Free 2011 taxes To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Free 2011 taxes You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Free 2011 taxes Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Free 2011 taxes This is called a “tuition reduction. Free 2011 taxes ” You do not have to include a qualified tuition reduction in your income. Free 2011 taxes A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Free 2011 taxes You do not have to use the tuition reduction at the eligible educational institution from which you received it. Free 2011 taxes In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Free 2011 taxes The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Free 2011 taxes You must include in your income any tuition reduction you receive that is payment for your services. Free 2011 taxes Eligible educational institution. Free 2011 taxes   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Free 2011 taxes Officers, owners, and highly compensated employees. Free 2011 taxes   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Free 2011 taxes This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Free 2011 taxes The group must be defined under a reasonable classification set up by the employer. Free 2011 taxes The classification must not discriminate in favor of owners, officers, or highly compensated employees. Free 2011 taxes Payment for services. Free 2011 taxes   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Free 2011 taxes This applies even if all candidates for a degree must perform the services to receive the degree. Free 2011 taxes (See below for exceptions. Free 2011 taxes ) Exceptions. Free 2011 taxes   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Free 2011 taxes Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Free 2011 taxes You are an employee of the eligible educational institution. Free 2011 taxes You were an employee of the eligible educational institution, but you retired or left on disability. Free 2011 taxes You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Free 2011 taxes You are the dependent child or spouse of an individual described in (1) through (3), above. Free 2011 taxes Child of deceased parents. Free 2011 taxes   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Free 2011 taxes Child of divorced parents. Free 2011 taxes   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Free 2011 taxes Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Free 2011 taxes It is provided by an eligible educational institution. Free 2011 taxes You are a graduate student who performs teaching or research activities for the educational institution. Free 2011 taxes You must include in income any other tuition reductions for graduate education that you receive. Free 2011 taxes How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Free 2011 taxes Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Free 2011 taxes Prev  Up  Next   Home   More Online Publications