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Free H&r Block Tax Software

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Free H&r Block Tax Software

Free h&r block tax software 2. Free h&r block tax software   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. Free h&r block tax software You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. Free h&r block tax software This chapter discusses accounting methods. Free h&r block tax software For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. Free h&r block tax software Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. Free h&r block tax software Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. Free h&r block tax software Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Free h&r block tax software A material item is one that affects the proper time for inclusion of income or allowance of a deduction. Free h&r block tax software An item considered material for financial statement purposes is generally also considered material for income tax purposes. Free h&r block tax software See Publication 538 for more information. Free h&r block tax software You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. Free h&r block tax software If you later want to change your accounting method, you generally must get IRS approval. Free h&r block tax software How to obtain IRS approval is discussed later under Changes in Methods of Accounting . Free h&r block tax software Types of accounting methods. Free h&r block tax software   Generally, you can use any of the following accounting methods. Free h&r block tax software Each method is discussed in detail below. Free h&r block tax software Cash method. Free h&r block tax software Accrual method. Free h&r block tax software Special methods of accounting for certain items of income and expenses. Free h&r block tax software Combination (hybrid) method using elements of two or more of the above. Free h&r block tax software Business and other items. Free h&r block tax software   You can account for business and personal items using different accounting methods. Free h&r block tax software For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. Free h&r block tax software Two or more businesses. Free h&r block tax software   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Free h&r block tax software Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. Free h&r block tax software Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. Free h&r block tax software However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. Free h&r block tax software See Accrual Method Required , later. Free h&r block tax software Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. Free h&r block tax software Items of income include money received as well as property or services received. Free h&r block tax software If you receive property or services, you must include the fair market value (FMV) of the property or services in income. Free h&r block tax software See chapter 3 for information on how to report farm income on your income tax return. Free h&r block tax software Constructive receipt. Free h&r block tax software   Income is constructively received when an amount is credited to your account or made available to you without restriction. Free h&r block tax software You do not need to have possession of the income for it to be treated as income for the tax year. Free h&r block tax software If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. Free h&r block tax software Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. Free h&r block tax software Direct payments and counter-cyclical payments. Free h&r block tax software   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. Free h&r block tax software Delaying receipt of income. Free h&r block tax software   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. Free h&r block tax software You must report the income in the year the money or property is received or made available to you without restriction. Free h&r block tax software Example. Free h&r block tax software Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. Free h&r block tax software She was told in December that her payment was available. Free h&r block tax software She requested not to be paid until January 2014. Free h&r block tax software However, she must still include this payment in her 2013 income because it was made available to her in 2013. Free h&r block tax software Debts paid by another person or canceled. Free h&r block tax software   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. Free h&r block tax software If you receive income in this way, you constructively receive the income when the debt is canceled or paid. Free h&r block tax software See Cancellation of Debt in chapter 3. Free h&r block tax software Deferred payment contract. Free h&r block tax software   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. Free h&r block tax software However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. Free h&r block tax software Example. Free h&r block tax software You are a farmer who uses the cash method and a calendar tax year. Free h&r block tax software You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. Free h&r block tax software You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. Free h&r block tax software However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. Free h&r block tax software Repayment of income. Free h&r block tax software   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. Free h&r block tax software If the repayment is more than $3,000, a special rule applies. Free h&r block tax software For details, see Repayments in chapter 11 of Publication 535, Business Expenses. Free h&r block tax software Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. Free h&r block tax software This includes business expenses for which you contest liability. Free h&r block tax software However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. Free h&r block tax software See chapter 4 for information on how to deduct farm business expenses on your income tax return. Free h&r block tax software Prepayment. Free h&r block tax software   Generally, you cannot deduct expenses paid in advance. Free h&r block tax software This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Free h&r block tax software Example. Free h&r block tax software On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. Free h&r block tax software In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. Free h&r block tax software In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. Free h&r block tax software An exception applies if the expense qualifies for the 12-month rule. Free h&r block tax software See Publication 538 for more information and examples. Free h&r block tax software See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. Free h&r block tax software Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. Free h&r block tax software The purpose of an accrual method of accounting is to correctly match income and expenses. Free h&r block tax software Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. Free h&r block tax software See Accrual Method Required and Farm Inventory , later. Free h&r block tax software Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. Free h&r block tax software Under this rule, include an amount in income on the earliest of the following dates. Free h&r block tax software When you receive payment. Free h&r block tax software When the income amount is due to you. Free h&r block tax software When you earn the income. Free h&r block tax software When title passes. Free h&r block tax software If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. Free h&r block tax software Inventory. Free h&r block tax software   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. Free h&r block tax software An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Free h&r block tax software See Publication 538 for more information. Free h&r block tax software Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. Free h&r block tax software Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. Free h&r block tax software The all-events test has been met. Free h&r block tax software This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. Free h&r block tax software Economic performance has occurred. Free h&r block tax software Economic performance. Free h&r block tax software   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Free h&r block tax software If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. Free h&r block tax software If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Free h&r block tax software Example. Free h&r block tax software Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. Free h&r block tax software She entered into a contract with ABC Farm Consulting in 2012. Free h&r block tax software The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. Free h&r block tax software It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. Free h&r block tax software Jane paid ABC Farm Consulting $2,000 in December 2012. Free h&r block tax software Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. Free h&r block tax software Economic performance for Jane's liability in the contract occurs as the services are provided. Free h&r block tax software Jane incurs the $2,000 cost in 2013. Free h&r block tax software An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. Free h&r block tax software For more information, see Economic Performance in Publication 538. Free h&r block tax software Special rule for related persons. Free h&r block tax software   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Free h&r block tax software Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Free h&r block tax software For more information, see Internal Revenue Code section 267. Free h&r block tax software Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. Free h&r block tax software A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. Free h&r block tax software A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. Free h&r block tax software A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. Free h&r block tax software A tax shelter. Free h&r block tax software Note. Free h&r block tax software Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). Free h&r block tax software Family corporation. Free h&r block tax software   A family corporation is generally a corporation that meets one of the following ownership requirements. Free h&r block tax software Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. Free h&r block tax software Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. Free h&r block tax software Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. Free h&r block tax software For more information on family corporations, see Internal Revenue Code section 447. Free h&r block tax software Tax shelter. Free h&r block tax software   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. Free h&r block tax software Its principal purpose is the avoidance or evasion of federal income tax. Free h&r block tax software It is a farming syndicate. Free h&r block tax software A farming syndicate is an entity that meets either of the following tests. Free h&r block tax software Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. Free h&r block tax software More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. Free h&r block tax software   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. Free h&r block tax software   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. Free h&r block tax software Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. Free h&r block tax software This record should show the actual count or measurement of the inventory. Free h&r block tax software It should also show all factors that enter into its valuation, including quality and weight, if applicable. Free h&r block tax software Hatchery business. Free h&r block tax software   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. Free h&r block tax software Products held for sale. Free h&r block tax software   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. Free h&r block tax software , must be included in inventory. Free h&r block tax software Supplies. Free h&r block tax software   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. Free h&r block tax software Deduct the cost of supplies in the year used or consumed in operations. Free h&r block tax software Do not include incidental supplies in inventory as these are deductible in the year of purchase. Free h&r block tax software Livestock. Free h&r block tax software   Livestock held primarily for sale must be included in inventory. Free h&r block tax software Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. Free h&r block tax software See also Unit-livestock-price method , later. Free h&r block tax software If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. Free h&r block tax software Growing crops. Free h&r block tax software   Generally, growing crops are not required to be included in inventory. Free h&r block tax software However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. Free h&r block tax software See Uniform capitalization rules below. Free h&r block tax software Also see Uniform Capitalization Rules in  chapter 6. Free h&r block tax software Items to include in inventory. Free h&r block tax software   Your inventory should include all items held for sale, or for use as feed, seed, etc. Free h&r block tax software , whether raised or purchased, that are unsold at the end of the year. Free h&r block tax software Uniform capitalization rules. Free h&r block tax software   The following applies if you are required to use an accrual method of accounting. Free h&r block tax software The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. Free h&r block tax software The costs of animals are subject to the uniform capitalization rules. Free h&r block tax software Inventory valuation methods. Free h&r block tax software   The following methods, described below, are those generally available for valuing inventory. Free h&r block tax software The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Free h&r block tax software Cost. Free h&r block tax software Lower of cost or market. Free h&r block tax software Farm-price method. Free h&r block tax software Unit-livestock-price method. Free h&r block tax software Cost and lower of cost or market methods. Free h&r block tax software   See Publication 538 for information on these valuation methods. Free h&r block tax software If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. Free h&r block tax software However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. Free h&r block tax software Farm-price method. Free h&r block tax software   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. Free h&r block tax software Market price is the current price at the nearest market in the quantities you usually sell. Free h&r block tax software Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. Free h&r block tax software If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. Free h&r block tax software Unit-livestock-price method. Free h&r block tax software   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. Free h&r block tax software You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. Free h&r block tax software The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. Free h&r block tax software Unit prices and classifications are subject to approval by the IRS on examination of your return. Free h&r block tax software You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. Free h&r block tax software IRS approval is not required for these adjustments. Free h&r block tax software Any other changes in unit prices or classifications do require IRS approval. Free h&r block tax software   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. Free h&r block tax software This method accounts only for the increase in cost of raising an animal to maturity. Free h&r block tax software It does not provide for any decrease in the animal's market value after it reaches maturity. Free h&r block tax software Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. Free h&r block tax software   Do not include sold or lost animals in the year-end inventory. Free h&r block tax software If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. Free h&r block tax software The animals on hand at the end of the year are considered those most recently acquired. Free h&r block tax software   You must include in inventory all livestock purchased primarily for sale. Free h&r block tax software You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. Free h&r block tax software However, you must be consistent from year to year, regardless of the method you have chosen. Free h&r block tax software You cannot change your method without obtaining approval from the IRS. Free h&r block tax software   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. Free h&r block tax software If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. Free h&r block tax software However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. Free h&r block tax software This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. Free h&r block tax software It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. Free h&r block tax software Uniform capitalization rules. Free h&r block tax software   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. Free h&r block tax software This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. Free h&r block tax software Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. Free h&r block tax software Example 1. Free h&r block tax software You are a farmer who uses an accrual method of accounting. Free h&r block tax software You keep your books on the calendar year basis. Free h&r block tax software You sell grain in December 2013 but you are not paid until January 2014. Free h&r block tax software Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. Free h&r block tax software Example 2. Free h&r block tax software Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. Free h&r block tax software Under this method, you include the sales proceeds in income for 2014, the year you receive payment. Free h&r block tax software Deduct the costs of producing the grain in the year you pay for them. Free h&r block tax software Special Methods of Accounting There are special methods of accounting for certain items of income and expense. Free h&r block tax software Crop method. Free h&r block tax software   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. Free h&r block tax software You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. Free h&r block tax software Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. Free h&r block tax software    See chapter 4 for details on deducting the costs of operating a farm. Free h&r block tax software Also see Regulations section 1. Free h&r block tax software 162-12. Free h&r block tax software Other special methods. Free h&r block tax software   Other special methods of accounting apply to the following items. Free h&r block tax software Amortization, see chapter 7. Free h&r block tax software Casualties, see chapter 11. Free h&r block tax software Condemnations, see chapter 11. Free h&r block tax software Depletion, see chapter 7. Free h&r block tax software Depreciation, see chapter 7. Free h&r block tax software Farm business expenses, see chapter 4. Free h&r block tax software Farm income, see chapter 3. Free h&r block tax software Installment sales, see chapter 10. Free h&r block tax software Soil and water conservation expenses, see chapter 5. Free h&r block tax software Thefts, see chapter 11. Free h&r block tax software Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. Free h&r block tax software However, the following restrictions apply. Free h&r block tax software If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. Free h&r block tax software If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Free h&r block tax software Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). Free h&r block tax software Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. Free h&r block tax software You may also have to pay a fee. Free h&r block tax software To obtain approval, you must generally file Form 3115. Free h&r block tax software There are instances when you can obtain automatic consent to change certain methods of accounting. Free h&r block tax software See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. Free h&r block tax software For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. Free h&r block tax software Also see Publication 538. Free h&r block tax software Prev  Up  Next   Home   More Online Publications
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The Free H&r Block Tax Software

Free h&r block tax software Publication 575 - Main Content Table of Contents General InformationPension. Free h&r block tax software Annuity. Free h&r block tax software Qualified employee plan. Free h&r block tax software Qualified employee annuity. Free h&r block tax software Designated Roth account. Free h&r block tax software Tax-sheltered annuity plan. Free h&r block tax software Fixed-period annuities. Free h&r block tax software Annuities for a single life. Free h&r block tax software Joint and survivor annuities. Free h&r block tax software Variable annuities. Free h&r block tax software Disability pensions. Free h&r block tax software Variable Annuities Section 457 Deferred Compensation Plans Disability Pensions Insurance Premiums for Retired Public Safety Officers Railroad Retirement Benefits Withholding Tax and Estimated Tax Cost (Investment in the Contract)Foreign employment contributions while a nonresident alien. Free h&r block tax software Taxation of Periodic PaymentsPeriod of participation. Free h&r block tax software Fully Taxable Payments Partly Taxable Payments Taxation of Nonperiodic PaymentsFiguring the Taxable Amount Loans Treated as Distributions Transfers of Annuity Contracts Lump-Sum Distributions RolloversExceptions. Free h&r block tax software No tax withheld. Free h&r block tax software Partial rollovers. Free h&r block tax software Frozen deposits. Free h&r block tax software Reasonable period of time. Free h&r block tax software 20% Mandatory withholding. Free h&r block tax software How to report. Free h&r block tax software How to report. Free h&r block tax software Special rule for Roth IRAs and designated Roth accounts. Free h&r block tax software Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and BeneficiariesGuaranteed payments. Free h&r block tax software How To Get Tax HelpLow Income Taxpayer Clinics General Information Definitions. Free h&r block tax software   Some of the terms used in this publication are defined in the following paragraphs. Free h&r block tax software Pension. Free h&r block tax software   A pension is generally a series of definitely determinable payments made to you after you retire from work. Free h&r block tax software Pension payments are made regularly and are based on such factors as years of service and prior compensation. Free h&r block tax software Annuity. Free h&r block tax software   An annuity is a series of payments under a contract made at regular intervals over a period of more than one full year. Free h&r block tax software They can be either fixed (under which you receive a definite amount) or variable (not fixed). Free h&r block tax software You can buy the contract alone or with the help of your employer. Free h&r block tax software Qualified employee plan. Free h&r block tax software   A qualified employee plan is an employer's stock bonus, pension, or profit-sharing plan that is for the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code requirements. Free h&r block tax software It qualifies for special tax benefits, such as tax deferral for employer contributions and capital gain treatment or the 10-year tax option for lump-sum distributions (if participants qualify). Free h&r block tax software To determine whether your plan is a qualified plan, check with your employer or the plan administrator. Free h&r block tax software Qualified employee annuity. Free h&r block tax software   A qualified employee annuity is a retirement annuity purchased by an employer for an employee under a plan that meets Internal Revenue Code requirements. Free h&r block tax software Designated Roth account. Free h&r block tax software   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. Free h&r block tax software Elective deferrals that are designated as Roth contributions are included in your income. Free h&r block tax software However, qualified distributions (explained later) are not included in your income. Free h&r block tax software You should check with your plan administrator to determine if your plan will accept designated Roth contributions. Free h&r block tax software Tax-sheltered annuity plan. Free h&r block tax software   A tax-sheltered annuity plan (often referred to as a 403(b) plan or a tax-deferred annuity plan) is a retirement plan for employees of public schools and certain tax-exempt organizations. Free h&r block tax software Generally, a tax-sheltered annuity plan provides retirement benefits by purchasing annuity contracts for its participants. Free h&r block tax software Types of pensions and annuities. Free h&r block tax software   Pensions and annuities include the following types. Free h&r block tax software Fixed-period annuities. Free h&r block tax software   You receive definite amounts at regular intervals for a specified length of time. Free h&r block tax software Annuities for a single life. Free h&r block tax software   You receive definite amounts at regular intervals for life. Free h&r block tax software The payments end at death. Free h&r block tax software Joint and survivor annuities. Free h&r block tax software   The first annuitant receives a definite amount at regular intervals for life. Free h&r block tax software After he or she dies, a second annuitant receives a definite amount at regular intervals for life. Free h&r block tax software The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant. Free h&r block tax software Variable annuities. Free h&r block tax software   You receive payments that may vary in amount for a specified length of time or for life. Free h&r block tax software The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds, cost-of-living indexes, or earnings from a mutual fund. Free h&r block tax software Disability pensions. Free h&r block tax software   You receive disability payments because you retired on disability and have not reached minimum retirement age. Free h&r block tax software More than one program. Free h&r block tax software   You may receive employee plan benefits from more than one program under a single trust or plan of your employer. Free h&r block tax software If you participate in more than one program, you may have to treat each as a separate pension or annuity contract, depending upon the facts in each case. Free h&r block tax software Also, you may be considered to have received more than one pension or annuity. Free h&r block tax software Your former employer or the plan administrator should be able to tell you if you have more than one contract. Free h&r block tax software Example. Free h&r block tax software Your employer set up a noncontributory profit-sharing plan for its employees. Free h&r block tax software The plan provides that the amount held in the account of each participant will be paid when that participant retires. Free h&r block tax software Your employer also set up a contributory defined benefit pension plan for its employees providing for the payment of a lifetime pension to each participant after retirement. Free h&r block tax software The amount of any distribution from the profit-sharing plan depends on the contributions (including allocated forfeitures) made for the participant and the earnings from those contributions. Free h&r block tax software Under the pension plan, however, a formula determines the amount of the pension benefits. Free h&r block tax software The amount of contributions is the amount necessary to provide that pension. Free h&r block tax software Each plan is a separate program and a separate contract. Free h&r block tax software If you get benefits from these plans, you must account for each separately, even though the benefits from both may be included in the same check. Free h&r block tax software Distributions from a designated Roth account are treated separately from other distributions from the plan. Free h&r block tax software Qualified domestic relations order (QDRO). Free h&r block tax software   A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant in a retirement plan. Free h&r block tax software The QDRO must contain certain specific information, such as the name and last known mailing address of the participant and each alternate payee, and the amount or percentage of the participant's benefits to be paid to each alternate payee. Free h&r block tax software A QDRO may not award an amount or form of benefit that is not available under the plan. Free h&r block tax software   A spouse or former spouse who receives part of the benefits from a retirement plan under a QDRO reports the payments received as if he or she were a plan participant. Free h&r block tax software The spouse or former spouse is allocated a share of the participant's cost (investment in the contract) equal to the cost times a fraction. Free h&r block tax software The numerator of the fraction is the present value of the benefits payable to the spouse or former spouse. Free h&r block tax software The denominator is the present value of all benefits payable to the participant. Free h&r block tax software   A distribution that is paid to a child or other dependent under a QDRO is taxed to the plan participant. Free h&r block tax software Variable Annuities The tax rules in this publication apply both to annuities that provide fixed payments and to annuities that provide payments that vary in amount based on investment results or other factors. Free h&r block tax software For example, they apply to commercial variable annuity contracts, whether bought by an employee retirement plan for its participants or bought directly from the issuer by an individual investor. Free h&r block tax software Under these contracts, the owner can generally allocate the purchase payments among several types of investment portfolios or mutual funds and the contract value is determined by the performance of those investments. Free h&r block tax software The earnings are not taxed until distributed either in a withdrawal or in annuity payments. Free h&r block tax software The taxable part of a distribution is treated as ordinary income. Free h&r block tax software Net investment income tax. Free h&r block tax software   Beginning in 2013, annuities under a nonqualified plan are included in calculating your net investment income for the net investment income tax (NIIT). Free h&r block tax software For information see the Instructions for Form 8960, Net Investment Income Tax — Individuals, Estates and Trusts. Free h&r block tax software For information on the tax treatment of a transfer or exchange of a variable annuity contract, see Transfers of Annuity Contracts under Taxation of Nonperiodic Payments, later. Free h&r block tax software Withdrawals. Free h&r block tax software   If you withdraw funds before your annuity starting date and your annuity is under a qualified retirement plan, a ratable part of the amount withdrawn is tax free. Free h&r block tax software The tax-free part is based on the ratio of your cost (investment in the contract) to your account balance under the plan. Free h&r block tax software   If your annuity is under a nonqualified plan (including a contract you bought directly from the issuer), the amount withdrawn is allocated first to earnings (the taxable part) and then to your cost (the tax-free part). Free h&r block tax software However, if you bought your annuity contract before August 14, 1982, a different allocation applies to the investment before that date and the earnings on that investment. Free h&r block tax software To the extent the amount withdrawn does not exceed that investment and earnings, it is allocated first to your cost (the tax-free part) and then to earnings (the taxable part). Free h&r block tax software   If you withdraw funds (other than as an annuity) on or after your annuity starting date, the entire amount withdrawn is generally taxable. Free h&r block tax software   The amount you receive in a full surrender of your annuity contract at any time is tax free to the extent of any cost that you have not previously recovered tax free. Free h&r block tax software The rest is taxable. Free h&r block tax software   For more information on the tax treatment of withdrawals, see Taxation of Nonperiodic Payments , later. Free h&r block tax software If you withdraw funds from your annuity before you reach age 59½, also see Tax on Early Distributions under Special Additional Taxes, later. Free h&r block tax software Annuity payments. Free h&r block tax software   If you receive annuity payments under a variable annuity plan or contract, you recover your cost tax free under either the Simplified Method or the General Rule, as explained under Taxation of Periodic Payments , later. Free h&r block tax software For a variable annuity paid under a qualified plan, you generally must use the Simplified Method. Free h&r block tax software For a variable annuity paid under a nonqualified plan (including a contract you bought directly from the issuer), you must use a special computation under the General Rule. Free h&r block tax software For more information, see Variable annuities in Publication 939 under Computation Under the General Rule. Free h&r block tax software Death benefits. Free h&r block tax software    If you receive a single-sum distribution from a variable annuity contract because of the death of the owner or annuitant, the distribution is generally taxable only to the extent it is more than the unrecovered cost of the contract. Free h&r block tax software If you choose to receive an annuity, the payments are subject to tax as described above. Free h&r block tax software If the contract provides a joint and survivor annuity and the primary annuitant had received annuity payments before death, you figure the tax-free part of annuity payments you receive as the survivor in the same way the primary annuitant did. Free h&r block tax software See Survivors and Beneficiaries , later. Free h&r block tax software Section 457 Deferred Compensation Plans If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. Free h&r block tax software If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. Free h&r block tax software You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Free h&r block tax software You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Free h&r block tax software Your 457(b) plan may have a designated Roth account option. Free h&r block tax software If so, you may be able to roll over amounts to the designated Roth account or make contributions. Free h&r block tax software Elective deferrals to a designated Roth account are included in your income. Free h&r block tax software Qualified distributions (explained later) are not included in your income. Free h&r block tax software See the Designated Roth accounts discussion under Taxation of Periodic Payments, later. Free h&r block tax software This publication covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Free h&r block tax software For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525. Free h&r block tax software Is your plan eligible?   To find out if your plan is an eligible plan, check with your employer. Free h&r block tax software Plans that are not eligible section 457 plans include the following: Bona fide vacation leave, sick leave, compensatory time, severance pay, disability pay, or death benefit plans. Free h&r block tax software Nonelective deferred compensation plans for nonemployees (independent contractors). Free h&r block tax software Deferred compensation plans maintained by churches. Free h&r block tax software Length of service award plans for bona fide volunteer firefighters and emergency medical personnel. Free h&r block tax software An exception applies if the total amount paid to a volunteer exceeds $3,000 for any year of service. Free h&r block tax software Disability Pensions If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. Free h&r block tax software You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Free h&r block tax software Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Free h&r block tax software You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Free h&r block tax software For information on this credit, see Publication 524. Free h&r block tax software Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Free h&r block tax software Report the payments on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Free h&r block tax software Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. Free h&r block tax software For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Free h&r block tax software Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Free h&r block tax software The premiums can be for coverage for you, your spouse, or dependents. Free h&r block tax software The distribution must be made directly from the plan to the insurance provider. Free h&r block tax software You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Free h&r block tax software You can only make this election for amounts that would otherwise be included in your income. Free h&r block tax software The amount excluded from your income cannot be used to claim a medical expense deduction. Free h&r block tax software An eligible retirement plan is a governmental plan that is: a qualified trust, a section 403(a) plan, a section 403(b) annuity, or a section 457(b) plan. Free h&r block tax software If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Free h&r block tax software The amount shown in box 2a of Form 1099-R does not reflect this exclusion. Free h&r block tax software Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Free h&r block tax software Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Free h&r block tax software Enter “PSO” next to the appropriate line on which you report the taxable amount. Free h&r block tax software If you are retired on disability and reporting your disability pension on line 7 of Form 1040 or Form 1040A, or line 8 of Form 1040NR, include only the taxable amount on that line and enter “PSO” and the amount excluded on the dotted line next to the applicable line. Free h&r block tax software Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Free h&r block tax software These categories are treated differently for income tax purposes. Free h&r block tax software The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Free h&r block tax software This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and you treat it for tax purposes like social security benefits. Free h&r block tax software If you received, repaid, or had tax withheld from the SSEB portion of tier 1 benefits during 2013, you will receive Form RRB-1099, Payments by the Railroad Retirement Board (or Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, if you are a nonresident alien) from the U. Free h&r block tax software S. Free h&r block tax software Railroad Retirement Board (RRB). Free h&r block tax software For more information about the tax treatment of the SSEB portion of tier 1 benefits and Forms RRB-1099 and RRB-1042S, see Publication 915. Free h&r block tax software The second category contains the rest of the tier 1 railroad retirement benefits, called the non-social security equivalent benefit (NSSEB). Free h&r block tax software It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Free h&r block tax software Treat this category of benefits, shown on Form RRB-1099-R, as an amount received from a qualified employee plan. Free h&r block tax software This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Free h&r block tax software (The NSSEB and tier 2 benefits, less certain repayments, are combined into one amount called the Contributory Amount Paid on Form RRB-1099-R. Free h&r block tax software ) Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Free h&r block tax software See Taxation of Periodic Payments , later, for information on how to report your benefits and how to recover the employee contributions tax free. Free h&r block tax software Form RRB-1099-R is used for U. Free h&r block tax software S. Free h&r block tax software citizens, resident aliens, and nonresident aliens. Free h&r block tax software Nonresident aliens. Free h&r block tax software   A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Free h&r block tax software Nonresident aliens are subject to mandatory U. Free h&r block tax software S. Free h&r block tax software tax withholding unless exempt under a tax treaty between the United States and their country of legal residency. Free h&r block tax software A tax treaty exemption may reduce or eliminate tax withholding from railroad retirement benefits. Free h&r block tax software See Tax withholding next for more information. Free h&r block tax software   If you are a nonresident alien and your tax withholding rate changed or your country of legal residence changed during the year, you may receive more than one Form RRB-1042S or Form RRB-1099-R. Free h&r block tax software To determine your total benefits paid or repaid and total tax withheld for the year, you should add the amounts shown on all forms you received for that year. Free h&r block tax software For information on filing requirements for aliens, see Publication 519, U. Free h&r block tax software S. Free h&r block tax software Tax Guide for Aliens. Free h&r block tax software For information on tax treaties between the United States and other countries that may reduce or eliminate U. Free h&r block tax software S. Free h&r block tax software tax on your benefits, see Publication 901, U. Free h&r block tax software S. Free h&r block tax software Tax Treaties. Free h&r block tax software Tax withholding. Free h&r block tax software   To request or change your income tax withholding from SSEB payments, U. Free h&r block tax software S. Free h&r block tax software citizens should contact the IRS for Form W-4V, Voluntary Withholding Request, and file it with the RRB. Free h&r block tax software To elect, revoke, or change your income tax withholding from NSSEB, tier 2, VDB, and supplemental annuity payments received, use Form RRB W-4P, Withholding Certificate for Railroad Retirement Payments. Free h&r block tax software If you are a nonresident alien or a U. Free h&r block tax software S. Free h&r block tax software citizen living abroad, you should provide Form RRB-1001, Nonresident Questionnaire, to the RRB to furnish citizenship and residency information and to claim any treaty exemption from U. Free h&r block tax software S. Free h&r block tax software tax withholding. Free h&r block tax software Nonresident U. Free h&r block tax software S. Free h&r block tax software citizens cannot elect to be exempt from withholding on payments delivered outside of the U. Free h&r block tax software S. Free h&r block tax software Help from the RRB. Free h&r block tax software   To request an RRB form or to get help with questions about an RRB benefit, you should contact your nearest RRB field office if you reside in the United States (call 1-877-772-5772 for the nearest field office) or U. Free h&r block tax software S. Free h&r block tax software consulate/Embassy if you reside outside the United States. Free h&r block tax software You can visit the RRB on the Internet at www. Free h&r block tax software rrb. Free h&r block tax software gov. Free h&r block tax software Form RRB-1099-R. Free h&r block tax software   The following discussion explains the items shown on Form RRB-1099-R. Free h&r block tax software The amounts shown on this form are before any deduction for: Federal income tax withholding, Medicare premiums, Legal process garnishment payments, Recovery of a prior year overpayment of an NSSEB, tier 2 benefit, VDB, or supplemental annuity benefit, or Recovery of Railroad Unemployment Insurance Act benefits received while awaiting payment of your railroad retirement annuity. Free h&r block tax software   The amounts shown on this form are after any offset for: Social Security benefits, Age reduction, Public Service pensions or public disability benefits, Dual railroad retirement entitlement under another RRB claim number, Work deductions, Legal process partition deductions, Actuarial adjustment, Annuity waiver, or Recovery of a current-year overpayment of NSSEB, tier 2, VDB, or supplemental annuity benefits. Free h&r block tax software   The amounts shown on Form RRB-1099-R do not reflect any special rules, such as capital gain treatment or the special 10-year tax option for lump-sum payments, or tax-free rollovers. Free h&r block tax software To determine if any of these rules apply to your benefits, see the discussions about them later. Free h&r block tax software   Generally, amounts shown on your Form RRB-1099-R are considered a normal distribution. Free h&r block tax software Use distribution code “7” if you are asked for a distribution code. Free h&r block tax software Distribution codes are not shown on Form RRB-1099-R. Free h&r block tax software   There are three copies of this form. Free h&r block tax software Copy B is to be included with your income tax return if federal income tax is withheld. Free h&r block tax software Copy C is for your own records. Free h&r block tax software Copy 2 is filed with your state, city, or local income tax return, when required. Free h&r block tax software See the illustrated Copy B (Form RRB-1099-R) above. Free h&r block tax software       Each beneficiary will receive his or her own Form RRB-1099-R. Free h&r block tax software If you receive benefits on more than one railroad retirement record, you may get more than one Form RRB-1099-R. Free h&r block tax software So that you get your form timely, make sure the RRB always has your current mailing address. Free h&r block tax software Please click here for the text description of the image. Free h&r block tax software Form RRB-1099-R Box 1—Claim Number and Payee Code. Free h&r block tax software   Your claim number is a six- or nine-digit number preceded by an alphabetical prefix. Free h&r block tax software This is the number under which the RRB paid your benefits. Free h&r block tax software Your payee code follows your claim number and is the last number in this box. Free h&r block tax software It is used by the RRB to identify you under your claim number. Free h&r block tax software In all your correspondence with the RRB, be sure to use the claim number and payee code shown in this box. Free h&r block tax software Box 2—Recipient's Identification Number. Free h&r block tax software   This is the recipient's U. Free h&r block tax software S. Free h&r block tax software taxpayer identification number. Free h&r block tax software It is the social security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN), if known, for the person or estate listed as the recipient. Free h&r block tax software If you are a resident or nonresident alien who must furnish a taxpayer identification number to the IRS and are not eligible to obtain an SSN, use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN. Free h&r block tax software The Instructions for Form W-7 explain how and when to apply. Free h&r block tax software Box 3—Employee Contributions. Free h&r block tax software   This is the amount of taxes withheld from the railroad employee's earnings that exceeds the amount of taxes that would have been withheld had the earnings been covered under the social security system. Free h&r block tax software This amount is the employee's cost that you use to figure the tax-free part of the NSSEB and tier 2 benefit you received (the amount shown in box 4). Free h&r block tax software (For information on how to figure the tax-free part, see Partly Taxable Payments under Taxation of Periodic Payments, later. Free h&r block tax software ) The amount shown is the total employee contribution amount, not reduced by any amounts that the RRB calculated as previously recovered. Free h&r block tax software It is the latest amount reported for 2013 and may have increased or decreased from a previous Form RRB-1099-R. Free h&r block tax software If this amount has changed, the change is retroactive. Free h&r block tax software You may need to refigure the tax-free part of your NSSEB/tier 2 benefit for 2013 and prior tax years. Free h&r block tax software If this box is blank, it means that the amount of your NSSEB and tier 2 payments shown in box 4 is fully taxable. Free h&r block tax software    If you had a previous annuity entitlement that ended and you are figuring the tax-free part of your NSSEB/tier 2 benefit for your current annuity entitlement, you should contact the RRB for confirmation of your correct employee contribution amount. Free h&r block tax software Box 4—Contributory Amount Paid. Free h&r block tax software   This is the gross amount of the NSSEB and tier 2 benefit you received in 2013, less any 2013 benefits you repaid in 2013. Free h&r block tax software (Any benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Free h&r block tax software ) This amount is the total contributory pension paid in 2013. Free h&r block tax software It may be partly taxable and partly tax free or fully taxable. Free h&r block tax software If you determine you are eligible to compute a tax-free part as explained later in Partly Taxable Payments under Taxation of Periodic Payments, use the latest reported employee contribution amount shown in box 3 as the cost. Free h&r block tax software Box 5—Vested Dual Benefit. Free h&r block tax software   This is the gross amount of vested dual benefit (VDB) payments paid in 2013, less any 2013 VDB payments you repaid in 2013. Free h&r block tax software It is fully taxable. Free h&r block tax software VDB payments you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Free h&r block tax software Note. Free h&r block tax software The amounts shown in boxes 4 and 5 may represent payments for 2013 and/or other years after 1983. Free h&r block tax software Box 6—Supplemental Annuity. Free h&r block tax software   This is the gross amount of supplemental annuity benefits paid in 2013, less any 2013 supplemental annuity benefits you repaid in 2013. Free h&r block tax software It is fully taxable. Free h&r block tax software Supplemental annuity benefits you repaid in 2013 for an earlier year or for an unknown year are shown in box 8. Free h&r block tax software Box 7—Total Gross Paid. Free h&r block tax software   This is the sum of boxes 4, 5, and 6. Free h&r block tax software The amount represents the total pension paid in 2013. Free h&r block tax software Include this amount on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Free h&r block tax software Box 8—Repayments. Free h&r block tax software   This amount represents any NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit you repaid to the RRB in 2013 for years before 2013 or for unknown years. Free h&r block tax software The amount shown in this box has not been deducted from the amounts shown in boxes 4, 5, and 6. Free h&r block tax software It only includes repayments of benefits that were taxable to you. Free h&r block tax software This means it only includes repayments in 2013 of NSSEB benefits paid after 1985, tier 2 and VDB benefits paid after 1983, and supplemental annuity benefits paid in any year. Free h&r block tax software If you included the benefits in your income in the year you received them, you may be able to deduct the repaid amount. Free h&r block tax software For more information about repayments, see Repayment of benefits received in an earlier year , later. Free h&r block tax software    You may have repaid an overpayment of benefits by returning a payment, by making a payment, or by having an amount withheld from your railroad retirement annuity payment. Free h&r block tax software Box 9—Federal Income Tax Withheld. Free h&r block tax software   This is the total federal income tax withheld from your NSSEB, tier 2 benefit, VDB, and supplemental annuity benefit. Free h&r block tax software Include this on your income tax return as tax withheld. Free h&r block tax software If you are a nonresident alien and your tax withholding rate and/or country of legal residence changed during 2013, you will receive more than one Form RRB-1099-R for 2013. Free h&r block tax software Determine the total amount of U. Free h&r block tax software S. Free h&r block tax software federal income tax withheld from your 2013 RRB NSSEB, tier 2, VDB, and supplemental annuity payments by adding the amounts in box 9 of all original 2013 Forms RRB-1099-R, or the latest corrected or duplicate Forms RRB-1099-R you receive. Free h&r block tax software Box 10—Rate of Tax. Free h&r block tax software   If you are taxed as a U. Free h&r block tax software S. Free h&r block tax software citizen or resident alien, this box does not apply to you. Free h&r block tax software If you are a nonresident alien, an entry in this box indicates the rate at which tax was withheld on the NSSEB, tier 2, VDB, and supplemental annuity payments that were paid to you in 2013. Free h&r block tax software If you are a nonresident alien whose tax was withheld at more than one rate during 2013, you will receive a separate Form RRB-1099-R for each rate change during 2013. Free h&r block tax software Box 11—Country. Free h&r block tax software   If you are taxed as a U. Free h&r block tax software S. Free h&r block tax software citizen or resident alien, this box does not apply to you. Free h&r block tax software If you are a nonresident alien, an entry in this box indicates the country of which you were a resident for tax purposes at the time you received railroad retirement payments in 2013. Free h&r block tax software If you are a nonresident alien who was a resident of more than one country during 2013, you will receive a separate Form RRB-1099-R for each country of residence during 2013. Free h&r block tax software Box 12—Medicare Premium Total. Free h&r block tax software   This is for information purposes only. Free h&r block tax software The amount shown in this box represents the total amount of Part B Medicare premiums deducted from your railroad retirement annuity payments in 2013. Free h&r block tax software Medicare premium refunds are not included in the Medicare total. Free h&r block tax software The Medicare total is normally shown on Form RRB-1099 (if you are a citizen or resident alien of the United States) or Form RRB-1042S (if you are a nonresident alien). Free h&r block tax software However, if Form RRB-1099 or Form RRB-1042S is not required for 2013, then this total will be shown on Form RRB-1099-R. Free h&r block tax software If your Medicare premiums were deducted from your social security benefits, paid by a third party, refunded to you, and/or you paid the premiums by direct billing, your Medicare total will not be shown in this box. Free h&r block tax software Repayment of benefits received in an earlier year. Free h&r block tax software   If you had to repay any railroad retirement benefits that you had included in your income in an earlier year because at that time you thought you had an unrestricted right to it, you can deduct the amount you repaid in the year in which you repaid it. Free h&r block tax software   If you repaid $3,000 or less in 2013, deduct it on Schedule A (Form 1040), line 23. Free h&r block tax software The 2%-of-adjusted-gross-income limit applies to this deduction. Free h&r block tax software You cannot take this deduction if you file Form 1040A. Free h&r block tax software    If you repaid more than $3,000 in 2013, you can either take a deduction for the amount repaid on Schedule A (Form 1040), line 28 or you can take a credit against your tax. Free h&r block tax software For more information, see Repayments in Publication 525. Free h&r block tax software Withholding Tax and Estimated Tax Your retirement plan distributions are subject to federal income tax withholding. Free h&r block tax software However, you can choose not to have tax withheld on payments you receive unless they are eligible rollover distributions. Free h&r block tax software (These are distributions, described later under Rollovers, that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Free h&r block tax software ) If you choose not to have tax withheld or if you do not have enough tax withheld, you may have to make estimated tax payments. Free h&r block tax software See Estimated tax , later. Free h&r block tax software The withholding rules apply to the taxable part of payments you receive from: An employer pension, annuity, profit-sharing, or stock bonus plan, Any other deferred compensation plan, A traditional individual retirement arrangement (IRA), or A commercial annuity. Free h&r block tax software For this purpose, a commercial annuity means an annuity, endowment, or life insurance contract issued by an insurance company. Free h&r block tax software There will be no withholding on any part of a distribution where it is reasonable to believe that it will not be includible in gross income. Free h&r block tax software Choosing no withholding. Free h&r block tax software   You can choose not to have income tax withheld from retirement plan payments unless they are eligible rollover distributions. Free h&r block tax software You can make this choice on Form W-4P for periodic and nonperiodic payments. Free h&r block tax software This choice generally remains in effect until you revoke it. Free h&r block tax software   The payer will ignore your choice not to have tax withheld if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer, before the payment is made, that you gave an incorrect social security number. Free h&r block tax software   To choose not to have tax withheld, a U. Free h&r block tax software S. Free h&r block tax software citizen or resident alien must give the payer a home address in the United States or its possessions. Free h&r block tax software Without that address, the payer must withhold tax. Free h&r block tax software For example, the payer has to withhold tax if the recipient has provided a U. Free h&r block tax software S. Free h&r block tax software address for a nominee, trustee, or agent to whom the benefits are delivered, but has not provided his or her own U. Free h&r block tax software S. Free h&r block tax software home address. Free h&r block tax software   If you do not give the payer a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to the payer that you are not a U. Free h&r block tax software S. Free h&r block tax software citizen, a U. Free h&r block tax software S. Free h&r block tax software resident alien, or someone who left the country to avoid tax. Free h&r block tax software But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Free h&r block tax software This 30% rate will not apply if you are exempt or subject to a reduced rate by treaty. Free h&r block tax software For details, get Publication 519. Free h&r block tax software Periodic payments. Free h&r block tax software   Unless you choose no withholding, your annuity or similar periodic payments (other than eligible rollover distributions) will be treated like wages for withholding purposes. Free h&r block tax software Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Free h&r block tax software You should give the payer a completed withholding certificate (Form W-4P or a similar form provided by the payer). Free h&r block tax software If you do not, tax will be withheld as if you were married and claiming three withholding allowances. Free h&r block tax software   Tax will be withheld as if you were single and were claiming no withholding allowances if: You do not give the payer your social security number (in the required manner), or The IRS notifies the payer (before any payment is made) that you gave an incorrect social security number. Free h&r block tax software   You must file a new withholding certificate to change the amount of withholding. Free h&r block tax software Nonperiodic distributions. Free h&r block tax software    Unless you choose no withholding, the withholding rate for a nonperiodic distribution (a payment other than a periodic payment) that is not an eligible rollover distribution is 10% of the distribution. Free h&r block tax software You can also ask the payer to withhold an additional amount using Form W-4P. Free h&r block tax software The part of any loan treated as a distribution (except an offset amount to repay the loan), explained later, is subject to withholding under this rule. Free h&r block tax software Eligible rollover distribution. Free h&r block tax software    If you receive an eligible rollover distribution, 20% of it generally will be withheld for income tax. Free h&r block tax software You cannot choose not to have tax withheld from an eligible rollover distribution. Free h&r block tax software However, tax will not be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rollover. Free h&r block tax software For more information about eligible rollover distributions, see Rollovers , later. Free h&r block tax software Estimated tax. Free h&r block tax software   Your estimated tax is the total of your expected income tax, self-employment tax, and certain other taxes for the year, minus your expected credits and withheld tax. Free h&r block tax software Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 return, or 100% of the tax shown on your 2013 return. Free h&r block tax software If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above. Free h&r block tax software For more information, get Publication 505, Tax Withholding and Estimated Tax. Free h&r block tax software In figuring your withholding or estimated tax, remember that a part of your monthly social security or equivalent tier 1 railroad retirement benefits may be taxable. Free h&r block tax software See Publication 915. Free h&r block tax software You can choose to have income tax withheld from those benefits. Free h&r block tax software Use Form W-4V to make this choice. Free h&r block tax software Cost (Investment in the Contract) Distributions from your pension or annuity plan may include amounts treated as a recovery of your cost (investment in the contract). Free h&r block tax software If any part of a distribution is treated as a recovery of your cost under the rules explained in this publication, that part is tax free. Free h&r block tax software Therefore, the first step in figuring how much of a distribution is taxable is to determine the cost of your pension or annuity. Free h&r block tax software In general, your cost is your net investment in the contract as of the annuity starting date (or the date of the distribution, if earlier). Free h&r block tax software To find this amount, you must first figure the total premiums, contributions, or other amounts you paid. Free h&r block tax software This includes the amounts your employer contributed that were taxable to you when paid. Free h&r block tax software (However, see Foreign employment contributions , later. Free h&r block tax software ) It does not include amounts withheld from your pay on a tax-deferred basis (money that was taken out of your gross pay before taxes were deducted). Free h&r block tax software It also does not include amounts you contributed for health and accident benefits (including any additional premiums paid for double indemnity or disability benefits). Free h&r block tax software From this total cost you must subtract the following amounts. Free h&r block tax software Any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income and that you received by the later of the annuity starting date or the date on which you received your first payment. Free h&r block tax software Any other tax-free amounts you received under the contract or plan by the later of the dates in (1). Free h&r block tax software If you must use the Simplified Method for your annuity payments, the tax-free part of any single-sum payment received in connection with the start of the annuity payments, regardless of when you received it. Free h&r block tax software (See Simplified Method , later, for information on its required use. Free h&r block tax software ) If you use the General Rule for your annuity payments, the value of the refund feature in your annuity contract. Free h&r block tax software (See General Rule , later, for information on its use. Free h&r block tax software ) Your annuity contract has a refund feature if the annuity payments are for your life (or the lives of you and your survivor) and payments in the nature of a refund of the annuity's cost will be made to your beneficiary or estate if all annuitants die before a stated amount or a stated number of payments are made. Free h&r block tax software For more information, see Publication 939. Free h&r block tax software The tax treatment of the items described in (1) through (3) is discussed later under Taxation of Nonperiodic Payments . Free h&r block tax software Form 1099-R. Free h&r block tax software If you began receiving periodic payments of a life annuity in 2013, the payer should show your total contributions to the plan in box 9b of your 2013 Form 1099-R. Free h&r block tax software Annuity starting date defined. Free h&r block tax software   Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. Free h&r block tax software Example. Free h&r block tax software On January 1, you completed all your payments required under an annuity contract providing for monthly payments starting on August 1 for the period beginning July 1. Free h&r block tax software The annuity starting date is July 1. Free h&r block tax software This is the date you use in figuring the cost of the contract and selecting the appropriate number from Table 1 for line 3 of the Simplified Method Worksheet. Free h&r block tax software Designated Roth accounts. Free h&r block tax software   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Free h&r block tax software Your cost will also include any in-plan Roth rollovers you included in income. Free h&r block tax software Foreign employment contributions. Free h&r block tax software   If you worked abroad, your cost may include contributions by your employer to the retirement plan, but only if those contributions would be excludible from your gross income had they been paid directly to you as compensation. Free h&r block tax software The contributions that apply are: Contributions before 1963 by your employer, Contributions after 1962 by your employer if the contributions would be excludible from your gross income (not including the foreign earned income exclusion) had they been paid directly to you, or Contributions after 1996 by your employer if you performed the services of a foreign missionary (a duly ordained, commissioned, or licensed minister of a church or a lay person) but only if the contributions would be excludible from your gross income had they been paid directly to you. Free h&r block tax software Foreign employment contributions while a nonresident alien. Free h&r block tax software   In determining your cost, special rules apply if you are a U. Free h&r block tax software S. Free h&r block tax software citizen or resident alien who received distributions in 2013 from a plan to which contributions were made while you were a nonresident alien. Free h&r block tax software Your contributions and your employer's contributions are not included in your cost if the contribution: Was made based on compensation which was for services performed outside the United States while you were a nonresident alien, and Was not subject to income tax under the laws of the United States or any foreign country, but only if the contribution would have been subject to income tax if paid as cash compensation when the services were performed. Free h&r block tax software Taxation of Periodic Payments This section explains how the periodic payments you receive from a pension or annuity plan are taxed. Free h&r block tax software Periodic payments are amounts paid at regular intervals (such as weekly, monthly, or yearly) for a period of time greater than one year (such as for 15 years or for life). Free h&r block tax software These payments are also known as amounts received as an annuity. Free h&r block tax software If you receive an amount from your plan that is not a periodic payment, see Taxation of Nonperiodic Payments , later. Free h&r block tax software In general, you can recover the cost of your pension or annuity tax free over the period you are to receive the payments. Free h&r block tax software The amount of each payment that is more than the part that represents your cost is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Free h&r block tax software Designated Roth accounts. Free h&r block tax software   If you receive a qualified distribution from a designated Roth account, the distribution is not included in your gross income. Free h&r block tax software This applies to both your cost in the account and income earned on that account. Free h&r block tax software A qualified distribution is generally a distribution that is: Made after a 5-tax-year period of participation, and Made on or after the date you reach age 59½, made to a beneficiary or your estate on or after your death, or attributable to your being disabled. Free h&r block tax software   If the distribution is not a qualified distribution, the rules discussed in this section apply. Free h&r block tax software The designated Roth account is treated as a separate contract. Free h&r block tax software Period of participation. Free h&r block tax software   The 5-tax-year period of participation is the 5-tax-year period beginning with the first tax year for which the participant made a designated Roth contribution to the plan. Free h&r block tax software Therefore, for designated Roth contributions made for 2013, the first year for which a qualified distribution can be made is 2018. Free h&r block tax software   However, if a direct rollover is made to the plan from a designated Roth account under another plan, the 5-tax-year period for the recipient plan begins with the first tax year for which the participant first had designated Roth contributions made to the other plan. Free h&r block tax software   Your 401(k), 403(b), or 457(b) plan may permit you to roll over amounts from those plans to a designated Roth account within the same plan. Free h&r block tax software This is known as an in-plan Roth rollover. Free h&r block tax software For more details, see In-plan Roth rollovers , later. Free h&r block tax software Fully Taxable Payments The pension or annuity payments that you receive are fully taxable if you have no cost in the contract because any of the following situations applies to you (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Free h&r block tax software You did not pay anything or are not considered to have paid anything for your pension or annuity. Free h&r block tax software Amounts withheld from your pay on a tax-deferred basis are not considered part of the cost of the pension or annuity payment. Free h&r block tax software Your employer did not withhold contributions from your salary. Free h&r block tax software You got back all of your contributions tax free in prior years (however, see Exclusion not limited to cost under Partly Taxable Payments, later). Free h&r block tax software Report the total amount you got on Form 1040, line 16b; Form 1040A, line 12b; or on Form 1040NR, line 17b. Free h&r block tax software You should make no entry on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Free h&r block tax software Deductible voluntary employee contributions. Free h&r block tax software   Distributions you receive that are based on your accumulated deductible voluntary employee contributions are generally fully taxable in the year distributed to you. Free h&r block tax software Accumulated deductible voluntary employee contributions include net earnings on the contributions. Free h&r block tax software If distributed as part of a lump sum, they do not qualify for the 10-year tax option or capital gain treatment, explained later. Free h&r block tax software Partly Taxable Payments If you have a cost to recover from your pension or annuity plan (see Cost (Investment in the Contract) , earlier), you can exclude part of each annuity payment from income as a recovery of your cost. Free h&r block tax software This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Free h&r block tax software The rest of each payment is taxable (however, see Insurance Premiums for Retired Public Safety Officers , earlier). Free h&r block tax software You figure the tax-free part of the payment using one of the following methods. Free h&r block tax software Simplified Method. Free h&r block tax software You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Free h&r block tax software You cannot use this method if your annuity is paid under a nonqualified plan. Free h&r block tax software General Rule. Free h&r block tax software You must use this method if your annuity is paid under a nonqualified plan. Free h&r block tax software You generally cannot use this method if your annuity is paid under a qualified plan. Free h&r block tax software You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Free h&r block tax software If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Free h&r block tax software Qualified plan annuity starting before November 19, 1996. Free h&r block tax software   If your annuity is paid under a qualified plan and your annuity starting date (defined earlier under Cost (Investment in the Contract) ) is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the Simplified Method or the General Rule. Free h&r block tax software If your annuity starting date is before July 2, 1986, you use the General Rule unless your annuity qualified for the Three-Year Rule. Free h&r block tax software If you used the Three-Year Rule (which was repealed for annuities starting after July 1, 1986), your annuity payments are generally now fully taxable. Free h&r block tax software Exclusion limit. Free h&r block tax software   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Free h&r block tax software Once your annuity starting date is determined, it does not change. Free h&r block tax software If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. Free h&r block tax software That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Free h&r block tax software Exclusion limited to cost. Free h&r block tax software   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. Free h&r block tax software Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Free h&r block tax software This deduction is not subject to the 2%-of-adjusted-gross-income limit. Free h&r block tax software Example 1. Free h&r block tax software Your annuity starting date is after 1986, and you exclude $100 a month ($1,200 a year) under the Simplified Method. Free h&r block tax software The total cost of your annuity is $12,000. Free h&r block tax software Your exclusion ends when you have recovered your cost tax free, that is, after 10 years (120 months). Free h&r block tax software After that, your annuity payments are generally fully taxable. Free h&r block tax software Example 2. Free h&r block tax software The facts are the same as in Example 1, except you die (with no surviving annuitant) after the eighth year of retirement. Free h&r block tax software You have recovered tax free only $9,600 (8 × $1,200) of your cost. Free h&r block tax software An itemized deduction for your unrecovered cost of $2,400 ($12,000 – $9,600) can be taken on your final return. Free h&r block tax software Exclusion not limited to cost. Free h&r block tax software   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Free h&r block tax software If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Free h&r block tax software The total exclusion may be more than your cost. Free h&r block tax software Simplified Method Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Free h&r block tax software For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Free h&r block tax software For any other annuity, this number is the number of monthly annuity payments under the contract. Free h&r block tax software Who must use the Simplified Method. Free h&r block tax software   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you meet both of the following conditions. Free h&r block tax software You receive your pension or annuity payments from any of the following plans. Free h&r block tax software A qualified employee plan. Free h&r block tax software A qualified employee annuity. Free h&r block tax software A tax-sheltered annuity plan (403(b) plan). Free h&r block tax software On your annuity starting date, at least one of the following conditions applies to you. Free h&r block tax software You are under age 75. Free h&r block tax software You are entitled to less than 5 years of guaranteed payments. Free h&r block tax software Guaranteed payments. Free h&r block tax software   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Free h&r block tax software If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Free h&r block tax software Annuity starting before November 19, 1996. Free h&r block tax software   If your annuity starting date is after July 1, 1986, and before November 19, 1996, and you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Free h&r block tax software You could have chosen to use the Simplified Method if your annuity is payable for your life (or the lives of you and your survivor annuitant) and you met both of the conditions listed earlier under Who must use the Simplified Method . Free h&r block tax software Who cannot use the Simplified Method. Free h&r block tax software   You cannot use the Simplified Method if you receive your pension or annuity from a nonqualified plan or otherwise do not meet the conditions described in the preceding discussion. Free h&r block tax software See General Rule , later. Free h&r block tax software How to use the Simplified Method. Free h&r block tax software    Complete Worksheet A in the back of this publication to figure your taxable annuity for 2013. Free h&r block tax software Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Free h&r block tax software   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Free h&r block tax software How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Free h&r block tax software For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Free h&r block tax software    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Free h&r block tax software Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Free h&r block tax software Single-life annuity. Free h&r block tax software   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Free h&r block tax software Enter on line 3 the number shown for your age on your annuity starting date. Free h&r block tax software This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Free h&r block tax software Multiple-lives annuity. Free h&r block tax software   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Free h&r block tax software Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Free h&r block tax software For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Free h&r block tax software For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Free h&r block tax software Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Free h&r block tax software   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Free h&r block tax software Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Free h&r block tax software This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Free h&r block tax software Fixed-period annuity. Free h&r block tax software   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Free h&r block tax software Line 6. Free h&r block tax software   The amount on line 6 should include all amounts that could have been recovered in prior years. Free h&r block tax software If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Free h&r block tax software Example. Free h&r block tax software Bill Smith, age 65, began receiving retirement benefits in 2013 under a joint and survivor annuity. Free h&r block tax software Bill's annuity starting date is January 1, 2013. Free h&r block tax software The benefits are to be paid for the joint lives of Bill and his wife, Kathy, age 65. Free h&r block tax software Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Free h&r block tax software Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Free h&r block tax software Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Free h&r block tax software Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of Worksheet A in completing line 3 of the worksheet. Free h&r block tax software His completed worksheet is shown later. Free h&r block tax software Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Free h&r block tax software Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Free h&r block tax software The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Free h&r block tax software If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Free h&r block tax software This deduction is not subject to the 2%-of-adjusted-gross-income limit. Free h&r block tax software Worksheet A. Free h&r block tax software Simplified Method Worksheet for Bill Smith 1. Free h&r block tax software Enter the total pension or annuity payments received this year. Free h&r block tax software Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Free h&r block tax software $14,400 2. Free h&r block tax software Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. Free h&r block tax software * See Cost (Investment in the Contract) , earlier 2. Free h&r block tax software 31,000   Note. Free h&r block tax software If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Free h&r block tax software Otherwise, go to line 3. Free h&r block tax software     3. Free h&r block tax software Enter the appropriate number from Table 1 below. Free h&r block tax software But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Free h&r block tax software 310 4. Free h&r block tax software Divide line 2 by the number on line 3 4. Free h&r block tax software 100 5. Free h&r block tax software Multiply line 4 by the number of months for which this year's payments were made. Free h&r block tax software If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Free h&r block tax software Otherwise, go to line 6 5. Free h&r block tax software 1,200 6. Free h&r block tax software Enter any amount previously recovered tax free in years after 1986. Free h&r block tax software This is the amount shown on line 10 of your worksheet for last year 6. Free h&r block tax software -0- 7. Free h&r block tax software Subtract line 6 from line 2 7. Free h&r block tax software 31,000 8. Free h&r block tax software Enter the smaller of line 5 or line 7 8. Free h&r block tax software 1,200 9. Free h&r block tax software Taxable amount for year. Free h&r block tax software Subtract line 8 from line 1. Free h&r block tax software Enter the result, but not less than zero. Free h&r block tax software Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Free h&r block tax software Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Free h&r block tax software If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers , earlier, before entering an amount on your tax return 9. Free h&r block tax software $13,200 10. Free h&r block tax software Was your annuity starting date before 1987? □ Yes. Free h&r block tax software STOP. Free h&r block tax software Do not complete the rest of this worksheet. Free h&r block tax software  ☑ No. Free h&r block tax software Add lines 6 and 8. Free h&r block tax software This is the amount you have recovered tax free through 2013. Free h&r block tax software You will need this number if you need to fill out this worksheet next year 10. Free h&r block tax software 1,200 11. Free h&r block tax software Balance of cost to be recovered. Free h&r block tax software Subtract line 10 from line 2. Free h&r block tax software If zero, you will not have to complete this worksheet next year. Free h&r block tax software The payments you receive next year will generally be fully taxable 11. Free h&r block tax software $29,800         * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Free h&r block tax software           Table 1 for Line 3 Above       AND your annuity starting date was—     IF the age at annuity starting date was. Free h&r block tax software . Free h&r block tax software . Free h&r block tax software BEFORE November 19, 1996, enter on line 3. Free h&r block tax software . Free h&r block tax software . Free h&r block tax software AFTER November 18, 1996, enter on line 3. Free h&r block tax software . Free h&r block tax software . Free h&r block tax software     55 or under 300 360     56-60 260 310     61-65 240 260     66-70 170 210     71 or older 120 160     Table 2 for Line 3 Above     IF the combined ages at  annuity starting date were. Free h&r block tax software . Free h&r block tax software . Free h&r block tax software THEN enter on line 3. Free h&r block tax software . Free h&r block tax software . Free h&r block tax software     110 or under   410     111-120   360     121-130   310     131-140   260     141 or older   210   Multiple annuitants. Free h&r block tax software   If you and one or more other annuitants receive payments at the same time, you exclude from each annuity payment a pro rata share of the monthly tax-free amount. Free h&r block tax software Figure your share by taking the following steps. Free h&r block tax software Complete your worksheet through line 4 to figure the monthly tax-free amount. Free h&r block tax software Divide the amount of your monthly payment by the total amount of the monthly payments to all annuitants. Free h&r block tax software Multiply the amount on line 4 of your worksheet by the amount figured in (2) above. Free h&r block tax software The result is your share of the monthly tax-free amount. Free h&r block tax software   Replace the amount on line 4 of the worksheet with the result in (3) above. Free h&r block tax software Enter that amount on line 4 of your worksheet each year. Free h&r block tax software General Rule Under the General Rule, you determine the tax-free part of each annuity payment based on the ratio of the cost of the contract to the total expected return. Free h&r block tax software Expected return is the total amount you and other eligible annuitants can expect to receive under the contract. Free h&r block tax software To figure it, you must use life expectancy (actuarial) tables prescribed by the IRS. Free h&r block tax software Who must use the General Rule. Free h&r block tax software   You must use the General Rule if you receive pension or annuity payments from: A nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or A qualified plan if you are age 75 or older on your annuity starting date and your annuity payments are guaranteed for at least 5 years. Free h&r block tax software Annuity starting before November 19, 1996. Free h&r block tax software   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. Free h&r block tax software You also had to use it for any fixed-period annuity. Free h&r block tax software If you did not have to use the General Rule, you could have chosen to use it. Free h&r block tax software If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. Free h&r block tax software   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Free h&r block tax software Who cannot use the General Rule. Free h&r block tax software   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. Free h&r block tax software See Simplified Method , earlier. Free h&r block tax software More information. Free h&r block tax software   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Free h&r block tax software Taxation of Nonperiodic Payments This section of the publication explains how any nonperiodic distributions you receive under a pension or annuity plan are taxed. Free h&r block tax software Nonperiodic distributions are also known as amounts not received as an annuity. Free h&r block tax software They include all payments other than periodic payments and corrective distributions. Free h&r block tax software For example, the following items are treated as nonperiodic distributions. Free h&r block tax software Cash withdrawals. Free h&r block tax software Distributions of current earnings (dividends) on your investment. Free h&r block tax software However, do not include these distributions in your income to the extent the insurer keeps them to pay premiums or other consideration for the contract. Free h&r block tax software Certain loans. Free h&r block tax software See Loans Treated as Distributions , later. Free h&r block tax software The value of annuity contracts transferred without full and adequate consideration. Free h&r block tax software See Transfers of Annuity Contracts , later. Free h&r block tax software Corrective distributions of excess plan contributions. Free h&r block tax software   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Free h&r block tax software To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Free h&r block tax software Although the plan reports the corrective distributions on Form 1099-R, the distribution is not treated as a nonperiodic distribution from the plan. Free h&r block tax software It is not subject to the allocation rules explained in the following discussion, it cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Free h&r block tax software    If your retirement plan made a corrective distribution of excess amounts (excess deferrals, excess contributions, or excess annual additions), your Form 1099-R should have the code “8,” “B,” “P,” or “E” in box 7. Free h&r block tax software   For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. Free h&r block tax software Figuring the Taxable Amount How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date, or on or after the annuity starting date. Free h&r block tax software If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan. Free h&r block tax software If it is made under a nonqualified plan, its tax treatment depends on whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982. Free h&r block tax software You may be able to roll over the taxable amount of a nonperiodic distribution from a qualified retirement plan into another qualified retirement plan or a traditional IRA tax free. Free h&r block tax software See Rollovers, later. Free h&r block tax software If you do not make a tax-free rollover and the distribution qualifies as a lump-sum distribution, you may be able to elect an optional method of figuring the tax on the taxable amount. Free h&r block tax software See Lump-Sum Distributions, later. Free h&r block tax software Annuity starting date. Free h&r block tax software   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. Free h&r block tax software Distributions of employer securities. Free h&r block tax software    If you receive a distribution of employer securities from a qualified retirement plan, you may be able to defer the tax on the net unrealized appreciation (NUA) in the securities. Free h&r block tax software The NUA is the net increase in the securities' value while they were in the trust. Free h&r block tax software This tax deferral applies to distributions of the employer corporation's stocks, bonds, registered debentures, and debentures with interest coupons attached. Free h&r block tax software   If the distribution is a lump-sum distribution, tax is deferred on all of the NUA unless you choose to include it in your income for the year of the distribution. Free h&r block tax software    A lump-sum distribution for this purpose is the distribution or payment of a plan participant's entire balance (within a single tax year) from all of the employer's qualified plans of one kind (pension, profit-sharing, or stock bonus plans), but only if paid: Because of the plan participant's death, After the participant reaches age 59½, Because the participant, if an employee, separates from service, or After the participant, if a self-employed individual, becomes totally and permanently disabled. Free h&r block tax software    If you choose to include NUA in your income for the year of the distribution and the participant was born before January 2, 1936, you may be able to figure the tax on the NUA using the optional methods described und