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Free Irs Tax Filing

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Free Irs Tax Filing

Free irs tax filing 20. Free irs tax filing   Standard Deduction Table of Contents What's New Introduction Standard Deduction Amount Standard Deduction for Dependents Who Should ItemizeWhen to itemize. Free irs tax filing Married persons who filed separate returns. Free irs tax filing What's New Standard deduction increased. Free irs tax filing  The standard deduction for some taxpayers who do not itemize their deductions on Schedule A (Form 1040) is higher for 2013 than it was for 2012. Free irs tax filing The amount depends on your filing status. Free irs tax filing You can use the 2013 Standard Deduction Tables in this chapter to figure your standard deduction. Free irs tax filing Introduction This chapter discusses the following topics. Free irs tax filing How to figure the amount of your standard deduction. Free irs tax filing The standard deduction for dependents. Free irs tax filing Who should itemize deductions. Free irs tax filing Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. Free irs tax filing If you have a choice, you can use the method that gives you the lower tax. Free irs tax filing The standard deduction is a dollar amount that reduces your taxable income. Free irs tax filing It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions, and taxes, on Schedule A (Form 1040). Free irs tax filing The standard deduction is higher for taxpayers who: Are 65 or older, or Are blind. Free irs tax filing You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. Free irs tax filing Persons not eligible for the standard deduction. Free irs tax filing   Your standard deduction is zero and you should itemize any deductions you have if: Your filing status is married filing separately, and your spouse itemizes deductions on his or her return, You are filing a tax return for a short tax year because of a change in your annual accounting period, or You are a nonresident or dual-status alien during the year. Free irs tax filing You are considered a dual-status alien if you were both a nonresident and resident alien during the year. Free irs tax filing Note. Free irs tax filing If you are a nonresident alien who is married to a U. Free irs tax filing S. Free irs tax filing citizen or resident alien at the end of the year, you can choose to be treated as a U. Free irs tax filing S. Free irs tax filing resident. Free irs tax filing (See Publication 519, U. Free irs tax filing S. Free irs tax filing Tax Guide for Aliens. Free irs tax filing ) If you make this choice, you can take the standard deduction. Free irs tax filing If an exemption for you can be claimed on another person's return (such as your parents' return), your standard deduction may be limited. Free irs tax filing See Standard Deduction for Dependents, later. Free irs tax filing Standard Deduction Amount The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. Free irs tax filing Generally, the standard deduction amounts are adjusted each year for inflation. Free irs tax filing The standard deduction amounts for most people are shown in Table 20-1. Free irs tax filing Decedent's final return. Free irs tax filing   The standard deduction for a decedent's final tax return is the same as it would have been had the decedent continued to live. Free irs tax filing However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed. Free irs tax filing Higher Standard Deduction for Age (65 or Older) If you are age 65 or older on the last day of the year and do not itemize deductions, you are entitled to a higher standard deduction. Free irs tax filing You are considered 65 on the day before your 65th birthday. Free irs tax filing Therefore, you can take a higher standard deduction for 2013 if you were born before January 2, 1949. Free irs tax filing Use Table 20-2 to figure the standard deduction amount. Free irs tax filing Higher Standard Deduction for Blindness If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. Free irs tax filing Not totally blind. Free irs tax filing   If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that: You cannot see better than 20/200 in the better eye with glasses or contact lenses, or Your field of vision is 20 degrees or less. Free irs tax filing   If your eye condition is not likely to improve beyond these limits, the statement should include this fact. Free irs tax filing You must keep the statement in your records. Free irs tax filing   If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify. Free irs tax filing Spouse 65 or Older or Blind You can take the higher standard deduction if your spouse is age 65 or older or blind and: You file a joint return, or You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and cannot be claimed as a dependent by another taxpayer. Free irs tax filing You cannot claim the higher standard deduction for an individual other than yourself and your spouse. Free irs tax filing Examples The following examples illustrate how to determine your standard deduction using Tables 20-1 and 20-2. Free irs tax filing Example 1. Free irs tax filing Larry, 46, and Donna, 33, are filing a joint return for 2013. Free irs tax filing Neither is blind, and neither can be claimed as a dependent. Free irs tax filing They decide not to itemize their deductions. Free irs tax filing They use Table 20-1. Free irs tax filing Their standard deduction is $12,200. Free irs tax filing Example 2. Free irs tax filing The facts are the same as in Example 1 except that Larry is blind at the end of 2013. Free irs tax filing Larry and Donna use Table 20-2. Free irs tax filing Their standard deduction is $13,400. Free irs tax filing Example 3. Free irs tax filing Bill and Lisa are filing a joint return for 2013. Free irs tax filing Both are over age 65. Free irs tax filing Neither is blind, and neither can be claimed as a dependent. Free irs tax filing If they do not itemize deductions, they use Table 20-2. Free irs tax filing Their standard deduction is $14,600. Free irs tax filing Standard Deduction for Dependents The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the greater of: $1,000, or The individual's earned income for the year plus $350 (but not more than the regular standard deduction amount, generally $6,100). Free irs tax filing However, if the individual is 65 or older or blind, the standard deduction may be higher. Free irs tax filing If you (or your spouse, if filing jointly) can be claimed as a dependent on someone else's return, use Table 20-3 to determine your standard deduction. Free irs tax filing Earned income defined. Free irs tax filing   Earned income is salaries, wages, tips, professional fees, and other amounts received as pay for work you actually perform. Free irs tax filing    For purposes of the standard deduction, earned income also includes any part of a scholarship or fellowship grant that you must include in your gross income. Free irs tax filing See Scholarships and fellowships in chapter 12 for more information on what qualifies as a scholarship or fellowship grant. Free irs tax filing Example 1. Free irs tax filing Michael is single. Free irs tax filing His parents can claim an exemption for him on their 2013 tax return. Free irs tax filing He has interest income of $780 and wages of $150. Free irs tax filing He has no itemized deductions. Free irs tax filing Michael uses Table 20-3 to find his standard deduction. Free irs tax filing He enters $150 (his earned income) on line 1, $500 ($150 + $350) on line 3, $1,000 (the larger of $500 and $1,000) on line 5, and $6,100 on line 6. Free irs tax filing His standard deduction, on line 7a, is $1,000 (the smaller of $1,000 and $6,100). Free irs tax filing Example 2. Free irs tax filing Joe, a 22-year-old full-time college student, can be claimed as a dependent on his parents' 2013 tax return. Free irs tax filing Joe is married and files a separate return. Free irs tax filing His wife does not itemize deductions on her separate return. Free irs tax filing Joe has $1,500 in interest income and wages of $3,800. Free irs tax filing He has no itemized deductions. Free irs tax filing Joe finds his standard deduction by using Table 20-3. Free irs tax filing He enters his earned income, $3,800 on line 1. Free irs tax filing He adds lines 1 and 2 and enters $4,150 on line 3. Free irs tax filing On line 5, he enters $4,150, the larger of lines 3 and 4. Free irs tax filing Because Joe is married filing a separate return, he enters $6,100 on line 6. Free irs tax filing On line 7a he enters $4,150 as his standard deduction because it is smaller than $6,100, the amount on line 6. Free irs tax filing Example 3. Free irs tax filing Amy, who is single, can be claimed as a dependent on her parents' 2013 tax return. Free irs tax filing She is 18 years old and blind. Free irs tax filing She has interest income of $1,300 and wages of $2,900. Free irs tax filing She has no itemized deductions. Free irs tax filing Amy uses Table 20-3 to find her standard deduction. Free irs tax filing She enters her wages of $2,900 on line 1. Free irs tax filing She adds lines 1 and 2 and enters $3,250 on line 3. Free irs tax filing On line 5, she enters $3,250, the larger of lines 3 and 4. Free irs tax filing Because she is single, Amy enters $6,100 on line 6. Free irs tax filing She enters $3,250 on line 7a. Free irs tax filing This is the smaller of the amounts on lines 5 and 6. Free irs tax filing Because she checked one box in the top part of the worksheet, she enters $1,500 on line 7b. Free irs tax filing She then adds the amounts on lines 7a and 7b and enters her standard deduction of $4,750 on line 7c. Free irs tax filing Example 4. Free irs tax filing Ed is single. Free irs tax filing His parents can claim an exemption for him on their 2013 tax return. Free irs tax filing He has wages of $7,000, interest income of $500, and a business loss of $3,000. Free irs tax filing He has no itemized deductions. Free irs tax filing Ed uses Table 20-3 to figure his standard deduction. Free irs tax filing He enters $4,000 ($7,000 - $3,000) on line 1. Free irs tax filing He adds lines 1 and 2 and enters $4,350 on line 3. Free irs tax filing On line 5 he enters $4,350, the larger of lines 3 and 4. Free irs tax filing Because he is single, Ed enters $6,100 on line 6. Free irs tax filing On line 7a he enters $4,350 as his standard deduction because it is smaller than $6,100, the amount on line 6. Free irs tax filing Who Should Itemize You should itemize deductions if your total deductions are more than the standard deduction amount. Free irs tax filing Also, you should itemize if you do not qualify for the standard deduction, as discussed earlier under Persons not eligible for the standard deduction . Free irs tax filing You should first figure your itemized deductions and compare that amount to your standard deduction to make sure you are using the method that gives you the greater benefit. Free irs tax filing You may be subject to a limit on some of your itemized deductions if your adjusted gross income is more than: $250,000 if single ($275,000 if head of household, $300,000 if married filing jointly or qualifying widow(er); or $150,000 if married filing separately). Free irs tax filing See chapter 29 or the instructions for Schedule A (Form 1040) for more information on figuring the correct amount of your itemized deductions. Free irs tax filing When to itemize. Free irs tax filing   You may benefit from itemizing your deductions on Schedule A (Form 1040) if you: Do not qualify for the standard deduction, or the amount you can claim is limited, Had large uninsured medical and dental expenses during the year, Paid interest and taxes on your home, Had large unreimbursed employee business expenses or other miscellaneous deductions, Had large uninsured casualty or theft losses, Made large contributions to qualified charities, or Have total itemized deductions that are more than the standard deduction to which you otherwise are entitled. Free irs tax filing These deductions are explained in chapters 21–28. Free irs tax filing    If you decide to itemize your deductions, complete Schedule A and attach it to your Form 1040. Free irs tax filing Enter the amount from Schedule A, line 29, on Form 1040, line 40. Free irs tax filing Electing to itemize for state tax or other purposes. Free irs tax filing   Even if your itemized deductions are less than your standard deduction, you can elect to itemize deductions on your federal return rather than take the standard deduction. Free irs tax filing You may want to do this if, for example, the tax benefit of itemizing your deductions on your state tax return is greater than the tax benefit you lose on your federal return by not taking the standard deduction. Free irs tax filing To make this election, you must check the box on line 30 of Schedule A. Free irs tax filing Changing your mind. Free irs tax filing   If you do not itemize your deductions and later find that you should have itemized — or if you itemize your deductions and later find you should not have — you can change your return by filing Form 1040X, Amended U. Free irs tax filing S. Free irs tax filing Individual Income Tax Return. Free irs tax filing See Amended Returns and Claims for Refund in chapter 1 for more information on amended returns. Free irs tax filing Married persons who filed separate returns. Free irs tax filing   You can change methods of taking deductions only if you and your spouse both make the same changes. Free irs tax filing Both of you must file a consent to assessment for any additional tax either one may owe as a result of the change. Free irs tax filing    You and your spouse can use the method that gives you the lower total tax, even though one of you may pay more tax than you would have paid by using the other method. Free irs tax filing You both must use the same method of claiming deductions. Free irs tax filing If one itemizes deductions, the other should itemize because he or she will not qualify for the standard deduction. Free irs tax filing See Persons not eligible for the standard deduction , earlier. Free irs tax filing 2013 Standard Deduction Tables If you are married filing a separate return and your spouse itemizes deductions, or if you are a dual-status alien, you cannot take the standard deduction even if you were born before January 2, 1949, or are blind. Free irs tax filing Table 20-1. Free irs tax filing Standard Deduction Chart for Most People* If your filing status is. Free irs tax filing . Free irs tax filing . Free irs tax filing Your standard deduction is: Single or Married filing separately $6,100 Married filing jointly or Qualifying widow(er) with dependent child 12,200 Head of household 8,950 *Do not use this chart if you were born before January 2, 1949, are blind, or if someone else can claim you (or your spouse if filing jointly) as a dependent. Free irs tax filing Use Table 20-2 or 20-3 instead. Free irs tax filing Table 20-2. Free irs tax filing Standard Deduction Chart for People Born Before January 2, 1949, or Who are Blind Check the correct number of boxes below. Free irs tax filing Then go to the chart. Free irs tax filing You: Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked   IF  your filing status is. Free irs tax filing . Free irs tax filing . Free irs tax filing AND the number in the box above is. Free irs tax filing . Free irs tax filing . Free irs tax filing THEN your standard deduction is. Free irs tax filing . Free irs tax filing . Free irs tax filing Single 1 $7,600   2 9,100 Married filing jointly 1 $13,400 or Qualifying 2 14,600 widow(er) with 3 15,800 dependent child 4 17,000 Married filing 1 $7,300 separately 2 8,500   3 9,700   4 10,900 Head of household 1 $10,450   2 11,950 *If someone else can claim you (or your spouse if filing jointly) as a dependent, use Table 20-3 instead. Free irs tax filing Table 20-3. Free irs tax filing Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse if filing jointly) as a dependent. Free irs tax filing Check the correct number of boxes below. Free irs tax filing Then go to the worksheet. Free irs tax filing You:   Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked 1. Free irs tax filing Enter your earned income (defined below). Free irs tax filing If none, enter -0-. Free irs tax filing 1. Free irs tax filing   2. Free irs tax filing Additional amount. Free irs tax filing 2. Free irs tax filing $350 3. Free irs tax filing Add lines 1 and 2. Free irs tax filing 3. Free irs tax filing   4. Free irs tax filing Minimum standard deduction. Free irs tax filing 4. Free irs tax filing $1,000 5. Free irs tax filing Enter the larger of line 3 or line 4. Free irs tax filing 5. Free irs tax filing   6. Free irs tax filing Enter the amount shown below for your filing status. Free irs tax filing Single or Married filing separately—$6,100 Married filing jointly—$12,200 Head of household—$8,950 6. Free irs tax filing   7. Free irs tax filing Standard deduction. Free irs tax filing         a. Free irs tax filing Enter the smaller of line 5 or line 6. Free irs tax filing If born after January 1, 1949, and not blind, stop here. Free irs tax filing This is your standard deduction. Free irs tax filing Otherwise, go on to line 7b. Free irs tax filing 7a. Free irs tax filing     b. Free irs tax filing If born before January 2, 1949, or blind, multiply $1,500 ($1,200 if married) by the number in the box above. Free irs tax filing 7b. Free irs tax filing     c. Free irs tax filing Add lines 7a and 7b. Free irs tax filing This is your standard deduction for 2013. Free irs tax filing 7c. Free irs tax filing   Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Free irs tax filing It also includes any amount received as a scholarship that you must include in your income. Free irs tax filing Prev  Up  Next   Home   More Online Publications
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The Free Irs Tax Filing

Free irs tax filing 3. Free irs tax filing   Savings Incentive Match Plans for Employees (SIMPLE) Table of Contents Introduction What Is a SIMPLE Plan?Eligible Employees How Are Contributions Made? How Much Can Be Contributed on Your Behalf?Matching contributions less than 3%. Free irs tax filing Traditional IRA mistakenly moved to SIMPLE IRA. Free irs tax filing When Can You Withdraw or Use Assets?Are Distributions Taxable? Introduction This chapter is for employees who need information about savings incentive match plans for employees (SIMPLE plans). Free irs tax filing It explains what a SIMPLE plan is, contributions to a SIMPLE plan, and distributions from a SIMPLE plan. Free irs tax filing Under a SIMPLE plan, SIMPLE retirement accounts for participating employees can be set up either as: Part of a 401(k) plan, or A plan using IRAs (SIMPLE IRA). Free irs tax filing This chapter only discusses the SIMPLE plan rules that relate to SIMPLE IRAs. Free irs tax filing See chapter 3 of Publication 560 for information on any special rules for SIMPLE plans that do not use IRAs. Free irs tax filing If your employer maintains a SIMPLE plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution. Free irs tax filing See Rollovers and Transfers Exception, later under When Can You Withdraw or Use Assets. Free irs tax filing What Is a SIMPLE Plan? A SIMPLE plan is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Free irs tax filing See chapter 3 of Publication 560 for information on the requirements employers must satisfy to set up a SIMPLE plan. Free irs tax filing A SIMPLE plan is a written agreement (salary reduction agreement) between you and your employer that allows you, if you are an eligible employee (including a self-employed individual), to choose to: Reduce your compensation (salary) by a certain percentage each pay period, and Have your employer contribute the salary reductions to a SIMPLE IRA on your behalf. Free irs tax filing These contributions are called salary reduction contributions. Free irs tax filing All contributions under a SIMPLE IRA plan must be made to SIMPLE IRAs, not to any other type of IRA. Free irs tax filing The SIMPLE IRA can be an individual retirement account or an individual retirement annuity, described in chapter 1. Free irs tax filing Contributions are made on behalf of eligible employees. Free irs tax filing (See Eligible Employees below. Free irs tax filing ) Contributions are also subject to various limits. Free irs tax filing (See How Much Can Be Contributed on Your Behalf , later. Free irs tax filing ) In addition to salary reduction contributions, your employer must make either matching contributions or nonelective contributions. Free irs tax filing See How Are Contributions Made , later. Free irs tax filing You may be able to claim a credit for contributions to your SIMPLE plan. Free irs tax filing For more information, see chapter 4. Free irs tax filing Eligible Employees You must be allowed to participate in your employer's SIMPLE plan if you: Received at least $5,000 in compensation from your employer during any 2 years prior to the current year, and Are reasonably expected to receive at least $5,000 in compensation during the calendar year for which contributions are made. Free irs tax filing Self-employed individual. Free irs tax filing   For SIMPLE plan purposes, the term employee includes a self-employed individual who received earned income. Free irs tax filing Excludable employees. Free irs tax filing   Your employer can exclude the following employees from participating in the SIMPLE plan. Free irs tax filing Employees whose retirement benefits are covered by a collective bargaining agreement (union contract). Free irs tax filing Employees who are nonresident aliens and received no earned income from sources within the United States. Free irs tax filing Employees who would not have been eligible employees if an acquisition, disposition, or similar transaction had not occurred during the year. Free irs tax filing Compensation. Free irs tax filing   For purposes of the SIMPLE plan rules, your compensation for a year generally includes the following amounts. Free irs tax filing Wages, tips, and other pay from your employer that is subject to income tax withholding. Free irs tax filing Deferred amounts elected under any 401(k) plans, 403(b) plans, government (section 457) plans, SEP plans, and SIMPLE plans. Free irs tax filing Self-employed individual compensation. Free irs tax filing   For purposes of the SIMPLE plan rules, if you are self-employed, your compensation for a year is your net earnings from self-employment (Schedule SE (Form 1040), Section A, line 4, or Section B, line 6) before subtracting any contributions made to a SIMPLE IRA on your behalf. Free irs tax filing   For these purposes, net earnings from self-employment include services performed while claiming exemption from self-employment tax as a member of a group conscientiously opposed to social security benefits. Free irs tax filing How Are Contributions Made? Contributions under a salary reduction agreement are called salary reduction contributions. Free irs tax filing They are made on your behalf by your employer. Free irs tax filing Your employer must also make either matching contributions or nonelective contributions. Free irs tax filing Salary reduction contributions. Free irs tax filing   During the 60-day period before the beginning of any year, and during the 60-day period before you are eligible, you can choose salary reduction contributions expressed either as a percentage of compensation, or as a specific dollar amount (if your employer offers this choice). Free irs tax filing You can choose to cancel the election at any time during the year. Free irs tax filing   Salary reduction contributions are also referred to as “elective deferrals. Free irs tax filing ”   Your employer cannot place restrictions on the contributions amount (such as by limiting the contributions percentage), except to comply with the salary reduction contributions limit, discussed under How Much Can Be Contributed on Your Behalf, later. Free irs tax filing Matching contributions. Free irs tax filing   Unless your employer chooses to make nonelective contributions, your employer must make contributions equal to the salary reduction contributions you choose (elect), but only up to certain limits. Free irs tax filing See How Much Can Be Contributed on Your Behalf below. Free irs tax filing These contributions are in addition to the salary reduction contributions and must be made to the SIMPLE IRAs of all eligible employees (defined earlier) who chose salary reductions. Free irs tax filing These contributions are referred to as matching contributions. Free irs tax filing   Matching contributions on behalf of a self-employed individual are not treated as salary reduction contributions. Free irs tax filing Nonelective contributions. Free irs tax filing   Instead of making matching contributions, your employer may be able to choose to make nonelective contributions on behalf of all eligible employees. Free irs tax filing These nonelective contributions must be made on behalf of each eligible employee who has at least $5,000 of compensation from your employer, whether or not the employee chose salary reductions. Free irs tax filing   One of the requirements your employer must satisfy is notifying the employees that the election was made. Free irs tax filing For other requirements that your employer must satisfy, see chapter 3 of Publication 560. Free irs tax filing How Much Can Be Contributed on Your Behalf? The limits on contributions to a SIMPLE IRA vary with the type of contribution that is made. Free irs tax filing Salary reduction contributions limit. Free irs tax filing   Salary reduction contributions (employee-chosen contributions or elective deferrals) that your employer can make on your behalf under a SIMPLE plan are limited to $12,000 for 2013. Free irs tax filing The limitation remains at $12,000 for 2014. Free irs tax filing If you are a participant in any other employer plans during 2013 and you have elective salary reductions or deferred compensation under those plans, the salary reduction contributions under the SIMPLE plan also are included in the annual limit of $17,500 for 2013 on exclusions of salary reductions and other elective deferrals. Free irs tax filing You, not your employer, are responsible for monitoring compliance with these limits. Free irs tax filing Additional elective deferrals can be contributed to your SIMPLE plan if: You reached age 50 by the end of 2013, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions, such as the regular annual limit. Free irs tax filing The most that can be contributed in additional elective deferrals to your SIMPLE plan is the lesser of the following two amounts. Free irs tax filing $2,500 for 2013, or Your compensation for the year reduced by your other elective deferrals for the year. Free irs tax filing The additional deferrals are not subject to any other contribution limit and are not taken into account in applying other contribution limits. Free irs tax filing The additional deferrals are not subject to the nondiscrimination rules as long as all eligible participants are allowed to make them. Free irs tax filing Matching employer contributions limit. Free irs tax filing   Generally, your employer must make matching contributions to your SIMPLE IRA in an amount equal to your salary reduction contributions. Free irs tax filing These matching contributions cannot be more than 3% of your compensation for the calendar year. Free irs tax filing See Matching contributions less than 3% below. Free irs tax filing Example 1. Free irs tax filing In 2013, Joshua was a participant in his employer's SIMPLE plan. Free irs tax filing His compensation, before SIMPLE plan contributions, was $41,600 ($800 per week). Free irs tax filing Instead of taking it all in cash, Joshua elected to have 12. Free irs tax filing 5% of his weekly pay ($100) contributed to his SIMPLE IRA. Free irs tax filing For the full year, Joshua's salary reduction contributions were $5,200, which is less than the $12,000 limit on these contributions. Free irs tax filing Under the plan, Joshua's employer was required to make matching contributions to Joshua's SIMPLE IRA. Free irs tax filing Because his employer's matching contributions must equal Joshua's salary reductions, but cannot be more than 3% of his compensation (before salary reductions) for the year, his employer's matching contribution was limited to $1,248 (3% of $41,600). Free irs tax filing Example 2. Free irs tax filing Assume the same facts as in Example 1 , except that Joshua's compensation for the year was $408,163 and he chose to have 2. Free irs tax filing 94% of his weekly pay contributed to his SIMPLE IRA. Free irs tax filing In this example, Joshua's salary reduction contributions for the year (2. Free irs tax filing 94% × $408,163) were equal to the 2013 limit for salary reduction contributions ($12,000). Free irs tax filing Because 3% of Joshua's compensation ($12,245) is more than the amount his employer was required to match ($12,000), his employer's matching contributions were limited to $12,000. Free irs tax filing In this example, total contributions made on Joshua's behalf for the year were $24,000 ($12,000 (Joshua's contributions) + $12,000 (matching contributions)), the maximum contributions permitted under a SIMPLE IRA for 2013. Free irs tax filing Matching contributions less than 3%. Free irs tax filing   Your employer can reduce the 3% limit on matching contributions for a calendar year, but only if: The limit is not reduced below 1%, The limit is not reduced for more than 2 years out of the 5-year period that ends with (and includes) the year for which the election is effective, and Employees are notified of the reduced limit within a reasonable period of time before the 60-day election period during which they can enter into salary reduction agreements. Free irs tax filing   For purposes of applying the rule in item (2) in determining whether the limit was reduced below 3% for the year, any year before the first year in which your employer (or a former employer) maintains a SIMPLE IRA plan will be treated as a year for which the limit was 3%. Free irs tax filing If your employer chooses to make nonelective contributions for a year, that year also will be treated as a year for which the limit was 3%. Free irs tax filing Nonelective employer contributions limit. Free irs tax filing   If your employer chooses to make nonelective contributions, instead of matching contributions, to each eligible employee's SIMPLE IRA, contributions must be 2% of your compensation for the entire year. Free irs tax filing For 2013, only $255,000 of your compensation can be taken into account to figure the contribution limit. Free irs tax filing   Your employer can substitute the 2% nonelective contribution for the matching contribution for a year if both of the following requirements are met. Free irs tax filing Eligible employees are notified that a 2% nonelective contribution will be made instead of a matching contribution. Free irs tax filing This notice is provided within a reasonable period during which employees can enter into salary reduction agreements. Free irs tax filing Example 3. Free irs tax filing Assume the same facts as in Example 2 , except that Joshua's employer chose to make nonelective contributions instead of matching contributions. Free irs tax filing Because his employer's nonelective contributions are limited to 2% of up to $255,000 of Joshua's compensation, his employer's contribution to Joshua's SIMPLE IRA was limited to $5,100. Free irs tax filing In this example, total contributions made on Joshua's behalf for the year were $17,100 (Joshua's salary reductions of $12,000 plus his employer's contribution of $5,100). Free irs tax filing Traditional IRA mistakenly moved to SIMPLE IRA. Free irs tax filing   If you mistakenly roll over or transfer an amount from a traditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA. Free irs tax filing For more information, see Recharacterizations in chapter 1. Free irs tax filing Recharacterizing employer contributions. Free irs tax filing   You cannot recharacterize employer contributions (including elective deferrals) under a SEP or SIMPLE plan as contributions to another IRA. Free irs tax filing SEPs are discussed in chapter 2 of Publication 560. Free irs tax filing SIMPLE plans are discussed in this chapter. Free irs tax filing Converting from a SIMPLE IRA. Free irs tax filing   Generally, you can convert an amount in your SIMPLE IRA to a Roth IRA under the same rules explained in chapter 1 under Converting From Any Traditional IRA Into a Roth IRA . Free irs tax filing    However, you cannot convert any amount distributed from the SIMPLE IRA during the 2-year period beginning on the date you first participated in any SIMPLE IRA plan maintained by your employer. Free irs tax filing When Can You Withdraw or Use Assets? Generally, the same distribution (withdrawal) rules that apply to traditional IRAs apply to SIMPLE IRAs. Free irs tax filing These rules are discussed in chapter 1. Free irs tax filing Your employer cannot restrict you from taking distributions from a SIMPLE IRA. Free irs tax filing Are Distributions Taxable? Generally, distributions from a SIMPLE IRA are fully taxable as ordinary income. Free irs tax filing If the distribution is an early distribution (discussed in chapter 1), it may be subject to the additional tax on early distributions. Free irs tax filing See Additional Tax on Early Distributions, later. Free irs tax filing Rollovers and Transfers Exception Generally, rollovers and trustee-to-trustee transfers are not taxable distributions. Free irs tax filing Two-year rule. Free irs tax filing   To qualify as a tax-free rollover (or a tax-free trustee-to-trustee transfer), a rollover distribution (or a transfer) made from a SIMPLE IRA during the 2-year period beginning on the date on which you first participated in your employer's SIMPLE plan must be contributed (or transferred) to another SIMPLE IRA. Free irs tax filing The 2-year period begins on the first day on which contributions made by your employer are deposited in your SIMPLE IRA. Free irs tax filing   After the 2-year period, amounts in a SIMPLE IRA can be rolled over or transferred tax free to an IRA other than a SIMPLE IRA, or to a qualified plan, a tax-sheltered annuity plan (section 403(b) plan), or deferred compensation plan of a state or local government (section 457 plan). Free irs tax filing Additional Tax on Early Distributions The additional tax on early distributions (discussed in chapter 1) applies to SIMPLE IRAs. Free irs tax filing If a distribution is an early distribution and occurs during the 2-year period following the date on which you first participated in your employer's SIMPLE plan, the additional tax on early distributions is increased from 10% to 25%. Free irs tax filing If a rollover distribution (or transfer) from a SIMPLE IRA does not satisfy the 2-year rule, and is otherwise an early distribution, the additional tax imposed because of the early distribution is increased from 10% to 25% of the amount distributed. 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