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Free State Tax Return E-file

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Free State Tax Return E-file

Free state tax return e-file Publication 721 - Main Content Table of Contents Part I General InformationRefund of Contributions Tax Withholding and Estimated Tax Filing Requirements Part II Rules for RetireesAnnuity starting date. Free state tax return e-file Gross monthly rate. Free state tax return e-file Your cost. Free state tax return e-file Choosing a survivor annuity after retirement. Free state tax return e-file Canceling a survivor annuity after retirement. Free state tax return e-file Annuity starting date after 1986. Free state tax return e-file Annuity starting date before 1987. Free state tax return e-file Simplified Method General Rule Three-Year Rule Alternative Annuity Option Federal Gift Tax Retirement During the Past Year Reemployment After Retirement Nonresident Aliens Thrift Savings Plan Rollover Rules Distributions Used To Pay Insurance Premiums for Public Safety Officers How To Report Benefits Part III Rules for Disability Retirement and Credit for the Elderly or the DisabledDisability Annuity Other Benefits Credit for the Elderly or the Disabled Part IV Rules for Survivors of Federal EmployeesFERS Death Benefit CSRS or FERS Survivor Annuity Lump-Sum CSRS or FERS Payment Thrift Savings Plan Federal Estate Tax Part V Rules for Survivors of Federal RetireesCSRS or FERS Survivor Annuity Lump-Sum CSRS or FERS Payment Voluntary Contributions Thrift Savings Plan Federal Estate Tax Income Tax Deduction for Estate Tax Paid How To Get Tax HelpLow Income Taxpayer Clinics Part I General Information This part of the publication contains information that can apply to most recipients of civil service retirement benefits. Free state tax return e-file Refund of Contributions If you leave federal government service or transfer to a job not under the CSRS or FERS and you are not eligible for an immediate annuity, you can choose to receive a refund of the money in your CSRS or FERS retirement account. Free state tax return e-file The refund will include both regular and voluntary contributions you made to the fund, plus any interest payable. Free state tax return e-file If the refund includes only your contributions, none of the refund is taxable. Free state tax return e-file If it includes any interest, the interest is taxable unless you roll it over directly into another qualified plan or a traditional individual retirement arrangement (IRA). Free state tax return e-file If you do not have the Office of Personnel Management (OPM) transfer the interest to an IRA or other plan in a direct rollover, tax will be withheld at a 20% rate. Free state tax return e-file See Rollover Rules in Part II for information on how to make a rollover. Free state tax return e-file Interest is not paid on contributions to the CSRS for service after 1956 unless your service was for more than 1 year but not more than 5 years. Free state tax return e-file Therefore, many employees who withdraw their contributions under the CSRS do not get interest and do not owe any tax on their refund. Free state tax return e-file If you do not roll over interest included in your refund, it may qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Free state tax return e-file If you separate from service before the calendar year in which you reach age 55, it may be subject to an additional 10% tax on early distributions. Free state tax return e-file For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Free state tax return e-file A lump-sum distribution is eligible for capital gain treatment or the 10-year tax option only if the plan participant was born before January 2, 1936. Free state tax return e-file Tax Withholding and Estimated Tax The CSRS or FERS annuity you receive is subject to federal income tax withholding, unless you choose not to have tax withheld. Free state tax return e-file OPM will tell you how to make the choice. Free state tax return e-file The choice for no withholding remains in effect until you change it. Free state tax return e-file These withholding rules also apply to a disability annuity, whether received before or after minimum retirement age. Free state tax return e-file 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 state tax return e-file You may owe a penalty if the total of your withheld tax and estimated tax does not cover most of the tax shown on your return. Free state tax return e-file Generally, you will owe the penalty for 2014 if the additional tax you must pay with your return is $1,000 or more and more than 10% of the tax to be shown on your 2014 return. Free state tax return e-file For more information, including exceptions to the penalty, see chapter 4 of Publication 505, Tax Withholding and Estimated Tax. Free state tax return e-file Form CSA 1099R. Free state tax return e-file   Form CSA 1099R is mailed to you by OPM each year. Free state tax return e-file It will show any tax you had withheld. Free state tax return e-file File a copy of Form CSA 1099R with your tax return if any federal income tax was withheld. Free state tax return e-file    You also can view and download your Form CSA 1099R by visiting the OPM website at  www. Free state tax return e-file servicesonline. Free state tax return e-file opm. Free state tax return e-file gov. Free state tax return e-file To log in, you will need your retirement CSA claim number and your personal identification number. Free state tax return e-file Choosing no withholding on payments outside the United States. Free state tax return e-file   The choice for no withholding generally cannot be made for annuity payments to be delivered outside the United States and its possessions. Free state tax return e-file   To choose no withholding if you are a U. Free state tax return e-file S. Free state tax return e-file citizen or resident alien, you must provide OPM with your home address in the United States or its possessions. Free state tax return e-file Otherwise, OPM has to withhold tax. Free state tax return e-file For example, OPM must withhold if you provide a U. Free state tax return e-file S. Free state tax return e-file address for a nominee, trustee, or agent (such as a bank) to whom the benefits are to be delivered, but you do not provide your own U. Free state tax return e-file S. Free state tax return e-file home address. Free state tax return e-file   If you do not provide a home address in the United States or its possessions, you can choose not to have tax withheld only if you certify to OPM that you are not a U. Free state tax return e-file S. Free state tax return e-file citizen, a U. Free state tax return e-file S. Free state tax return e-file resident alien, or someone who left the United States to avoid tax. Free state tax return e-file But if you so certify, you may be subject to the 30% flat rate withholding that applies to nonresident aliens. Free state tax return e-file For details, see Publication 519, U. Free state tax return e-file S. Free state tax return e-file Tax Guide for Aliens. Free state tax return e-file Withholding certificate. Free state tax return e-file   If you give OPM a Form W-4P-A, Election of Federal Income Tax Withholding, you can choose not to have tax withheld or you can choose to have tax withheld. Free state tax return e-file The amount of tax withheld depends on your marital status, the number of withholding allowances, and any additional amount you designate to be withheld. Free state tax return e-file If you do not make either of these choices, OPM must withhold as if you were married with three withholding allowances. Free state tax return e-file To change the amount of tax withholding or to stop withholding, call OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D. Free state tax return e-file C. Free state tax return e-file calling area must call 202-606-0500). Free state tax return e-file No special form is needed. Free state tax return e-file You will need your retirement CSA or CSF claim number, your social security number, and your personal identification number (PIN) when you call. Free state tax return e-file If you have TTY/TDD equipment, call 1-855–887–4957. Free state tax return e-file If you need a PIN, call OPM's Retirement Information Office. Free state tax return e-file You also can change the amount of withholding or stop withholding online by visiting the OPM website at www. Free state tax return e-file servicesonline. Free state tax return e-file opm. Free state tax return e-file gov. Free state tax return e-file You will need your retirement CSA or CSF claim number and your PIN. Free state tax return e-file Withholding from certain lump-sum payments. Free state tax return e-file   If you leave the federal government before becoming eligible to retire and you apply for a refund of your CSRS or FERS contributions, or you die without leaving a survivor eligible for an annuity, you or your beneficiary will receive a distribution of your contributions to the retirement plan plus any interest payable. Free state tax return e-file Tax will be withheld at a 20% rate on the interest distributed. Free state tax return e-file However, tax will not be withheld if you have OPM transfer (roll over) the interest directly to your traditional IRA or other qualified plan. Free state tax return e-file If you have OPM transfer (roll over) the interest directly to a Roth IRA, the entire amount will be taxed in the current year. Free state tax return e-file Because no income tax will be withheld at the time of the transfer, you may want to increase your withholding or pay estimated taxes. Free state tax return e-file See Rollover Rules in Part II. Free state tax return e-file If you receive only your contributions, no tax will be withheld. Free state tax return e-file Withholding from Thrift Savings Plan payments. Free state tax return e-file   Generally, a distribution that you receive from the TSP is subject to federal income tax withholding. Free state tax return e-file The amount withheld is: 20% if the distribution is an eligible rollover distribution, 10% if it is a nonperiodic distribution other than an eligible rollover distribution, or An amount determined as if you were married with three withholding allowances, unless you submit a withholding certificate (Form W-4P), if it is a periodic distribution. Free state tax return e-file  However, you usually can choose not to have tax withheld from TSP payments other than eligible rollover distributions. Free state tax return e-file By January 31 after the end of the year in which you receive a distribution, the TSP will issue Form 1099-R showing the total distributions you received in the prior year and the amount of tax withheld. Free state tax return e-file   For a detailed discussion of withholding on distributions from the TSP, see Important Tax Information About Payments From Your TSP Account, available from your agency personnel office or from the TSP. Free state tax return e-file The above document is also available in the “Forms & Publications” section of the TSP website at www. Free state tax return e-file tsp. Free state tax return e-file gov. Free state tax return e-file Estimated tax. Free state tax return e-file   Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax for 2014 (after subtracting your withholding and credits) and you expect your withholding and your credits to be less than the smaller of: 90% of the tax to be shown on your income tax return for 2014, or 100% of the tax shown on your 2013 income tax return (110% of that amount if the adjusted gross income shown on the return was more than $150,000 ($75,000 if your filing status for 2014 will be married filing separately)). Free state tax return e-file The return must cover all 12 months. Free state tax return e-file   You do not have to pay estimated tax for 2014 if you were a U. Free state tax return e-file S. Free state tax return e-file citizen or resident alien for all of 2013 and you had no tax liability for the full 12-month 2013 tax year. Free state tax return e-file   Publication 505 contains information that you can use to help you figure your estimated tax payments. Free state tax return e-file Filing Requirements If your gross income, including the taxable part of your annuity, is less than a certain amount, you generally do not have to file a federal income tax return for that year. Free state tax return e-file The gross income filing requirements for the tax year are in the instructions to Form 1040, 1040A, or 1040EZ. Free state tax return e-file Children. Free state tax return e-file   If you are the surviving spouse of a federal employee or retiree and your monthly annuity check includes a survivor annuity for one or more children, each child's annuity counts as his or her own income (not yours) for federal income tax purposes. Free state tax return e-file   If your child can be claimed as a dependent, treat the taxable part of his or her annuity as unearned income when applying the filing requirements for dependents. Free state tax return e-file Form CSF 1099R. Free state tax return e-file   Form CSF 1099R will be mailed to you by January 31 after the end of each tax year. Free state tax return e-file It will show the total amount of the annuity you received in the past year. Free state tax return e-file It also should show, separately, the survivor annuity for a child or children. Free state tax return e-file Only the part that is each individual's survivor annuity should be shown on that individual's Form 1040 or 1040A. Free state tax return e-file   If your Form CSF 1099R does not show separately the amount paid to you for a child or children, attach a statement to your return, along with a copy of Form CSF 1099R, explaining why the amount shown on the tax return differs from the amount shown on Form CSF 1099R. Free state tax return e-file    You also can view and download your Form CSF 1099R by visiting the OPM website at  www. Free state tax return e-file servicesonline. Free state tax return e-file opm. Free state tax return e-file gov. Free state tax return e-file To log in you will need your retirement CSF claim number and personal identification number. Free state tax return e-file    You may request a Summary of Payments, showing the amounts paid to you for your child(ren), from OPM by calling OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D. Free state tax return e-file C. Free state tax return e-file calling area must call 202-606-0500). Free state tax return e-file You will need your CSF claim number and your social security number when you call. Free state tax return e-file Taxable part of annuity. Free state tax return e-file   To find the taxable part of a retiree's annuity when applying the filing requirements, see the discussion in Part II, Rules for Retirees , or Part III, Rules for Disability Retirement and Credit for the Elderly or the Disabled , whichever applies. Free state tax return e-file To find the taxable part of each survivor annuity when applying the filing requirements, see the discussion in Part IV, Rules for Survivors of Federal Employees , or Part V, Rules for Survivors of Federal Retirees , whichever applies. Free state tax return e-file Part II Rules for Retirees This part of the publication is for retirees who retired on nondisability retirement. Free state tax return e-file If you retired on disability before you reached your minimum retirement age, see Part III, Rules for Disability Retirement and Credit for the Elderly or the Disabled. Free state tax return e-file However, on the day after you reach your minimum retirement age, use the rules in this section to report your disability retirement and begin recovering your cost. Free state tax return e-file Annuity statement. Free state tax return e-file   The statement you received from OPM when your CSRS or FERS annuity was approved shows the commencing date (the annuity starting date), the gross monthly rate of your annuity benefit, and your total contributions to the retirement plan (your cost). Free state tax return e-file You will use this information to figure the tax-free recovery of your cost. Free state tax return e-file Annuity starting date. Free state tax return e-file   If you retire from federal government service on a regular annuity, your annuity starting date is the commencing date on your annuity statement from OPM. Free state tax return e-file If something delays payment of your annuity, such as a late application for retirement, it does not affect the date your annuity begins to accrue or your annuity starting date. Free state tax return e-file Gross monthly rate. Free state tax return e-file   This is the amount you were to get after any adjustment for electing a survivor's annuity or for electing the lump-sum payment under the alternative annuity option (if either applied) but before any deduction for income tax withholding, insurance premiums, etc. Free state tax return e-file Your cost. Free state tax return e-file   Your monthly annuity payment contains an amount on which you have previously paid income tax. Free state tax return e-file This amount represents part of your contributions to the retirement plan. Free state tax return e-file Even though you did not receive the money that was contributed to the plan, it was included in your gross income for federal income tax purposes in the years it was taken out of your pay. Free state tax return e-file   The cost of your annuity is the total of your contributions to the retirement plan, as shown on your annuity statement from OPM. Free state tax return e-file If you elected the alternative annuity option, it includes any deemed deposits and any deemed redeposits that were added to your lump-sum credit. Free state tax return e-file (See Lump-sum credit under Alternative Annuity Option, later. Free state tax return e-file )   If you repaid contributions that you had withdrawn from the retirement plan earlier, or if you paid into the plan to receive full credit for service not subject to retirement deductions, the entire repayment, including any interest, is a part of your cost. Free state tax return e-file You cannot claim an interest deduction for any interest payments. Free state tax return e-file You cannot treat these payments as voluntary contributions; they are considered regular employee contributions. Free state tax return e-file Recovering your cost tax free. Free state tax return e-file   How you figure the tax-free recovery of the cost of your CSRS or FERS annuity depends on your annuity starting date. Free state tax return e-file If your annuity starting date is before July 2, 1986, either the Three-Year Rule or the General Rule (both discussed later) applies to your annuity. Free state tax return e-file If your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method (discussed later). Free state tax return e-file If your annuity starting date is after November 18, 1996, you must use the Simplified Method. Free state tax return e-file   Under both the General Rule and the Simplified Method, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of your cost, and the taxable part that is the amount of each payment that is more than the part that represents your cost (unless such payment is used for purposes discussed under Distributions Used To Pay Insurance Premiums for Public Safety Officers , later). Free state tax return e-file The tax-free part is a fixed dollar amount. Free state tax return e-file It remains the same, even if your annuity is increased. Free state tax return e-file Generally, this rule applies as long as you receive your annuity. Free state tax return e-file However, see Exclusion limit , later. Free state tax return e-file Choosing a survivor annuity after retirement. Free state tax return e-file    If you retired without a survivor annuity and report your annuity under the Simplified Method, do not change your tax-free monthly amount even if you later choose a survivor annuity. Free state tax return e-file   If you retired without a survivor annuity and report your annuity under the General Rule, you must figure the tax-free part of your annuity using a new exclusion percentage if you later choose a survivor annuity and take reduced annuity payments. Free state tax return e-file To figure the new exclusion percentage, reduce your cost by the amount you previously recovered tax free. Free state tax return e-file Figure the expected return as of the date the reduced annuity begins. Free state tax return e-file For details on the General Rule, see Publication 939. Free state tax return e-file Canceling a survivor annuity after retirement. Free state tax return e-file   If you retired with a survivor annuity payable to your spouse upon your death and you notify OPM that your marriage has ended, your annuity might be increased to remove the reduction for a survivor benefit. Free state tax return e-file The increased annuity does not change the cost recovery you figured at the annuity starting date. Free state tax return e-file The tax-free part of each annuity payment remains the same. Free state tax return e-file    For more information about choosing or canceling a survivor annuity after retirement, contact OPM's Retirement Information Office at 1-888-767-6738 (customers within the local Washington, D. Free state tax return e-file C. Free state tax return e-file calling area must call 202-606-0500). Free state tax return e-file Exclusion limit. Free state tax return e-file   Your annuity starting date determines the total amount of annuity payments that you can exclude from income over the years. Free state tax return e-file Annuity starting date after 1986. Free state tax return e-file   If your annuity starting date is after 1986, the total amount of annuity income that you (or the survivor annuitant) can exclude over the years as a return of your cost cannot exceed your total cost. Free state tax return e-file Annuity payments you or your survivors receive after the total cost in the plan has been recovered are generally fully taxable. Free state tax return e-file Example. Free state tax return e-file Your annuity starting date is after 1986 and you exclude $100 a month under the Simplified Method. Free state tax return e-file If your cost is $12,000, the exclusion ends after 10 years (120 months). Free state tax return e-file Thereafter, your entire annuity is generally fully taxable. Free state tax return e-file Annuity starting date before 1987. Free state tax return e-file   If your annuity starting date is before 1987, you can continue to take your monthly exclusion figured under the General Rule or Simplified Method for as long as you receive your annuity. Free state tax return e-file If you chose a joint and survivor annuity, your survivor can continue to take that same exclusion. Free state tax return e-file The total exclusion may be more than your cost. Free state tax return e-file Deduction of unrecovered cost. Free state tax return e-file   If your annuity starting date is after July 1, 1986, and the cost of your annuity has not been fully recovered at your (or the survivor annuitant's) death, a deduction is allowed for the unrecovered cost. Free state tax return e-file The deduction is claimed on your (or your survivor's) final tax return as a miscellaneous itemized deduction (not subject to the 2%-of-adjusted-gross-income limit). Free state tax return e-file If your annuity starting date is before July 2, 1986, no tax benefit is allowed for any unrecovered cost at death. Free state tax return e-file Simplified Method If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the tax-free part of your CSRS or FERS annuity. Free state tax return e-file (OPM has figured the taxable amount of your annuity shown on your Form CSA 1099R using the Simplified Method. Free state tax return e-file ) You could have chosen to use either the Simplified Method or the General Rule if your annuity starting date is after July 1, 1986, but before November 19, 1996. Free state tax return e-file The Simplified Method does not apply if your annuity starting date is before July 2, 1986. Free state tax return e-file Under the Simplified Method, you figure the tax-free part of each full monthly payment by dividing your cost by a number of months based on your age. Free state tax return e-file This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Free state tax return e-file If your annuity starting date is after 1997 and your annuity includes a survivor benefit for your spouse, this number is based on your combined ages. Free state tax return e-file Worksheet A. Free state tax return e-file   Use Worksheet A. Free state tax return e-file Simplified Method (near the end of this publication), to figure your taxable annuity. Free state tax return e-file Be sure to keep the completed worksheet. Free state tax return e-file It will help you figure your taxable amounts for later years. Free state tax return e-file Instead of Worksheet A, you generally can use the Simplified Method Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR to figure your taxable annuity. Free state tax return e-file However, you must use Worksheet A and Worksheet B in this publication if you chose the alternative annuity option, discussed later. Free state tax return e-file Line 2. Free state tax return e-file   See Your cost , earlier, for an explanation of your cost in the plan. Free state tax return e-file If your annuity starting date is after November 18, 1996, and you chose the alternative annuity option (explained later), you must reduce your cost by the tax-free part of the lump-sum payment you received. Free state tax return e-file Line 3. Free state tax return e-file   The number you enter on line 3 is the appropriate number from Table 1 or 2 representing approximate life expectancies in months. Free state tax return e-file If your annuity starting date is after 1997, use: Table 1 for an annuity without a survivor benefit, or Table 2 for an annuity with a survivor benefit. Free state tax return e-file If your annuity starting date is before 1998, use Table 1. Free state tax return e-file Line 6. Free state tax return e-file   If you received contributions tax free before 2013, the amount previously recovered tax free that you must enter on line 6 is the total amount from line 10 of last year's worksheet. Free state tax return e-file If your annuity starting date is before November 19, 1996, and you chose the alternative annuity option, this amount includes the tax-free part of the lump-sum payment you received. Free state tax return e-file Example. Free state tax return e-file Bill Smith retired from the Federal Government on March 31, 2013, under an annuity that will provide a survivor benefit for his wife, Kathy. Free state tax return e-file His annuity starting date is April 1, 2013, the annuity is paid in arrears, and he received his first monthly annuity payment on May 1, 2013. Free state tax return e-file He must use the Simplified Method to figure the tax-free part of his annuity benefits. Free state tax return e-file Bill's monthly annuity benefit is $1,000. Free state tax return e-file He had contributed $31,000 to his retirement plan and had received no distributions before his annuity starting date. Free state tax return e-file At his annuity starting date, he was 65 and Kathy was 57. Free state tax return e-file Bill's completed Worksheet A is shown later. Free state tax return e-file To complete line 3, he used Table 2 at the bottom of the worksheet and found that 310 is the number in the second column opposite the age range that includes 122 (his and Kathy's combined ages). Free state tax return e-file Bill keeps a copy of the completed worksheet for his records. Free state tax return e-file It will help him (and Kathy, if she survives him) figure the taxable amount of the annuity in later years. Free state tax return e-file Bill's tax-free monthly amount is $100. Free state tax return e-file (See line 4 of the worksheet. Free state tax return e-file ) If he lives to collect more than 310 monthly payments, he will generally have to include in his gross income the full amount of any annuity payments received after 310 payments have been made. Free state tax return e-file If Bill does not live to collect 310 monthly payments and his wife begins to receive monthly payments, she also will exclude $100 from each monthly payment until 310 payments (Bill's and hers) have been collected. Free state tax return e-file If she dies before 310 payments have been made, a miscellaneous itemized deduction (not subject to the 2%-of-adjusted- gross-income limit) will be allowed for the unrecovered cost on her final income tax return. Free state tax return e-file General Rule If your annuity starting date is after November 18, 1996, you cannot use the General Rule to figure the tax-free part of your CSRS or FERS annuity. Free state tax return e-file If your annuity starting date is after July 1, 1986, but before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method. Free state tax return e-file If your annuity starting date is before July 2, 1986, you could have chosen to use the General Rule only if you could not use the Three-Year Rule. Free state tax return e-file Under the General Rule, you figure the tax-free part of each full monthly payment by multiplying the initial gross monthly rate of your annuity by an exclusion percentage. Free state tax return e-file Figuring this percentage is complex and requires the use of actuarial tables. Free state tax return e-file For these tables and other information about using the General Rule, see Publication 939. Free state tax return e-file Three-Year Rule If your annuity starting date was before July 2, 1986, you probably had to report your annuity using the Three-Year Rule. Free state tax return e-file Under this rule, you excluded all the annuity payments from income until you fully recovered your cost. Free state tax return e-file After your cost was recovered, all payments became fully taxable. Free state tax return e-file You cannot use another rule to again exclude amounts from income. Free state tax return e-file The Three-Year Rule was repealed for retirees whose annuity starting date is after July 1, 1986. Free state tax return e-file Worksheet A. Free state tax return e-file Simplified Method for Bill Smith See the instructions in Part II of this publication under Simplified Method. Free state tax return e-file 1. Free state tax return e-file Enter the total pension or annuity payments received this year. Free state tax return e-file Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Free state tax return e-file $ 8,000 2. Free state tax return e-file Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. Free state tax return e-file See Your cost in Part II, Rules for Retirees, earlier 2. Free state tax return e-file 31,000 Note: 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 state tax return e-file Otherwise, go to line 3. Free state tax return e-file   3. Free state tax return e-file Enter the appropriate number from Table 1 below. Free state tax return e-file 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. Free state tax return e-file 3. Free state tax return e-file 310 4. Free state tax return e-file Divide line 2 by the number on line 3 4. Free state tax return e-file 100 5. Free state tax return e-file Multiply line 4 by the number of months for which this year's payments were made. Free state tax return e-file If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Free state tax return e-file Otherwise, go to line 6 5. Free state tax return e-file 800 6. Free state tax return e-file Enter any amounts previously recovered tax free in years after 1986. Free state tax return e-file This is the amount shown on line 10 of your worksheet for last year 6. Free state tax return e-file 0 7. Free state tax return e-file Subtract line 6 from line 2 7. Free state tax return e-file 31,000 8. Free state tax return e-file Enter the smaller of line 5 or line 7 8. Free state tax return e-file 800 9. Free state tax return e-file Taxable amount for year. Free state tax return e-file Subtract line 8 from line 1. Free state tax return e-file Enter the result, but not less than zero. Free state tax return e-file Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. Free state tax return e-file If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. Free state tax return e-file If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. Free state tax return e-file If you are a retired public safety officer, see Distributions Used To Pay Insurance Premiums for Public Safety Officers in Part II before entering an amount on your tax return or Worksheet C, line 1 9. Free state tax return e-file $7,200 10. Free state tax return e-file Was your annuity starting date before 1987?   Yes. Free state tax return e-file Do not complete the rest of this worksheet. Free state tax return e-file    No. Free state tax return e-file Add lines 6 and 8. Free state tax return e-file This is the amount you have recovered tax free through 2013. Free state tax return e-file You will need this number if you need to fill out this worksheet next year 10. Free state tax return e-file 800 11. Free state tax return e-file Balance of cost to be recovered. Free state tax return e-file Subtract line 10 from line 2. Free state tax return e-file If zero, you will not have to complete this worksheet next year. Free state tax return e-file The payments you receive next year will generally be fully taxable 11. Free state tax return e-file $30,200 Table 1 for Line 3 Above    IF your age on your  annuity starting date was   AND your annuity starting date was—     before November 19, 1996,  THEN enter on line 3 after November 18, 1996,  THEN enter on line 3   55 or under 300 360   56–60 260 310   61–65 240 260   66–70 170 210   71 or over 120 160  Table 2 for Line 3 Above    IF the annuitants' combined ages on your annuity starting date were   THEN enter on line 3         110 or under   410         111–120   360         121–130   310         131–140   260         141 or over   210       * A death benefit exclusion of up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996. Free state tax return e-file Alternative Annuity Option If you are eligible, you may choose an alternative form of annuity. Free state tax return e-file If you make this choice, you will receive a lump-sum payment equal to your contributions to the plan and a reduced monthly annuity. Free state tax return e-file You are eligible to make this choice if you meet all of the following requirements. Free state tax return e-file You are retiring, but not on disability. Free state tax return e-file You have a life-threatening illness or other critical medical condition. Free state tax return e-file You do not have a former spouse entitled to court ordered benefits based on your service. Free state tax return e-file If you are not eligible or do not choose this alternative annuity, you can skip the following discussion and go to Federal Gift Tax , later. Free state tax return e-file Lump-Sum Payment The lump-sum payment you receive under the alternative annuity option generally has a tax-free part and a taxable part. Free state tax return e-file The tax-free part represents part of your cost. Free state tax return e-file The taxable part represents part of the earnings on your annuity contract. Free state tax return e-file Your lump-sum credit (discussed later) may include a deemed deposit or redeposit that is treated as being included in your lump-sum payment even though you do not actually receive such amounts. Free state tax return e-file Deemed deposits and redeposits, which are described later under Lump-sum credit , are taxable to you in the year of retirement. Free state tax return e-file Your taxable amount may therefore be more than the lump-sum payment you receive. Free state tax return e-file You must include the taxable part of the lump-sum payment in your income for the year you receive the payment unless you roll it over into another qualified plan or an IRA. Free state tax return e-file If you do not have OPM transfer the taxable amount to an IRA or other plan in a direct rollover, tax will be withheld at a 20% rate. Free state tax return e-file See Rollover Rules , later, for information on how to make a rollover. Free state tax return e-file OPM can make a direct rollover only up to the amount of the lump-sum payment. Free state tax return e-file Therefore, to defer tax on the full taxable amount if it is more than the payment, you must add funds from another source. Free state tax return e-file The taxable part of the lump-sum payment does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Free state tax return e-file It also may be subject to an additional 10% tax on early distributions if you separate from service before the calendar year in which you reach age 55, even if you reach age 55 in the year you receive the lump-sum payment. Free state tax return e-file For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Free state tax return e-file Worksheet B. Free state tax return e-file   Use Worksheet B. Free state tax return e-file Lump-Sum Payment (near the end of this publication), to figure the taxable part of your lump-sum payment. Free state tax return e-file Be sure to keep the completed worksheet for your records. Free state tax return e-file   To complete the worksheet, you will need to know the amount of your lump-sum credit and the present value of your annuity contract. Free state tax return e-file Lump-sum credit. Free state tax return e-file   Generally, this is the same amount as the lump-sum payment you receive (the total of your contributions to the retirement system). Free state tax return e-file However, for purposes of the alternative annuity option, your lump-sum credit also may include deemed deposits and redeposits that OPM advanced to your retirement account so that you are given credit for the service they represent. Free state tax return e-file Deemed deposits (including interest) are for federal employment during which no retirement contributions were taken out of your pay. Free state tax return e-file Deemed redeposits (including interest) are for any refunds of retirement contributions that you received and did not repay. Free state tax return e-file You are treated as if you had received a lump-sum payment equal to the amount of your lump-sum credit and then had made a repayment to OPM of the advanced amounts. Free state tax return e-file Present value of your annuity contract. Free state tax return e-file   The present value of your annuity contract is figured using actuarial tables provided by the IRS. Free state tax return e-file If you are receiving a lump-sum payment under the Alternative Annuity Option, you can write to the address below to find out the present value of your annuity contract. Free state tax return e-file Internal Revenue Service Attn: Actuarial Group 2 TE/GE SE:T:EP:RA:T:A2 NCA-629 1111 Constitution Ave. Free state tax return e-file , NW Washington, DC 20224-0002 Example. Free state tax return e-file David Brown retired from the federal government in 2013, one month after his 55th birthday. Free state tax return e-file He had contributed $31,000 to his retirement plan and chose to receive a lump-sum payment of that amount under the alternative annuity option. Free state tax return e-file The present value of his annuity contract was $155,000. Free state tax return e-file The tax-free part and the taxable part of the lump-sum payment are figured using Worksheet B, as shown below. Free state tax return e-file The taxable part ($24,800) is also his net cost in the plan, which is used to figure the taxable part of his reduced annuity payments. Free state tax return e-file See Reduced Annuity , later. Free state tax return e-file Worksheet B. Free state tax return e-file Lump-Sum Payment for David Brown See the instructions in Part II of this publication under Alternative Annuity Option . Free state tax return e-file  1. Free state tax return e-file Enter your lump-sum credit (your cost in the plan at the annuity starting date) 1. Free state tax return e-file $ 31,000 2. Free state tax return e-file Enter the present value of your annuity contract 2. Free state tax return e-file 155,000 3. Free state tax return e-file Divide line 1 by line 2 3. Free state tax return e-file . Free state tax return e-file 20 4. Free state tax return e-file Tax-free amount. Free state tax return e-file Multiply line 1 by line 3. Free state tax return e-file (Caution: Do not include this amount on line 6 of Worksheet A in this publication. Free state tax return e-file ) 4. Free state tax return e-file $6,200 5. Free state tax return e-file Taxable amount (net cost in the plan). Free state tax return e-file Subtract line 4 from line 1. Free state tax return e-file Include this amount in the total on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Free state tax return e-file Also, enter this amount on line 2 of Worksheet A in this publication. Free state tax return e-file 5. Free state tax return e-file $24,800   Lump-sum payment in installments. Free state tax return e-file   If you choose the alternative annuity option, you usually will receive the lump-sum payment in two equal installments. Free state tax return e-file You will receive the first installment after you make the choice upon retirement. Free state tax return e-file The second installment will be paid to you, with interest, in the next calendar year. Free state tax return e-file (Exceptions to the installment rule are provided for cases of critical medical need. Free state tax return e-file )   Even though the lump-sum payment is made in installments, the overall tax treatment (explained at the beginning of this discussion) is the same as if the whole payment were paid at once. Free state tax return e-file If the payment has a tax-free part, you must treat the taxable part as received first. Free state tax return e-file How to report. Free state tax return e-file   Add any actual or deemed payment of your lump-sum credit (defined earlier) to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Free state tax return e-file Add the taxable part to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b, unless you roll over the taxable part to your traditional IRA or a qualified retirement plan. Free state tax return e-file    If you receive the lump-sum payment in two installments, include any interest paid with the second installment on line 8a of either Form 1040 or Form 1040A, or on line 9a of Form 1040NR. Free state tax return e-file Reduced Annuity If you have chosen to receive a lump-sum payment under the alternative annuity option, you also will receive reduced monthly annuity payments. Free state tax return e-file These annuity payments each will have a tax-free and a taxable part. Free state tax return e-file To figure the tax-free part of each annuity payment, you must use the Simplified Method (Worksheet A). Free state tax return e-file For instructions on how to complete the worksheet, see Worksheet A under Simplified Method, earlier. Free state tax return e-file To complete Worksheet A, line 2, you must reduce your cost in the plan by the tax-free part of the lump-sum payment you received. Free state tax return e-file Enter as your net cost on line 2 the amount from Worksheet B, line 5. Free state tax return e-file Do not include the tax-free part of the lump-sum payment with other amounts recovered tax free (Worksheet A, line 6) when limiting your total exclusion to your total cost. Free state tax return e-file Example. Free state tax return e-file The facts are the same as in the example for David Brown in the preceding discussion. Free state tax return e-file In addition, David received 10 annuity payments in 2013 of $1,200 each. Free state tax return e-file Using Worksheet A, he figures the taxable part of his annuity payments. Free state tax return e-file He completes line 2 by reducing his $31,000 cost by the $6,200 tax-free part of his lump-sum payment. Free state tax return e-file His entry on line 2 is his $24,800 net cost in the plan (the amount from Worksheet B, line 5). Free state tax return e-file He does not include the tax-free part of his lump-sum payment on Worksheet A, line 6. Free state tax return e-file David's filled-in Worksheet A is shown on the next page. Free state tax return e-file Worksheet A. Free state tax return e-file Simplified Method for David Brown See the instructions in Part II of this publication under Simplified Method . Free state tax return e-file 1. Free state tax return e-file Enter the total pension or annuity payments received this year. Free state tax return e-file Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Free state tax return e-file $ 12,000 2. Free state tax return e-file Enter your cost in the plan at the annuity starting date, plus any death benefit exclusion*. Free state tax return e-file See Your cost in Part II, Rules for Retirees, earlier 2. Free state tax return e-file 24,800 Note: 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 state tax return e-file Otherwise, go to line 3. Free state tax return e-file   3. Free state tax return e-file Enter the appropriate number from Table 1 below. Free state tax return e-file 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. Free state tax return e-file 3. Free state tax return e-file 360 4. Free state tax return e-file Divide line 2 by the number on line 3 4. Free state tax return e-file 68. Free state tax return e-file 89 5. Free state tax return e-file Multiply line 4 by the number of months for which this year's payments were made. Free state tax return e-file If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Free state tax return e-file Otherwise, go to line 6 5. Free state tax return e-file 688. Free state tax return e-file 90 6. Free state tax return e-file Enter any amounts previously recovered tax free in years after 1986. Free state tax return e-file This is the amount shown on line 10 of your worksheet for last year 6. Free state tax return e-file 0 7. Free state tax return e-file Subtract line 6 from line 2 7. Free state tax return e-file 24,800 8. Free state tax return e-file Enter the smaller of line 5 or line 7 8. Free state tax return e-file 688. Free state tax return e-file 90 9. Free state tax return e-file Taxable amount for year. Free state tax return e-file Subtract line 8 from line 1. Free state tax return e-file Enter the result, but not less than zero. Free state tax return e-file Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b. Free state tax return e-file If you are a nonresident alien, also enter this amount on line 1 of Worksheet C. Free state tax return e-file If your Form CSA 1099R or Form CSF 1099R shows a larger amount, use the amount figured on this line instead. Free state tax return e-file If you are a retired public safety officer, see Distributions Used To Pay Insurance Premiums for Public Safety Officers in Part II before entering an amount on your tax return or Worksheet C, line 1 9. Free state tax return e-file $11,311. Free state tax return e-file 10 10. Free state tax return e-file Was your annuity starting date before 1987?   Yes. Free state tax return e-file Do not complete the rest of this worksheet. Free state tax return e-file    No. Free state tax return e-file Add lines 6 and 8. Free state tax return e-file This is the amount you have recovered tax free through 2013. Free state tax return e-file You will need this number if you need to fill out this worksheet next year 10. Free state tax return e-file 688. Free state tax return e-file 90 11. Free state tax return e-file Balance of cost to be recovered. Free state tax return e-file Subtract line 10 from line 2. Free state tax return e-file If zero, you will not have to complete this worksheet next year. Free state tax return e-file The payments you receive next year will generally be fully taxable 11. Free state tax return e-file $24,111. Free state tax return e-file 10 Table 1 for Line 3 Above    IF your age on your annuity starting date was   AND your annuity starting date was—     before November 19, 1996,  THEN enter on line 3 after November 18, 1996,  THEN enter on line 3   55 or under 300 360   56–60 260 310   61–65 240 260   66–70 170 210   71 or over 120 160  Table 2 for Line 3 Above    IF the annuitants' combined ages on your annuity starting date were   THEN enter on line 3         110 or under   410         111–120   360         121–130   310         131–140   260         141 or over   210       * A death benefit exclusion of up to $5,000 applied to certain benefits received by survivors of employees who died before August 21, 1996. Free state tax return e-file Reemployment after choosing the alternative annuity option. Free state tax return e-file If you chose this option when you retired and then you were reemployed by the Federal Government before retiring again, your Form CSA 1099R may show only the amount of your contributions to your retirement plan during your reemployment. Free state tax return e-file If the amount on the form does not include all your contributions, disregard it and use your total contributions to figure the taxable part of your annuity payments. Free state tax return e-file Annuity starting date before November 19, 1996. Free state tax return e-file   If your annuity starting date is before November 19, 1996, and you chose the alternative annuity option, the taxable and tax-free parts of your lump-sum payment and your annuity payments are figured using different rules. Free state tax return e-file Under those rules, you do not reduce your cost in the plan (Worksheet A, line 2) by the tax-free part of the lump-sum payment. Free state tax return e-file However, you must include that tax-free amount with other amounts previously recovered tax free (Worksheet A, line 6) when limiting your total exclusion to your total cost. Free state tax return e-file Federal Gift Tax If, through the exercise or nonexercise of an election or option, you provide an annuity for your beneficiary at or after your death, you have made a gift. Free state tax return e-file The gift may be taxable for gift tax purposes. Free state tax return e-file The value of the gift is equal to the value of the annuity. Free state tax return e-file Joint and survivor annuity. Free state tax return e-file   If the gift is an interest in a joint and survivor annuity where only you and your spouse can receive payments before the death of the last spouse to die, the gift generally will qualify for the unlimited marital deduction. Free state tax return e-file This will eliminate any gift tax liability with regard to that gift. Free state tax return e-file   If you provide survivor annuity benefits for someone other than your current spouse, such as your former spouse, the unlimited marital deduction will not apply. Free state tax return e-file This may result in a taxable gift. Free state tax return e-file More information. Free state tax return e-file   For information about the gift tax, see Publication 950, Introduction to Estate and Gift Taxes, and Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, and its instructions. Free state tax return e-file Retirement During the Past Year If you have recently retired, the following discussions covering annual leave, voluntary contributions, and community property may apply to you. Free state tax return e-file Annual leave. Free state tax return e-file   A payment for accrued annual leave received on retirement is a salary payment. Free state tax return e-file It is taxable as wages in the tax year you receive it. Free state tax return e-file Voluntary contributions. Free state tax return e-file   Voluntary contributions to the retirement fund are those made in addition to the regular contributions that were deducted from your salary. Free state tax return e-file They also include the regular contributions withheld from your salary after you have the years of service necessary for the maximum annuity allowed by law. Free state tax return e-file Voluntary contributions are not the same as employee contributions to the Thrift Savings Plan. Free state tax return e-file See Thrift Savings Plan , later. Free state tax return e-file Additional annuity benefit. Free state tax return e-file   If you choose to receive an additional annuity benefit from your voluntary contributions, it is treated separately from the annuity benefit that comes from the regular contributions deducted from your salary. Free state tax return e-file This separate treatment applies for figuring the amounts to be excluded from, and included in, gross income. Free state tax return e-file It does not matter that you receive only one monthly check covering both benefits. Free state tax return e-file Each year you will receive a Form CSA 1099R that will show how much of your total annuity received in the past year was from each type of benefit. Free state tax return e-file   Figure the taxable and tax-free parts of your additional monthly benefits from voluntary contributions using the rules that apply to regular CSRS and FERS annuities, as explained earlier. Free state tax return e-file Refund of voluntary contributions. Free state tax return e-file   If you choose to receive a refund of your voluntary contributions plus accrued interest, the interest is taxable to you in the tax year it is distributed unless you roll it over to a traditional IRA or another qualified retirement plan. Free state tax return e-file If you do not have OPM transfer the interest to a traditional IRA or other qualified retirement plan in a direct rollover, tax will be withheld at a 20% rate. Free state tax return e-file See Rollover Rules , later. Free state tax return e-file The interest does not qualify as a lump-sum distribution eligible for capital gain treatment or the 10-year tax option. Free state tax return e-file It also may be subject to an additional 10% tax on early distributions if you separate from service before the calendar year in which you reach age 55. Free state tax return e-file For more information, see Lump-Sum Distributions and Tax on Early Distributions in Publication 575. Free state tax return e-file Community property laws. Free state tax return e-file   State community property laws apply to your annuity. Free state tax return e-file These laws will affect your income tax only if you file a return separately from your spouse. Free state tax return e-file   Generally, the determination of whether your annuity is separate income (taxable to you) or community income (taxable to both you and your spouse) is based on your marital status and domicile when you were working. Free state tax return e-file Regardless of whether you are now living in a community property state or a noncommunity property state, your current annuity may be community income if it is based on services you performed while married and domiciled in a community property state. Free state tax return e-file   At any time, you have only one domicile even though you may have more than one home. Free state tax return e-file Your domicile is your fixed and permanent legal home that you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. Free state tax return e-file The question of your domicile is mainly a matter of your intentions as indicated by your actions. Free state tax return e-file   If your annuity is a mixture of community income and separate income, you must divide it between the two kinds of income. Free state tax return e-file The division is based on your periods of service and domicile in community and noncommunity property states while you were married. Free state tax return e-file   For more information, see Publication 555, Community Property. Free state tax return e-file Reemployment After Retirement If you retired from federal service and are later rehired by the Federal Government as an employee, you can continue to receive your annuity during reemployment. Free state tax return e-file The employing agency usually will pay you the difference between your salary for your period of reemployment and your annuity. Free state tax return e-file This amount is taxable as wages. Free state tax return e-file Your annuity will continue to be taxed just as it was before. Free state tax return e-file If you are still recovering your cost, you continue to do so. Free state tax return e-file If you have recovered your cost, the annuity you receive while you are reemployed generally is fully taxable. Free state tax return e-file Nonresident Aliens The following special rules apply to nonresident alien federal employees performing services outside the United States and to nonresident alien retirees and beneficiaries. Free state tax return e-file A nonresident alien is an individual who is not a citizen or a resident alien of the United States. Free state tax return e-file Special rule for figuring your total contributions. Free state tax return e-file   Your contributions to the retirement plan (your cost) also include the government's contributions to the plan to a certain extent. Free state tax return e-file You include government contributions that would not have been taxable to you at the time they were contributed if they had been paid directly to you. Free state tax return e-file For example, government contributions would not have been taxable to you if, at the time made, your services were performed outside the United States. Free state tax return e-file Thus, your cost is increased by these government contributions and the benefits that you, or your beneficiary, must include in income are reduced. Free state tax return e-file   This method of figuring your total contributions does not apply to any contributions the government made on your behalf after you became a citizen or a resident alien of the United States. Free state tax return e-file Limit on taxable amount. Free state tax return e-file   There is a limit on the taxable amount of payments received from the CSRS, the FERS, or the TSP by a nonresident alien retiree or nonresident alien beneficiary. Free state tax return e-file Figure this limited taxable amount by multiplying the otherwise taxable amount by a fraction. Free state tax return e-file The numerator of the fraction is the retiree's total U. Free state tax return e-file S. Free state tax return e-file Government basic pay, other than tax-exempt pay for services performed outside the United States. Free state tax return e-file The denominator is the retiree's total U. Free state tax return e-file S. Free state tax return e-file Government basic pay for all services. Free state tax return e-file    Basic pay includes regular pay plus any standby differential. Free state tax return e-file It does not include bonuses, overtime pay, certain retroactive pay, uniform or other allowances, or lump-sum leave payments. Free state tax return e-file   To figure the limited taxable amount of your CSRS or FERS annuity or your TSP distributions, use Worksheet C. Free state tax return e-file (For an annuity, first complete Worksheet A in this publication. Free state tax return e-file ) Worksheet C. Free state tax return e-file Limited Taxable Amount for Nonresident Alien 1. Free state tax return e-file Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) 1. Free state tax return e-file   2. Free state tax return e-file Enter the total U. Free state tax return e-file S. Free state tax return e-file Government basic pay other than tax-exempt pay for services performed outside the United States 2. Free state tax return e-file   3. Free state tax return e-file Enter the total U. Free state tax return e-file S. Free state tax return e-file Government basic pay for all services 3. Free state tax return e-file   4. Free state tax return e-file Divide line 2 by line 3 4. Free state tax return e-file   5. Free state tax return e-file Limited taxable amount. Free state tax return e-file Multiply line 1 by line 4. Free state tax return e-file Enter this amount on Form 1040NR, line 17b 5. Free state tax return e-file   Example 1. Free state tax return e-file You are a nonresident alien who performed all services for the U. Free state tax return e-file S. Free state tax return e-file Government abroad as a nonresident alien. Free state tax return e-file You retired and began to receive a monthly annuity of $200. Free state tax return e-file Your total basic pay for all services for the U. Free state tax return e-file S. Free state tax return e-file Government was $100,000. Free state tax return e-file All of your basic pay was tax exempt because it was not U. Free state tax return e-file S. Free state tax return e-file source income. Free state tax return e-file The taxable amount of your annuity using Worksheet A in this publication is $720. Free state tax return e-file You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. Free state tax return e-file Worksheet C. Free state tax return e-file Limited Taxable Amount for Nonresident Alien — Example 1 1. Free state tax return e-file Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) 1. Free state tax return e-file $ 720 2. Free state tax return e-file Enter the total U. Free state tax return e-file S. Free state tax return e-file Government basic pay other than tax-exempt pay for services performed outside the United States 2. Free state tax return e-file 0 3. Free state tax return e-file Enter the total U. Free state tax return e-file S. Free state tax return e-file Government basic pay for all services 3. Free state tax return e-file 100,000 4. Free state tax return e-file Divide line 2 by line 3 4. Free state tax return e-file 0 5. Free state tax return e-file Limited taxable amount. Free state tax return e-file Multiply line 1 by line 4. Free state tax return e-file Enter this amount on Form 1040NR, line 17b 5. Free state tax return e-file 0 Example 2. Free state tax return e-file You are a nonresident alien who performed services for the U. Free state tax return e-file S. Free state tax return e-file Government as a nonresident alien both within the United States and abroad. Free state tax return e-file You retired and began to receive a monthly annuity of $240. Free state tax return e-file Your total basic pay for your services for the U. Free state tax return e-file S. Free state tax return e-file Government was $120,000; $40,000 was for work done in the United States and $80,000 was for your work done in a foreign country. Free state tax return e-file The part of your total basic pay for your work done in a foreign country was tax exempt because it was not U. Free state tax return e-file S. Free state tax return e-file source income. Free state tax return e-file The taxable amount of your annuity figured using Worksheet A in this publication is $1,980. Free state tax return e-file You are a nonresident alien, so you figure the limited taxable amount of your annuity using Worksheet C as follows. Free state tax return e-file Worksheet C. Free state tax return e-file Limited Taxable Amount for Nonresident Alien — Example 2 1. Free state tax return e-file Enter the otherwise taxable amount of the CSRS or FERS annuity (from line 9 of Worksheet A or from Forms CSA 1099R or CSF 1099R) or TSP distributions (from Form 1099R) 1. Free state tax return e-file $ 1,980 2. Free state tax return e-file Enter the total U. Free state tax return e-file S. Free state tax return e-file Government basic pay other than tax-exempt pay for services performed outside the United States 2. Free state tax return e-file 40,000 3. Free state tax return e-file Enter the total U. Free state tax return e-file S. Free state tax return e-file Government basic pay for all services 3. Free state tax return e-file 120,000 4. Free state tax return e-file Divide line 2 by line 3 4. Free state tax return e-file . Free state tax return e-file 333 5. Free state tax return e-file Limited taxable amount. Free state tax return e-file Multiply line 1 by line 4. Free state tax return e-file Enter this amount on Form 1040NR, line 17b 5. Free state tax return e-file 659 Thrift Savings Plan Generally, all of the money in your TSP account is taxed as ordinary income when you receive it. Free state tax return e-file (However, see Roth TSP balance and Uniformed services TSP accounts, next. Free state tax return e-file ) This is because neither the contributions to your traditional TSP balance nor its earnings have been included previously in your taxable income. Free state tax return e-file The way that you withdraw your account balance determines when you must pay the tax. Free state tax return e-file Roth TSP balance. Free state tax return e-file   The TSP also offers a Roth TSP option, which allows you to make after-tax contributions into your TSP account. Free state tax return e-file This means Roth TSP contributions are included in your income. Free state tax return e-file The contribution limits are the same as the traditional TSP. Free state tax return e-file You can elect to have part or all of your TSP contributions designated as a Roth TSP. Free state tax return e-file Agency contributions will be part of your traditional TSP balance. Free state tax return e-file Also, you cannot roll over any portion of your traditional TSP into your Roth TSP. Free state tax return e-file   Qualified distributions from your Roth TSP are not included in income. Free state tax return e-file This applies to both your cost in the account and income earned on that account. Free state tax return e-file 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 state tax return e-file   For more information, go to the TSP website, www. Free state tax return e-file tsp. Free state tax return e-file gov, or the TSP Service Office. Free state tax return e-file See Publication 575, Pension and Annuity Income, for more information about designated Roth accounts. Free state tax return e-file Uniformed services TSP accounts. Free state tax return e-file   If you have a uniformed services TSP account that includes contributions from combat zone pay, the distributions attributable to those contributions are tax exempt. Free state tax return e-file However, any earnings on those contributions to a traditional TSP balance are subject to tax when they are distributed. Free state tax return e-file See Roth TSP balance discussed previously to get more information about Roth contributions. Free state tax return e-file The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. Free state tax return e-file You can get more information from the TSP website, www. Free state tax return e-file tsp. Free state tax return e-file gov, or the TSP Service Office. Free state tax return e-file Direct rollover by the TSP. Free state tax return e-file   If you ask the TSP to transfer any part of the money in your account, from traditional contributions and its earnings, to a traditional IRA or other qualified retirement plan, the tax on that part is deferred until you receive payments from the traditional IRA or other plan. Free state tax return e-file However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. Free state tax return e-file Also, see Rollover Rules , later. Free state tax return e-file Direct rollover by the TSP to a Roth IRA. Free state tax return e-file   If you ask the TSP to transfer any part of the money in your account, from traditional contributions and its earnings, to a Roth IRA, the amount transferred will be taxed in the current year. Free state tax return e-file However, see the following Note for a discussion on direct rollovers by the TSP of Roth contributions and its earnings. Free state tax return e-file Also, see Rollovers to Roth IRAs for more information, later. Free state tax return e-file Note. Free state tax return e-file A direct rollover of your Roth contributions and its earnings (if certain conditions are met, see Roth TSP balance , earlier) in your TSP account to a Roth 401(k), Roth 403(b), Roth 457(b), or Roth IRA are not subject to tax when they are transferred or when you receive payments from those accounts at a later date. Free state tax return e-file This is because you already paid tax on those contributions. Free state tax return e-file You cannot rollover Roth contributions and its earnings in your TSP account to a traditional IRA. Free state tax return e-file TSP annuity. Free state tax return e-file   If you ask the TSP to buy an annuity with the money in your account, from traditional contributions and its earnings, the annuity payments are taxed when you receive them. Free state tax return e-file The payments are not subject to the additional 10% tax on early distributions, even if you are under age 55 when they begin. Free state tax return e-file However, there is no tax on the annuity payments if the annuity is purchased using the money in your account from Roth contributions and its earnings if certain conditions are met. Free state tax return e-file See Roth TSP balance , earlier. Free state tax return e-file This is because you already paid tax on those contributions. Free state tax return e-file Cash withdrawals. Free state tax return e-file   If you withdraw any of the money in your TSP account, from traditional contributions and its earnings, it is generally taxed as ordinary income when you receive it unless you roll it over into a traditional IRA or other qualified plan. Free state tax return e-file (See Rollover Rules , later. Free state tax return e-file ) If you receive your entire TSP account balance in a single tax year, you may be able to use the 10-year tax option to figure your tax. Free state tax return e-file See Lump-Sum Distributions in Publication 575 for details. Free state tax return e-file However, there is no tax if you withdraw money in your TSP account from Roth contributions and its earnings if certain conditions are met. Free state tax return e-file See Roth TSP balance , earlier. Free state tax return e-file    To qualify for the 10-year tax option, the plan participant must have been born before January 2, 1936. Free state tax return e-file   If you receive a single payment or you choose to receive your account balance in monthly payments over a period of less than 10 years, the TSP generally must withhold 20% for federal income tax. Free state tax return e-file If you choose to receive your account balance in monthly payments over a period of 10 or more years or a period based on your life expectancy, the payments are subject to withholding as if you are married with three withholding allowances, unless you submit a withholding certificate. Free state tax return e-file See also Withholding from Thrift Savings Plan payments earlier under Tax Withholding and Estimated Tax in Part I. Free state tax return e-file However, there is no withholding requirement for amounts withdrawn from your TSP account that is from Roth contributions and its earnings, if certain conditions are met. Free state tax return e-file See Roth TSP balance , earlier, for a discussion of those conditions. Free state tax return e-file Tax on early distributions. Free state tax return e-file   Any money paid to you from your TSP account before you reach age 59½ may be subject to an additional 10% tax on early distributions. Free state tax return e-file However, this additional tax does not apply in certain situations, including any of the following. Free state tax return e-file You receive the distribution and separate from government service during or after the calendar year in which you reach age 55. Free state tax return e-file You choose to receive your account balance in monthly payments based on your life expectancy. Free state tax return e-file You are totally and permanently disabled. Free state tax return e-file You receive amounts from your Roth contributions since that represents a return of your cost (after-tax money). Free state tax return e-file The earnings may be subject to the 10% tax depending on whether you met certain conditions. Free state tax return e-file See Roth TSP balance , earlier. Free state tax return e-file   For more information, see Tax on Early Distributions in Publication 575. Free state tax return e-file Outstanding loan. Free state tax return e-file   If the TSP declares a distribution from your account because money you borrowed has not been repaid when you separate from government service, your account is reduced and the amount of the distribution (your unpaid loan balance and any unpaid interest), from traditional contributions and its earnings, is taxed in the year declared. Free state tax return e-file The distribution also may be subject to the additional 10% tax on early distributions. Free state tax return e-file However, the tax will be deferred if you make a rollover contribution to a traditional IRA or other qualified plan equal to the declared distribution amount. Free state tax return e-file See Rollover Rules , later. Free state tax return e-file   If you withdraw any money from your TSP account in that same year, the TSP must withhold income tax of 20% of the total of the declared distribution and the amount withdrawn. Free state tax return e-file However, no withholding is required for portions of the distribution that is from Roth contributions and its earnings, if certain conditions are met. Free state tax return e-file See Roth TSP balance , earlier. Free state tax return e-file More information. Free state tax return e-file   For more information about the TSP, see Summary of the Thrift Savings Plan, distributed to all federal employees. Free state tax return e-file Also, see Important Tax Information About Payments From Your TSP Account and Special Tax Withholding Rules for Thrift Savings Plan Payments to Nonresident Aliens, which are available from your agency personnel office or from the TSP by calling 1-TSP-YOU-FIRST (1-877-968-3778) and for participants who are deaf, hard of hearing, or have a speech disability, call 1-TSP-THRIFT5 (1-877-847-4385). Free state tax return e-file    The above documents are also available on the TSP website at www. Free state tax return e-file tsp. Free state tax return e-file gov. Free state tax return e-file Select “Forms & Publications. Free state tax return e-file ” Rollover Rules Generally, a rollover is a tax-free withdrawal of cash or other assets from one qualified retirement plan or traditional IRA and its reinvestment in another qualified retirement plan or traditional IRA. Free state tax return e-file You do not include the amount rolled over in your income, and you cannot take a deduction for it. Free state tax return e-file The amount rolled over is taxed later as the new program pays that amount to you. Free state tax return e-file If you roll over amounts into a traditional IRA, later distributions of these amounts from the traditional IRA do not qualify for the capital gain or the 10-year tax option. Free state tax return e-file However, capital gain treatment or the 10-year tax option will be restored if the traditional IRA contains only amounts rolled over from a qualified plan and these amounts are rolled over from the traditional IRA into a qualified retirement plan. Free state tax return e-file To qualify for the capital gain treatment or 10-year tax option, the plan participant must have been born before January 2, 1936. Free state tax return e-file You can also roll over a distribution from a qualified retirement plan into a Roth IRA. Free state tax return e-file Although the transfer of a distribution into a Roth IRA is considered a rollover for Roth IRA purposes, it is not a tax-free transfer unless you are rolling over amounts from Roth contributions and its earnings. Free state tax return e-file See Rollovers to Roth IRAs , later, for more information. Free state tax return e-file Qualified retirement plan. Free state tax return e-file   For this purpose, a qualified retirement plan generally is: A qualified employee plan, A qualified employee annuity, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan. Free state tax return e-file The CSRS, FERS, and TSP are considered qualified retirement plans. Free state tax return e-file Distributions eligible for rollover treatment. Free state tax return e-file   If you receive a refund of your CSRS or FERS contributions when you leave government service, you can roll over any interest you receive on the contributions. Free state tax return e-file You cannot roll over any part of your CSRS or FERS annuity payments. Free state tax return e-file   You can roll over a distribution of any part of your TSP account balance except: A distribution of your account balance that you choose to receive in monthly payments over: Your life expectancy, The joint life expectancies of you and your beneficiary, or A period of 10 years or more, A required minimum distribution generally beginning at age 70½, A declared distribution because of an unrepaid loan, if you have not separated from government service (see Outstanding loan under Thrift Savings Plan, earlier), or A hardship distribution. Free state tax return e-file   In addition, a distribution to your beneficiary generally is not treated as an eligible rollover distribution. Free state tax return e-file However, see Qualified domestic relations order (QDRO) and Rollovers by surviving spouse , and Rollovers by nonspouse beneficiary , later. Free state tax return e-file Direct rollover option. Free state tax return e-file   You can choose to have the OPM or TSP transfer any part of an eligible rollover distribution directly to another qualified retirement plan that accepts rollover distributions or to a traditional IRA or Roth IRA. Free state tax return e-file   There is an automatic rollover requirement for mandatory distributions. Free state tax return e-file A mandatory distribution is a distribution made without your consent and before you reach age 62 or normal retirement age, whichever is later. Free state tax return e-file The automatic rollover requirement applies if the distribution is more than $1,000 and is an eligible rollover distribution. Free state tax return e-file You can choose to have the distribution paid directly to you or rolled over directly to your traditional or Roth IRA or another qualified retirement plan. Free state tax return e-file If you do not make this choice, OPM will automatically roll over the distribution into an IRA of a designated trustee or issuer. Free state tax return e-file No tax withheld. Free state tax return e-file   If you choose the direct rollover option or have an automatic rollover, no tax will be withheld from any part of the distribution that is directly paid to the trustee of the other plan. Free state tax return e-file However, if the rollover is to a Roth IRA, you may want to choose to have tax withheld since any amount rolled over is generally included in income. Free state tax return e-file Any part of the eligible rollover distribution paid to you is subject to withholding at a 20% rate. Free state tax return e-file Direct roll over amounts from Roth contributions and its earnings do not have tax withheld because you already paid tax on those amounts. Free state tax return e-file Payment to you option. Free state tax return e-file   If an eligible rollover distribution is paid to you, the OPM or TSP must withhold 20% for income tax even if you plan to roll over the distribution to another qualified retirement plan, traditional or Roth IRA. Free state tax return e-file However, the full amount is treated as distributed to you even though you actually receive only 80%. Free state tax return e-file You generally must include in income any part (including the part withheld) that you do not roll over within 60 days to another qualified retirement plan or to a traditional IRA. Free state tax return e-file Rollovers to Roth IRAs are generally included in income. Free state tax return e-file Eligible rollover distributions that are from Roth contributions do not have tax withheld because you already paid tax on those amounts. Free state tax return e-file If you leave government service before the calendar year in which you reach age 55 and are under age 59½ when a distribution is paid to you, you may have to pay an additional 10% tax on any part, including any tax withheld, that you do not roll over. Free state tax return e-file However, distributions from Roth contributions will not be subject to the 10% additional tax because it is a return of your cost (after-tax money). Free state tax return e-file Earnings from those contributions may be subject to the 10% additional tax if certain conditions are not met. Free state tax return e-file See Roth TSP balance , earlier. Free state tax return e-file Also, see Tax on Early Distributions in Publication 575. Free state tax return e-file Exception to withholding. Free state tax return e-file   Withholding from an eligible rollover distribution paid to you is not required if the distributions for your tax year total less than $200. Free state tax return e-file Partial rollovers. Free state tax return e-file   A lump-sum distribution may qualify for capital gain treatment or the 10-year tax option if the plan participant was born before January 2, 1936. Free state tax return e-file See Lump-Sum Distributions in Publication 575. Free state tax return e-file However, if you roll over any part of the distribution, the part you keep does not qualify for this special tax treatment. Free state tax return e-file Rolling over more than amount received. Free state tax return e-file   If you want to roll over more of an eligible rollover distribution than the amount you received after income tax was withheld, you will have to add funds from some other source (such as your savings or borrowed amounts). Free state tax return e-file Example. Free state tax return e-file You left government service at age 53. Free state tax return e-file On February 1, 2013, you receive an eligible rollover distribution of $10,000 from you
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Third Party Reporting Information Center - Information Documents

The IRS uses third-party information reporting on forms in the 1099 series to increase voluntary compliance and improve collections. Beginning in 2011, legislation requires reporting of income in two areas: payment card (credit, debit and certain electronic transactions) and securities basis reporting.

The links below take you to forms, instructions and background information related to the reporting requirements of payment cards and cost basis of securities sales. These regulations, notices and FAQs provide details on the implementation of Section 6050W of the Housing Assistance Tax Act of 2008 and of Section 6045(g) of the Energy Improvement and Extension Act of 2008.

Information Reporting on Payment Card and Third Party Network Transactions

Cost Basis Reporting on Securities Sales

Get Regular Updates: 
 

Note: The following initiatives have been repealed.

  • Information Reporting by Government Entities on Certain Government Payments (3% Withholding)
  • Information Reporting on Payments to Corporations and Payments of Gross Proceeds and With Respect to Property
  • Information Reporting on Real Estate Rental Property Expenses Payments
Page Last Reviewed or Updated: 25-Mar-2014

The Free State Tax Return E-file

Free state tax return e-file 2. Free state tax return e-file   Tax Shelters and Other Reportable Transactions Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Abusive Tax SheltersRules To Curb Abusive Tax Shelters Investor Reporting Penalties Whether To Invest Introduction Investments that yield tax benefits are sometimes called “tax shelters. Free state tax return e-file ” In some cases, Congress has concluded that the loss of revenue is an acceptable side effect of special tax provisions designed to encourage taxpayers to make certain types of investments. Free state tax return e-file In many cases, however, losses from tax shelters produce little or no benefit to society, or the tax benefits are exaggerated beyond those intended. Free state tax return e-file Those cases are called “abusive tax shelters. Free state tax return e-file ” An investment that is considered a tax shelter is subject to restrictions, including the requirement that it be disclosed, as discussed later. Free state tax return e-file Topics - This chapter discusses: Abusive Tax Shelters , Rules To Curb Abusive Tax Shelters , Investor Reporting , Penalties , and Whether To Invest . Free state tax return e-file Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 556 Examination of Returns, Appeal Rights, and Claims for Refund 561 Determining the Value of Donated Property 925 Passive Activity and At-Risk Rules Form (and Instructions) 8275 Disclosure Statement 8275-R Regulation Disclosure Statement 8283 Noncash Charitable Contributions 8886 Reportable Transaction Disclosure Statement See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Free state tax return e-file Abusive Tax Shelters Abusive tax shelters are marketing schemes involving artificial transactions with little or no economic reality. Free state tax return e-file They often make use of unrealistic allocations, inflated appraisals, losses in connection with nonrecourse loans, mismatching of income and deductions, financing techniques that do not conform to standard commercial business practices, or mischaracterization of the substance of the transaction. Free state tax return e-file Despite appearances to the contrary, the taxpayer generally risks little. Free state tax return e-file Abusive tax shelters commonly involve package deals designed from the start to generate losses, deductions, or credits that will be far more than present or future investment. Free state tax return e-file Or, they may promise investors from the start that future inflated appraisals will enable them, for example, to reap charitable contribution deductions based on those appraisals. Free state tax return e-file (But see the appraisal requirements discussed under Rules To Curb Abusive Tax Shelters , later. Free state tax return e-file ) They are commonly marketed in terms of the ratio of tax deductions allegedly available to each dollar invested. Free state tax return e-file This ratio (or “write-off”) is frequently said to be several times greater than one-to-one. Free state tax return e-file Because there are many abusive tax shelters, it is not possible to list all the factors you should consider in determining whether an offering is an abusive tax shelter. Free state tax return e-file However, you should ask the following questions, which might provide a clue to the abusive nature of the plan. Free state tax return e-file Do the tax benefits far outweigh the economic benefits? Is this a transaction you would seriously consider, apart from the tax benefits, if you hoped to make a profit? Do shelter assets really exist and, if so, are they insured for less than their purchase price? Is there a nontax justification for the way profits and losses are allocated to partners? Do the facts and supporting documents make economic sense? In that connection, are there sales and resales of the tax shelter property at ever increasing prices? Does the investment plan involve a gimmick, device, or sham to hide the economic reality of the transaction? Does the promoter offer to backdate documents after the close of the year? Are you instructed to backdate checks covering your investment? Is your debt a real debt or are you assured by the promoter that you will never have to pay it? Does this transaction involve laundering United States source income through foreign corporations incorporated in a tax haven and owned by United States shareholders? Rules To Curb Abusive Tax Shelters Congress has enacted a series of income tax laws designed to halt the growth of abusive tax shelters. Free state tax return e-file These provisions include the following. Free state tax return e-file Disclosure of reportable transactions. Free state tax return e-file   You must disclose information for each reportable transaction in which you participate. Free state tax return e-file See Reportable Transaction Disclosure Statement , later. Free state tax return e-file   Material advisors with respect to any reportable transaction must disclose information about the transaction on Form 8918, Material Advisor Disclosure Statement. Free state tax return e-file To determine whether you are a material advisor to a transaction, see the Instructions for Form 8918. Free state tax return e-file   Material advisors will receive a reportable transaction number for the disclosed reportable transaction. Free state tax return e-file They must provide this number to all persons to whom they acted as a material advisor. Free state tax return e-file They must provide the number at the time the transaction is entered into. Free state tax return e-file If they do not have the number at that time, they must provide it within 60 days from the date the number is mailed to them. Free state tax return e-file For information on penalties for failure to disclose and failure to maintain lists, see Internal Revenue Code sections 6707, 6707A, and 6708. Free state tax return e-file Requirement to maintain list. Free state tax return e-file   Material advisors must maintain a list of persons to whom they provide material aid, assistance, or advice on any reportable transaction. Free state tax return e-file The list must be available for inspection by the IRS, and the information required to be included on the list generally must be kept for 7 years. Free state tax return e-file See Regulations section 301. Free state tax return e-file 6112-1 for more information (including what information is required to be included on the list). Free state tax return e-file Confidentiality privilege. Free state tax return e-file   The confidentiality privilege between you and a federally authorized tax practitioner does not apply to written communications made after October 21, 2004, regarding the promotion of your direct or indirect participation in any tax shelter. Free state tax return e-file Appraisal requirement for donated property. Free state tax return e-file   If you claim a deduction of more than $5,000 for an item or group of similar items of donated property, you generally must get a qualified appraisal from a qualified appraiser and complete and attach section B of Form 8283 to your return. Free state tax return e-file If you claim a deduction of more than $500,000 for the donated property, you generally must attach the qualified appraisal to your return. Free state tax return e-file If you file electronically, see Form 8453, U. Free state tax return e-file S. Free state tax return e-file Individual Income Tax Transmittal for an IRS e-file Return, and its instructions. Free state tax return e-file For more information about appraisals, including exceptions, see Publication 561. Free state tax return e-file Passive activity loss and credit limits. Free state tax return e-file   The passive activity loss and credit rules limit the amount of losses and credits that can be claimed from passive activities and limit the amount that can offset nonpassive income, such as certain portfolio income from investments. Free state tax return e-file For more detailed information about determining and reporting income, losses, and credits from passive activities, see Publication 925. Free state tax return e-file Interest on penalties. Free state tax return e-file   If you are assessed an accuracy-related or civil fraud penalty (as discussed under Penalties , later), interest will be imposed on the amount of the penalty from the due date of the return (including any extensions) to the date you pay the penalty. Free state tax return e-file Accounting method restriction. Free state tax return e-file   Tax shelters generally cannot use the cash method of accounting. Free state tax return e-file Uniform capitalization rules. Free state tax return e-file   The uniform capitalization rules generally apply to producing property or acquiring it for resale. Free state tax return e-file Under those rules, the direct cost and part of the indirect cost of the property must be capitalized or included in inventory. Free state tax return e-file For more information, see Publication 538. Free state tax return e-file Denial of deduction for interest on an underpayment due to a reportable transaction. Free state tax return e-file   You cannot deduct any interest you paid or accrued on any part of an underpayment of tax due to an understatement arising from a reportable transaction (discussed later) if the relevant facts affecting the tax treatment of the item are not adequately disclosed. Free state tax return e-file This rule applies to reportable transactions entered into in tax years beginning after October 22, 2004. Free state tax return e-file Authority for Disallowance of Tax Benefits The IRS has published guidance concluding that the claimed tax benefits of various abusive tax shelters should be disallowed. Free state tax return e-file The guidance is the conclusion of the IRS on how the law is applied to a particular set of facts. Free state tax return e-file Guidance is published in the Internal Revenue Bulletin for taxpayers' information and also for use by IRS officials. Free state tax return e-file So, if your return is examined and an abusive tax shelter is identified and challenged, published guidance dealing with that type of shelter, which disallows certain claimed tax shelter benefits, could serve as the basis for the examining official's challenge of the tax benefits you claimed. Free state tax return e-file In such a case, the examiner will not compromise even if you or your representative believes you have authority for the positions taken on your tax return. Free state tax return e-file The courts have generally been unsympathetic to taxpayers involved in abusive tax shelter schemes and have ruled in favor of the IRS in the majority of the cases in which these shelters have been challenged. Free state tax return e-file Investor Reporting You may be required to file a reportable transaction disclosure statement. Free state tax return e-file Reportable Transaction Disclosure Statement Use Form 8886 to disclose information for each reportable transaction (discussed later) in which you participated. Free state tax return e-file Generally, you must attach Form 8886 to your return for each tax year in which you participated in the transaction. Free state tax return e-file Under certain circumstances, a transaction must be disclosed within 90 days of the transaction being identified as a listed transaction or a transaction of interest (discussed later). Free state tax return e-file In addition, for the first year Form 8886 is attached to your return, you must send a copy of the form to: Internal Revenue Service OTSA Mail Stop 4915 1973 North Rulon White Blvd. Free state tax return e-file  Ogden, UT 84404 If you file your return electronically, the copy sent to OTSA must show exactly the same information, word for word, provided with the electronically filed return and it must be provided on the official IRS Form 8886 or an exact copy of the form. Free state tax return e-file If you use a computer-generated or substitute Form 8886, it must be an exact copy of the official IRS form. Free state tax return e-file If you fail to file Form 8886 as required or fail to include any required information on the form, you may have to pay a penalty. Free state tax return e-file See Penalty for failure to disclose a reportable transaction , later under Penalties. Free state tax return e-file The following discussion briefly describes reportable transactions. Free state tax return e-file For more details, see the Instructions for Form 8886. Free state tax return e-file Reportable transaction. Free state tax return e-file   A reportable transaction is any of the following. Free state tax return e-file A listed transaction. Free state tax return e-file A confidential transaction. Free state tax return e-file A transaction with contractual protection. Free state tax return e-file A loss transaction. Free state tax return e-file A transaction of interest entered into after November 1, 2006. Free state tax return e-file Note. Free state tax return e-file Transactions with a brief asset holding period were removed from the definition of reportable transaction for transactions entered into after August 2, 2007. Free state tax return e-file Listed transaction. Free state tax return e-file   A listed transaction is the same as, or substantially similar to, one of the types of transactions the IRS has determined to be a tax-avoidance transaction. Free state tax return e-file These transactions have been identified in notices, regulations, and other published guidance issued by the IRS. Free state tax return e-file For a list of existing guidance, see Notice 2009-59 in Internal Revenue Bulletin 2009-31, available at www. Free state tax return e-file irs. Free state tax return e-file gov/irb/2009-31_IRB/ar07. Free state tax return e-file html. Free state tax return e-file Confidential transaction. Free state tax return e-file   A confidential transaction is offered to you under conditions of confidentiality and for which you have paid an advisor a minimum fee. Free state tax return e-file A transaction is offered under conditions of confidentiality if the advisor who is paid the fee places a limit on your disclosure of the tax treatment or tax structure of the transaction and the limit protects the confidentiality of the advisor's tax strategies. Free state tax return e-file The transaction is treated as confidential even if the conditions of confidentiality are not legally binding on you. Free state tax return e-file Transaction with contractual protection. Free state tax return e-file   Generally, a transaction with contractual protection is one in which you or a related party has the right to a full or partial refund of fees if all or part of the intended tax consequences of the transaction are not sustained, or a transaction for which the fees are contingent on your realizing the tax benefits from the transaction. Free state tax return e-file For information on exceptions, see Revenue Procedure 2007-20 in Internal Revenue Bulletin 2007-7, available at www. Free state tax return e-file irs. Free state tax return e-file gov/irb/2007-07_IRB/ar15. Free state tax return e-file html. Free state tax return e-file Loss transaction. Free state tax return e-file   For individuals, a loss transaction is one that results in a deductible loss if the gross amount of the loss is at least $2 million in a single tax year or $4 million in any combination of tax years. Free state tax return e-file A loss from a foreign currency transaction under Internal Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least $50,000 in a single tax year, whether or not the loss flows through from an S corporation or partnership. Free state tax return e-file   Certain losses (such as losses from casualties, thefts, and condemnations) are excepted from this category and do not have to be reported on Form 8886. Free state tax return e-file For information on other exceptions, see Revenue Procedure 2004-66 in Internal Revenue Bulletin 2004-50, as modified and superseded by Revenue Procedure 2013-11, (or future published guidance) available at www. Free state tax return e-file irs. Free state tax return e-file gov/irb/2004-50_IRB/ar11. Free state tax return e-file html. Free state tax return e-file Transaction of interest. Free state tax return e-file   A transaction of interest is a transaction entered into after November 1, 2006, that is the same as, or substantially similar to, one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest. Free state tax return e-file The IRS has identified the following transactions of interest. Free state tax return e-file “Toggling” grantor trusts as described in Notice 2007-73, 2007-36 I. Free state tax return e-file R. Free state tax return e-file B. Free state tax return e-file 545, available at www. Free state tax return e-file irs. Free state tax return e-file gov/irb/2007-36_IRB/ar20. Free state tax return e-file html. Free state tax return e-file Certain transactions involving contributions of a successor member interest in a limited liability company as described in Notice 2007-72, 2007-36 I. Free state tax return e-file R. Free state tax return e-file B. Free state tax return e-file 544, available at www. Free state tax return e-file irs. Free state tax return e-file gov/irb/2007-36_IRB/ar19. Free state tax return e-file html. Free state tax return e-file Certain transactions involving the sale or other disposition of all interests in a charitable remainder trust and claiming little or no taxable gain as described in Notice 2008-99, 2008-47 I. Free state tax return e-file R. Free state tax return e-file B. Free state tax return e-file 1194, available at www. Free state tax return e-file irs. Free state tax return e-file gov/irb/2008-47_IRB/ar11. Free state tax return e-file html. Free state tax return e-file Certain transactions involving a U. Free state tax return e-file S. Free state tax return e-file taxpayer owning controlled foreign corporations (CFCs) that hold stock of a lower-tier CFC through a domestic partnership to avoid reporting income as described in Notice 2009-7, 2009-3 I. Free state tax return e-file R. Free state tax return e-file B. Free state tax return e-file 312, available at www. Free state tax return e-file irs. Free state tax return e-file gov/irb/2009-03_IRB/ar10. Free state tax return e-file html. Free state tax return e-file   For updates to this list, go to www. Free state tax return e-file irs. Free state tax return e-file gov/Businesses/Corporations/Abusive-Tax-Shelters-and-Transactions. Free state tax return e-file Penalties Investing in an abusive tax shelter may lead to substantial expenses. Free state tax return e-file First, the promoter generally charges a substantial fee. Free state tax return e-file If your return is examined by the IRS and a tax deficiency is determined, you will be faced with payment of more tax, interest on the underpayment, possibly a 20%, 30%, or even 40% accuracy-related penalty, or a 75% civil fraud penalty. Free state tax return e-file You may also be subject to the penalty for failure to pay tax. Free state tax return e-file These penalties are explained in the following paragraphs. Free state tax return e-file Accuracy-related penalties. Free state tax return e-file   An accuracy-related penalty of 20% can be imposed for underpayments of tax due to: Negligence or disregard of rules or regulations, Substantial understatement of tax, Substantial valuation misstatement (increased to 40% for gross valuation misstatement), Transaction lacking economic substance (increased to 40% for undisclosed transaction lacking economic substance), or Undisclosed foreign financial asset understatement (40% in all cases). Free state tax return e-file Except for a transaction lacking economic substance, this penalty will not be imposed if you can show you had reasonable cause for any understatement of tax and that you acted in good faith. Free state tax return e-file Your failure to disclose a reportable transaction is a strong indication that you failed to act in good faith. Free state tax return e-file   If you are charged an accuracy-related penalty, interest will be imposed on the amount of the penalty from the due date of the return (including extensions) to the date you pay the penalty. Free state tax return e-file   The 20% penalties do not apply to any underpayment attributable to a reportable transaction understatement subject to an accuracy-related penalty (discussed later). Free state tax return e-file Negligence or disregard of rules or regulations. Free state tax return e-file   The penalty for negligence or disregard of rules or regulations is imposed only on the part of the underpayment due to negligence or disregard of rules or regulations. Free state tax return e-file The penalty will not be charged if you can show you had reasonable cause for understating your tax and that you acted in good faith. Free state tax return e-file    Negligence includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code. Free state tax return e-file It also includes any failure to keep adequate books and records. Free state tax return e-file A return position that has a reasonable basis is not negligence. Free state tax return e-file   Disregard includes any careless, reckless, or intentional disregard of rules or regulations. Free state tax return e-file   The penalty for disregard of rules and regulations can be avoided if all the following are true. Free state tax return e-file You keep adequate books and records. Free state tax return e-file You have a reasonable basis for your position on the tax issue. Free state tax return e-file You make an adequate disclosure of your position. Free state tax return e-file Use Form 8275 to make your disclosure and attach it to your return. Free state tax return e-file To disclose a position contrary to a regulation, use Form 8275-R. Free state tax return e-file Use Form 8886 to disclose a reportable transaction (discussed earlier). Free state tax return e-file Substantial understatement of tax. Free state tax return e-file   An understatement is considered to be substantial if it is more than the greater of: 10% of the tax required to be shown on the return, or $5,000. Free state tax return e-file An “understatement” is the amount of tax required to be shown on your return for a tax year minus the amount of tax shown on the return, reduced by any rebates. Free state tax return e-file The term “rebate” generally means a decrease in the tax shown on your original return as the result of your filing an amended return or claim for refund. Free state tax return e-file   For items other than tax shelters, you can file Form 8275 or Form 8275-R to disclose items that could cause a substantial understatement of income tax. Free state tax return e-file In that way, you can avoid the substantial understatement penalty if you have a reasonable basis for your position on the tax issue. Free state tax return e-file Disclosure of the tax shelter item on a tax return does not reduce the amount of the understatement. Free state tax return e-file   Also, the understatement penalty will not be imposed if you can show there was reasonable cause for the underpayment caused by the understatement and that you acted in good faith. Free state tax return e-file An important factor in establishing reasonable cause and good faith will be the extent of your effort to determine your proper tax liability under the law. Free state tax return e-file Substantial valuation misstatement. Free state tax return e-file   In general, you are liable for a 20% penalty for a substantial valuation misstatement if all the following are true. Free state tax return e-file The value or adjusted basis of any property claimed on the return is 150% or more of the correct amount. Free state tax return e-file You underpaid your tax by more than $5,000 because of the misstatement. Free state tax return e-file You cannot establish that you had reasonable cause for the underpayment and that you acted in good faith. Free state tax return e-file   You may be assessed a penalty of 40% for a gross valuation misstatement. Free state tax return e-file If you misstate the value or the adjusted basis of property by 200% or more of the amount determined to be correct, you will be assessed a penalty of 40%, instead of 20%, of the amount you underpaid because of the gross valuation misstatement. Free state tax return e-file The penalty rate is also 40% if the property's correct value or adjusted basis is zero. Free state tax return e-file Transaction lacking economic substance. Free state tax return e-file   The economic substance doctrine only applies to an individual that entered into a transaction in connection with a trade or business or an activity engaged in for the production of income. Free state tax return e-file For transactions entered into after March 30, 2010, a transaction has economic substance for you as an individual taxpayer only if: The transaction changes your economic position in a meaningful way (apart from federal income tax effects), or You have a substantial purpose (apart from federal income tax effects) for entering into the transaction. Free state tax return e-file   For purposes of determining whether economic substance exists, a transaction's profit potential will only be taken into account if the present value of the reasonably expected pre-tax profit from the transaction is substantial compared to the present value of the expected net tax benefits that would be allowed if the transaction were respected. Free state tax return e-file   If any part of your underpayment is due to any disallowance of claimed tax benefits by reason of a transaction lacking economic substance or failing to meet the requirements of any similar rule of law, that part of your underpayment will be subject to the 20% accuracy-related penalty even if you had a reasonable cause and acted in good faith concerning that part. Free state tax return e-file   Additionally, the penalty increases to 40% if you do not adequately disclose on your return or in a statement attached to your return the relevant facts affecting the tax treatment of a transaction that lacks economic substance. Free state tax return e-file Relevant facts include any facts affecting the tax treatment of the transaction. Free state tax return e-file    Any excessive amount of an erroneous claim for an income tax refund or credit (other than a refund or credit related to the earned income credit) that results from a transaction found to be lacking economic substance will not be treated as having a reasonable basis and could be subject to a 20% penalty. Free state tax return e-file Undisclosed foreign financial asset understatement. Free state tax return e-file   For tax years beginning after March 18, 2010, you may be liable for a 40% penalty for an understatement of your tax liability due to an undisclosed foreign financial asset. Free state tax return e-file An undisclosed foreign financial asset is any asset for which an information return, required to be provided under Internal Revenue Code section 6038, 6038B, 6038D, 6046A, or 6048 for any taxable year, is not provided. Free state tax return e-file The penalty applies to any part of an underpayment related to the following undisclosed foreign financial assets. Free state tax return e-file Any foreign business you control, reportable on Form 5471, Information Return of U. Free state tax return e-file S. Free state tax return e-file Persons With Respect To Certain Foreign Corporations, or Form 8865, Return of U. Free state tax return e-file S. Free state tax return e-file Persons With Respect to Certain Foreign Partnerships. Free state tax return e-file Certain transfers of property to a foreign corporation or partnership, reportable on Form 926, Return by a U. Free state tax return e-file S. Free state tax return e-file Transferor of Property to a Foreign Corporation, or certain distributions to a foreign person, reportable on Form 8865. Free state tax return e-file Your ownership interest in certain foreign financial assets, temporarily reportable on Form 8275 or 8275-R. Free state tax return e-file    Instead of, or in addition to, Form 8275 or 8275-R, you may have to file Form 8938, Statement of Specified Foreign Financial Assets, with your tax return. Free state tax return e-file See the Instructions for Form 8938 for details. Free state tax return e-file    Your acquisition, disposition, or substantial change in ownership interest in a foreign partnership, reportable on Form 8865. Free state tax return e-file Creation or transfer of money or property to certain foreign trusts, reportable on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Free state tax return e-file Penalty for incorrect appraisals. Free state tax return e-file   The person who prepares an appraisal of the value of property may have to pay a penalty if: He or she knows, or reasonably should have known, that the appraisal would be used in connection with a return or claim for refund; and The claimed value of the property on a return or claim for refund based on that appraisal results in a substantial valuation misstatement or a gross valuation misstatement as discussed earlier. Free state tax return e-file For details on the penalty amount and exceptions, see Publication 561. Free state tax return e-file Penalty for failure to disclose a reportable transaction. Free state tax return e-file   If you fail to include any required information regarding a reportable transaction (discussed earlier) on a return or statement, you may have to pay a penalty of 75% of the decrease in tax shown on your return as a result of such transaction (or that would have resulted if the transaction were respected for federal tax purposes). Free state tax return e-file For an individual, the minimum penalty is $5,000 and the maximum is $10,000 (or $100,000 for a listed transaction). Free state tax return e-file This penalty is in addition to any other penalty that may be imposed. Free state tax return e-file   The IRS may rescind or abate the penalty for failing to disclose a reportable transaction under certain limited circumstances but cannot rescind the penalty for failing to disclose a listed transaction. Free state tax return e-file For information on rescission, see Revenue Procedure 2007-21 in Internal Revenue Bulletin 2007-9 available at www. Free state tax return e-file irs. Free state tax return e-file gov/irb/2007-09_IRB/ar12. Free state tax return e-file html. Free state tax return e-file Accuracy-related penalty for a reportable transaction understatement. Free state tax return e-file   If you have a reportable transaction understatement, you may have to pay a penalty equal to 20% of the amount of that understatement. Free state tax return e-file This applies to any item due to a listed transaction or other reportable transaction with a significant purpose of avoiding or evading federal income tax. Free state tax return e-file The penalty is 30% rather than 20% for the part of any reportable transaction understatement if the transaction was not properly disclosed. Free state tax return e-file You may not have to pay the 20% penalty if you meet the strengthened reasonable cause and good faith exception. Free state tax return e-file The reasonable cause and good faith exception does not apply to any part of a reportable transaction understatement attributable to one or more transactions that lack economic substance. Free state tax return e-file   This penalty does not apply to the part of an understatement on which the fraud penalty, gross valuation misstatement penalty, or penalty for nondisclosure of noneconomic substance transactions is imposed. Free state tax return e-file Civil fraud penalty. Free state tax return e-file   If any underpayment of tax on your return is due to fraud, a penalty of 75% of the underpayment will be added to your tax. Free state tax return e-file Joint return. Free state tax return e-file   The fraud penalty on a joint return applies to a spouse only if some part of the underpayment is due to the fraud of that spouse. Free state tax return e-file Failure to pay tax. Free state tax return e-file   If a deficiency is assessed and is not paid within 10 days of the demand for payment, an investor can be penalized with up to a 25% addition to tax if the failure to pay continues. Free state tax return e-file Whether To Invest In light of the adverse tax consequences and the substantial amount of penalties and interest that will result if the claimed tax benefits are disallowed, you should consider tax shelter investments carefully and seek competent legal and financial advice. Free state tax return e-file Prev  Up  Next   Home   More Online Publications