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H&r block free online 4. H&r block free online   Underpayment Penalty for 2013 Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: General RuleFarmers and fishermen. H&r block free online Higher income taxpayers. H&r block free online Minimum required for higher income taxpayers. H&r block free online Estate or trust payments of estimated tax. H&r block free online Lowering or eliminating the penalty. H&r block free online ExceptionsLess Than $1,000 Due No Tax Liability Last Year Figuring Your Required Annual Payment (Part I) Short Method for Figuring the Penalty (Part III) Regular Method for Figuring the Penalty (Part IV)Figuring Your Underpayment (Part IV, Section A) Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Annualized Income Installment Method (Schedule AI) Farmers and Fishermen Waiver of PenaltyFarmers and fishermen. H&r block free online Introduction If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have underpaid your estimated tax and may have to pay a penalty. H&r block free online You may understand this chapter better if you can refer to a copy of your latest federal income tax return. H&r block free online No penalty. H&r block free online   Generally, you will not have to pay a penalty for 2013 if any of the following apply. H&r block free online The total of your withholding and timely estimated tax payments was at least as much as your 2012 tax. H&r block free online (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen. H&r block free online ) The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time. H&r block free online Your total tax for 2013 (defined later) minus your withholding is less than $1,000. H&r block free online You did not have a tax liability for 2012. H&r block free online You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000. H&r block free online IRS can figure the penalty for you. H&r block free online   If you think you owe the penalty, but you do not want to figure it yourself when you file your tax return, you may not have to. H&r block free online Generally, the IRS will figure the penalty for you and send you a bill. H&r block free online   You only need to figure your penalty in the following three situations. H&r block free online You are requesting a waiver of part, but not all, of the penalty. H&r block free online You are using the annualized income installment method to figure the penalty. H&r block free online You are treating the federal income tax withheld from your income as paid on the dates actually withheld. H&r block free online However, if these situations do not apply to you, and you think you can lower or eliminate your penalty, complete Form 2210 or Form 2210-F and attach it to your return. H&r block free online See Form 2210 , later. H&r block free online Topics - This chapter discusses: The general rule for the underpayment penalty, Special rules for certain individuals, Exceptions to the underpayment penalty, How to figure your underpayment and the amount of your penalty on Form 2210, and How to ask the IRS to waive the penalty. H&r block free online Useful Items - You may want to see: Form (and Instructions) 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen See chapter 5 for information about getting these forms. H&r block free online General Rule In general, you may owe a penalty for 2013 if the total of your withholding and timely estimated tax payments did not equal at least the smaller of: 90% of your 2013 tax, or 100% of your 2012 tax. H&r block free online (Your 2012 tax return must cover a 12-month period. H&r block free online ) Your 2013 tax, for this purpose, is defined under Total tax for 2013 , later. H&r block free online Special rules for certain individuals. H&r block free online   There are special rules for farmers and fishermen and certain higher income taxpayers. H&r block free online Farmers and fishermen. H&r block free online   If at least two-thirds of your gross income for 2012 or 2013 is from farming or fishing, substitute  662/3% for 90% in (1) above. H&r block free online   See Farmers and Fishermen , later. H&r block free online Higher income taxpayers. H&r block free online   If your AGI for 2012 was more than $150,000 ($75,000 if your 2013 filing status is married filing a separate return), substitute 110% for 100% in (2) under General Rule . H&r block free online This rule does not apply to farmers or fishermen. H&r block free online   For 2012, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4. H&r block free online Penalty figured separately for each period. H&r block free online   Because the penalty is figured separately for each payment period, you may owe a penalty for an earlier payment period even if you later paid enough to make up the underpayment. H&r block free online This is true even if you are due a refund when you file your income tax return. H&r block free online Example. H&r block free online You did not make estimated tax payments for 2013 because you thought you had enough tax withheld from your wages. H&r block free online Early in January 2014, you made an estimate of your total 2013 tax. H&r block free online Then you realized that your withholding was $2,000 less than the amount needed to avoid a penalty for underpayment of estimated tax. H&r block free online On January 10, you made an estimated tax payment of $3,000, which is the difference between your withholding and your estimate of your total tax. H&r block free online Your final return shows your total tax to be $50 less than your estimate, so you are due a refund. H&r block free online You do not owe a penalty for your payment due January 15, 2014. H&r block free online However, you may owe a penalty through January 10, 2014, the day you made the $3,000 payment, for your underpayments for the earlier payment periods. H&r block free online Minimum required each period. H&r block free online   You will owe a penalty for any 2013 payment period for which your estimated tax payment plus your withholding for the period and overpayments applied from previous periods was less than the smaller of: 22. H&r block free online 5% of your 2013 tax, or 25% of your 2012 tax. H&r block free online (Your 2012 tax return must cover a 12-month period. H&r block free online ) Minimum required for higher income taxpayers. H&r block free online   If you are subject to the rule for higher income taxpayers, discussed above, substitute 27. H&r block free online 5% for 25% in (2) under General Rule . H&r block free online When penalty is charged. H&r block free online   If you miss a payment or you paid less than the minimum required in a period, you may be charged an underpayment penalty from the date the amount was due to the date the payment is made. H&r block free online If a payment is mailed, the date of the U. H&r block free online S. H&r block free online postmark is considered the date of payment. H&r block free online   If a payment is made electronically, the date the payment is shown on your payment account (checking, savings, etc. H&r block free online ) is considered to be the date of payment. H&r block free online Estate or trust payments of estimated tax. H&r block free online   If you have estimated taxes credited to you from an estate or trust (Schedule K-1 (Form 1041)), treat the payment as made by you on January 15, 2014. H&r block free online Amended returns. H&r block free online    If you file an amended return by the due date of your original return, use the tax shown on your amended return to figure your required estimated tax payments. H&r block free online If you file an amended return after the due date of the original return, use the tax shown on the original return. H&r block free online   However, if you and your spouse file a joint return after the due date to replace separate returns you originally filed by the due date, use the tax shown on the joint return to figure your required estimated tax payments. H&r block free online This rule applies only if both original separate returns were filed on time. H&r block free online 2012 separate returns and 2013 joint return. H&r block free online    If you file a joint return with your spouse for 2013, but you filed separate returns for 2012, your 2012 tax is the total of the tax shown on your separate returns. H&r block free online You filed a separate return if you filed as single, head of household, or married filing separately. H&r block free online 2012 joint return and 2013 separate returns. H&r block free online    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, your 2012 tax is your share of the tax on the joint return. H&r block free online You are filing a separate return if you file as single, head of household, or married filing separately. H&r block free online   To figure your share of the taxes on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2012 using the same filing status as for 2013. H&r block free online Then multiply the tax on the joint return by the following fraction. H&r block free online   The tax you would have paid had you filed a separate return   The total tax you and your spouse would have paid had you filed separate returns Example. H&r block free online Lisa and Paul filed a joint return for 2012 showing taxable income of $49,000 and a tax of $6,484. H&r block free online Of the $49,000 taxable income, $41,000 was Lisa's and the rest was Paul's. H&r block free online For 2013, they file married filing separately. H&r block free online Lisa figures her share of the tax on the 2012 joint return as follows. H&r block free online 2012 tax on $41,000 based on a separate return $ 6,286 2012 tax on $8,000 based on a  separate return 803 Total $ 7,089 Lisa's percentage of total tax  ($6,286 ÷ $ 7,089) 88. H&r block free online 67% Lisa's part of tax on joint return ($6,484 × 88. H&r block free online 67%) $ 5,749 Form 2210. H&r block free online   In most cases, you do not need to file Form 2210. H&r block free online The IRS will figure the penalty for you and send you a bill. H&r block free online If you want us to figure the penalty for you, leave the penalty line on your return blank. H&r block free online Do not file Form 2210. H&r block free online   To determine if you should file Form 2210, see Part II of Form 2210. H&r block free online If you decide to figure your penalty, complete Part I, Part II, and either Part III or Part IV of the form and the Penalty Worksheet in the Instructions for Form 2210. H&r block free online If you use Form 2210, you cannot file Form 1040EZ. H&r block free online   On Form 1040, enter the amount of your penalty on line 77. H&r block free online If you owe tax on line 76, add the penalty to your tax due and show your total payment on line 76. H&r block free online If you are due a refund, subtract the penalty from the overpayment and enter the result on line 73. H&r block free online   On Form 1040A, enter the amount of your penalty on line 46. H&r block free online If you owe tax on line 45, add the penalty to your tax due and show your total payment on line 45. H&r block free online If you are due a refund, subtract the penalty from the overpayment and enter the result on line 42. H&r block free online Lowering or eliminating the penalty. H&r block free online    You may be able to lower or eliminate your penalty if you file Form 2210. H&r block free online You must file Form 2210 with your return if any of the following applies. H&r block free online You request a waiver. H&r block free online See Waiver of Penalty , later. H&r block free online You use the annualized income installment method. H&r block free online See the explanation of this method under Annualized Income Installment Method (Schedule AI) . H&r block free online You use your actual withholding for each payment period for estimated tax purposes. H&r block free online See Actual withholding method under Figuring Your Underpayment (Part IV, Section A). H&r block free online You base any of your required installments on the tax shown on your 2012 return and you filed or are filing a joint return for either 2012 or 2013, but not for both years. H&r block free online Exceptions Generally, you do not have to pay an underpayment penalty if either: Your total tax is less than $1,000, or You had no tax liability last year. H&r block free online Less Than $1,000 Due You do not owe a penalty if the total tax shown on your return minus the amount you paid through withholding (including excess social security and tier 1 railroad retirement (RRTA) tax withholding) is less than $1,000. H&r block free online Total tax for 2013. H&r block free online   For 2013, your total tax on Form 1040 is the amount on line 61 reduced by the following. H&r block free online    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). H&r block free online Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. H&r block free online The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. H&r block free online Any refundable credit amounts listed on lines 64a, 65, 66, 70, and any credit from Form 8885 included on line 71. H&r block free online   If you filed Form 1040A, your 2013 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. H&r block free online   If you filed Form 1040EZ, your 2013 total tax is the amount on line 10 reduced by the amount on line 8a. H&r block free online Note. H&r block free online When figuring the amount on line 60, include household employment taxes only if you had federal income tax withheld from your income or you would owe the penalty even if you did not include those taxes. H&r block free online Paid through withholding. H&r block free online    For 2013, the amount you paid through withholding on Form 1040 is the amount on line 62 plus any excess social security or tier 1 RRTA tax withholding on line 69. H&r block free online Add to that any write-in amount on line 72 identified as “Form 8689. H&r block free online ” On Form 1040A, the amount you paid through withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included on line 41. H&r block free online On Form 1040EZ, it is the amount on line 7. H&r block free online No Tax Liability Last Year You do not owe a penalty if you had no tax liability last year and you were a U. H&r block free online S. H&r block free online citizen or resident for the whole year. H&r block free online For this rule to apply, your tax year must have included all 12 months of the year. H&r block free online You had no tax liability for 2012 if your total tax was zero or you were not required to file an income tax return. H&r block free online Example. H&r block free online Ray, who is single and 22 years old, was unemployed for a few months during 2012. H&r block free online He earned $6,700 in wages before he was laid off, and he received $1,400 in unemployment compensation afterwards. H&r block free online He had no other income. H&r block free online Even though he had gross income of $8,100, he did not have to pay income tax because his gross income was less than the filing requirement for a single person under age 65 ($9,750 for 2012). H&r block free online He filed a return only to have his withheld income tax refunded to him. H&r block free online In 2013, Ray began regular work as an independent contractor. H&r block free online Ray made no estimated tax payments in 2013. H&r block free online Even though he did owe tax at the end of the year, Ray does not owe the underpayment penalty for 2013 because he had no tax liability in 2012. H&r block free online Total tax for 2012. H&r block free online   For 2012, your total tax on Form 1040 is the amount on line 61 reduced by the following. H&r block free online    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). H&r block free online Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. H&r block free online The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. H&r block free online Any refundable credit amounts listed on lines 64a, 65, 66, 70, and credits from Forms 8801 (line 27 only), and 8885 included on line 71. H&r block free online   If you filed Form 1040A, your 2012 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. H&r block free online   If you filed Form 1040EZ, your 2012 total tax is the amount on line 11 reduced by the amount on line 8a. H&r block free online Figuring Your Required Annual Payment (Part I) Figure your required annual payment in Part I of Form 2210, following the line-by-line instructions. H&r block free online If you rounded the entries on your tax return to whole dollars, you can round on Form 2210. H&r block free online Example. H&r block free online The tax on Lori Lane's 2012 return was $12,400. H&r block free online Her AGI was not more than $150,000 for either 2012 or 2013. H&r block free online The tax on her 2013 return (Form 1040, line 55) is $13,044. H&r block free online Line 56 (self-employment tax) is $8,902. H&r block free online Her 2013 total tax is $21,946. H&r block free online For 2013, Lori had $1,600 income tax withheld and made four equal estimated tax payments ($1,000 each). H&r block free online 90% of her 2013 tax is $19,751. H&r block free online Because she paid less than her 2012 tax ($12,400) and less than 90% of her 2013 tax ($19,751), and does not meet an exception, Lori knows that she owes a penalty for underpayment of estimated tax. H&r block free online The IRS will figure the penalty for Lori, but she decides to figure it herself on Form 2210 and pay it with her taxes when she files her tax return. H&r block free online Lori's required annual payment is $12,400 (100% of 2012 tax) because that is smaller than 90% of her 2013 tax. H&r block free online Different 2012 filing status. H&r block free online    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, see 2012 joint return and 2013 separate returns , earlier, to figure the amount to enter as your 2012 tax on line 8 of Form 2210. H&r block free online Short Method for Figuring the Penalty (Part III) You may be able to use the short method in Part III of Form 2210 to figure your penalty for underpayment of estimated tax. H&r block free online If you qualify to use this method, it will result in the same penalty amount as the regular method. H&r block free online However, either the annualized income installment method or the actual withholding method, explained later, may result in a smaller penalty. H&r block free online You can use the short method only if you meet one of the following requirements. H&r block free online You made no estimated tax payments for 2013 (it does not matter whether you had income tax withholding). H&r block free online You paid the same amount of estimated tax on each of the four payment due dates. H&r block free online If you do not meet either requirement, figure your penalty using the regular method in Part IV of Form 2210 and the Penalty Worksheet in the instructions. H&r block free online Note. H&r block free online If any payment was made before the due date, you can use the short method, but the penalty may be less if you use the regular method. H&r block free online However, if the payment was only a few days early, the difference is likely to be small. H&r block free online You cannot use the short method if any of the following apply. H&r block free online You made any estimated tax payments late. H&r block free online You checked box C or D in Part II of Form 2210. H&r block free online You are filing Form 1040NR or 1040NR-EZ and you did not receive wages as an employee subject to U. H&r block free online S. H&r block free online income tax withholding. H&r block free online If you use the short method, you cannot use the annualized income installment method to figure your underpayment for each payment period. H&r block free online Also, you cannot use your actual withholding during each period to figure your payments for each period. H&r block free online These methods, which may give you a smaller penalty amount, are explained under Figuring Your Underpayment (Part IV, Section A). H&r block free online Complete Part III of Form 2210 following the line-by-line instructions in the Instructions for Form 2210. H&r block free online Regular Method for Figuring the Penalty (Part IV) You can use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if you paid one or more estimated tax payments earlier than the due date. H&r block free online You must use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if any of the following apply to you. H&r block free online You paid one or more estimated tax payments on a date after the due date. H&r block free online You paid at least one, but less than four, installments of estimated tax. H&r block free online You paid estimated tax payments in un- equal amounts. H&r block free online You use the annualized income installment method to figure your underpayment for each payment period. H&r block free online You use your actual withholding during each payment period to figure your payments. H&r block free online Under the regular method, figure your underpayment for each payment period in Section A, then figure your penalty using the Penalty Worksheet in the Instructions for Form 2210. H&r block free online Enter the results on line 27 of Section B. H&r block free online Figuring Your Underpayment (Part IV, Section A) Figure your underpayment of estimated tax for each payment period in Section A following the line-by-line instructions in the Instructions for Form 2210. H&r block free online Complete lines 20 through 26 of the first column before going to line 20 of the next column. H&r block free online Required installments—line 18. H&r block free online   Your required payment for each payment period (line 18) is usually one-fourth of your required annual payment (Part I, line 9). H&r block free online This method—the regular method—is the one to use if you received your income evenly throughout the year. H&r block free online   However, if you did not receive your income evenly throughout the year, you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. H&r block free online First complete Schedule AI (Form 2210), then enter the amounts from line 25 of that schedule on line 18 of Form 2210, Part IV. H&r block free online See Annualized Income Installment Method (Schedule AI), later. H&r block free online Payments made—line 19. H&r block free online   Enter in each column the total of: Your estimated tax paid after the due date for the previous column and by the due date shown at the top of the column, and One-fourth of your withholding. H&r block free online For special rules for figuring your payments, see Form 2210 instructions for line 19. H&r block free online   If you file Form 1040, your withholding is the amount on line 62, plus any excess social security or tier 1 RRTA tax withholding on line 69. H&r block free online If you file Form 1040A, your withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included in line 41. H&r block free online Actual withholding method. H&r block free online    Instead of using one-fourth of your withholding for each quarter, you can choose to use the amounts actually withheld by each due date. H&r block free online You can make this choice separately for the tax withheld from your wages and for all other withholding. H&r block free online This includes any excess social security and tier 1 RRTA tax withheld. H&r block free online   Using your actual withholding may result in a smaller penalty if most of your withholding occurred early in the year. H&r block free online   If you use your actual withholding, you must check box D in Form 2210, Part II. H&r block free online Then complete Form 2210 using the regular method (Part IV) and file it with your return. H&r block free online Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Figure the amount of your penalty for Section B using the Penalty Worksheet in the Form 2210 instructions. H&r block free online The penalty is imposed on each underpayment amount shown on Form 2210, Section A, line 25, for the number of days that it remained unpaid. H&r block free online For 2013, there are four rate periods—April 16 through June 30, July 1 through September 30, October 1 through December 31, and January 1, 2014 through April 15, 2014. H&r block free online A 3% rate applies to all four periods. H&r block free online Payments. H&r block free online    Before completing the Penalty Worksheet, it may be helpful to make a list of the payments you made and income tax withheld after the due date (or the last day payments could be made on time) for the earliest payment period an underpayment occurred. H&r block free online For example, if you had an underpayment for the first payment period, list your payments after April 15, 2013. H&r block free online You can use the table in the Form 2210 instructions to make your list. H&r block free online Follow those instructions for listing income tax withheld and payments made with your return. H&r block free online Use the list to determine when each underpayment was paid. H&r block free online   If you mail your estimated tax payments, use the date of the U. H&r block free online S. H&r block free online postmark as the date of payment. H&r block free online Line 1b. H&r block free online   Apply the payments listed to underpayment balance in the first column until it is fully paid. H&r block free online Apply payments in the order made. H&r block free online Figuring the penalty. H&r block free online   If an underpayment was paid in two or more payments on different dates, you must figure the penalty separately for each payment. H&r block free online On line 3 of the Penalty Worksheet enter the number of days between the due date (line 2) and the date of each payment on line 1b. H&r block free online On line 4 figure the penalty for the amount of each payment applied on line 1b or the amount remaining unpaid. H&r block free online If no payments are applied, figure the penalty on the amount on line 1a. H&r block free online Aid for counting days. H&r block free online    Table 4-1 provides a simple method for counting the number of days between a due date and a payment date. H&r block free online Find the number for the date the payment was due by going across to the column of the month the payment was due and moving down the column to the due date. H&r block free online In the same manner, find the number for the date the payment was made. H&r block free online Subtract the due date “number” from the payment date “number. H&r block free online ”   For example, if a payment was due on June 15 (61), but was not paid until September 1 (139), the payment was 78 (139 – 61) days late. H&r block free online Table 4-1. H&r block free online Calendar To Determine the Number of Days a Payment Is Late Instructions. H&r block free online Use this table with Form 2210 if you are completing Part IV, Section B. H&r block free online First, find the number for the payment due date by going across to the column of the month the payment was due and moving down the column to the due date. H&r block free online Then, in the same manner, find the number for the date the payment was made. H&r block free online Finally, subtract the due date number from the payment date number. H&r block free online The result is the number of days the payment is late. H&r block free online Example. H&r block free online The payment due date is June 15 (61). H&r block free online The payment was made on November 4 (203). H&r block free online The payment is 142 days late (203 – 61). H&r block free online Tax Year 2013 Day of 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 Month April May June July Aug. H&r block free online Sept. H&r block free online Oct. H&r block free online Nov. H&r block free online Dec. H&r block free online Jan. H&r block free online Feb. H&r block free online Mar. H&r block free online Apr. H&r block free online 1   16 47 77 108 139 169 200 230 261 292 320 351 2   17 48 78 109 140 170 201 231 262 293 321 352 3   18 49 79 110 141 171 202 232 263 294 322 353 4   19 50 80 111 142 172 203 233 264 295 323 354 5   20 51 81 112 143 173 204 234 265 296 324 355 6   21 52 82 113 144 174 205 235 266 297 325 356 7   22 53 83 114 145 175 206 236 267 298 326 357 8   23 54 84 115 146 176 207 237 268 299 327 358 9   24 55 85 116 147 177 208 238 269 300 328 359 10   25 56 86 117 148 178 209 239 270 301 329 360 11   26 57 87 118 149 179 210 240 271 302 330 361 12   27 58 88 119 150 180 211 241 272 303 331 362 13   28 59 89 120 151 181 212 242 273 304 332 363 14   29 60 90 121 152 182 213 243 274 305 333 364 15 0 30 61 91 122 153 183 214 244 275 306 334 365 16 1 31 62 92 123 154 184 215 245 276 307 335   17 2 32 63 93 124 155 185 216 246 277 308 336   18 3 33 64 94 125 156 186 217 247 278 309 337   19 4 34 65 95 126 157 187 218 248 279 310 338   20 5 35 66 96 127 158 188 219 249 280 311 339   21 6 36 67 97 128 159 189 220 250 281 312 340   22 7 37 68 98 129 160 190 221 251 282 313 341   23 8 38 69 99 130 161 191 222 252 283 314 342   24 9 39 70 100 131 162 192 223 253 284 315 343   25 10 40 71 101 132 163 193 224 254 285 316 344   26 11 41 72 102 133 164 194 225 255 286 317 345   27 12 42 73 103 134 165 195 226 256 287 318 346   28 13 43 74 104 135 166 196 227 257 288 319 347   29 14 44 75 105 136 167 197 228 258 289   348   30 15 45 76 106 137 168 198 229 259 290   349   31   46   107 138   199   260 291   350   Annualized Income Installment Method (Schedule AI) If you did not receive your income evenly throughout the year (for example, your income from a shop you operated at a marina was much larger in the summer than it was during the rest of the year), you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. H&r block free online Under this method, your required installment (Part IV, line 18) for one or more payment periods may be less than one-fourth of your required annual payment. H&r block free online To figure your underpayment using this method, complete Form 2210, Schedule AI. H&r block free online Schedule AI annualizes your tax at the end of each payment period based on your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. H&r block free online If you use the annualized income installment method, you must check box C in Part II of Form 2210. H&r block free online Also, you must attach Form 2210 and Schedule AI to your return. H&r block free online If you use Schedule AI for any payment due date, you must use it for all payment due dates. H&r block free online Completing Schedule AI. H&r block free online   Follow the Form 2210 instructions to complete Schedule AI. H&r block free online For each period shown on Schedule AI, figure your income and deductions based on your method of accounting. H&r block free online If you use the cash method of accounting (used by most people), include all income actually or constructively received during the period and all deductions actually paid during the period. H&r block free online Note. H&r block free online Each period includes amounts from the previous period(s). H&r block free online Period (a) includes items for January 1 through March 31. H&r block free online Period (b) includes items for January 1 through May 31. H&r block free online Period (c) includes items for January 1 through August 31. H&r block free online Period (d) includes items for the entire year. H&r block free online Farmers and Fishermen If you are a farmer or fisherman, the following special rules for underpayment of estimated tax apply to you. H&r block free online The penalty for underpaying your 2013 estimated tax will not apply if you file your return and pay all the tax due by March 3, 2014. H&r block free online If you are a fiscal year taxpayer, the penalty will not apply if you file your return and pay the tax due by the first day of the third month after the end of your tax year. H&r block free online Any penalty you owe for underpaying your 2013 estimated tax will be figured from one payment due date, January 15, 2014. H&r block free online The underpayment penalty for 2013 is figured on the difference between the amount of 2013 withholding plus estimated tax paid by the due date and the smaller of: 662/3% (rather than 90%) of your 2013 tax, or 100% of the tax shown on your 2012 return. H&r block free online Even if these special rules apply to you, you will not owe the penalty if you meet either of the two conditions discussed under Exceptions . H&r block free online See Who Must Pay Estimated Tax in chapter 2 for the definition of a farmer or fisherman who is eligible for these special rules. H&r block free online Form 2210-F. H&r block free online   Use Form 2210-F to figure any underpayment penalty. H&r block free online Do not attach it to your return unless you check a box in Part I. H&r block free online However, if none of the boxes apply to you and you owe a penalty, you do not need to attach Form 2210-F. H&r block free online Enter the amount from line 16 on Form 1040, line 77 and add the penalty to any balance due on your return or subtract it from your refund. H&r block free online Keep your filled-in Form 2210-F for your records. H&r block free online    If none of the boxes on Form 2210-F apply to you and you owe a penalty, the IRS can figure your penalty and send you a bill. H&r block free online Waiver of Penalty The IRS can waive the penalty for underpayment if either of the following applies. H&r block free online You did not make a payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty. H&r block free online You retired (after reaching age 62) or became disabled in 2012 or 2013 and both the following requirements are met. H&r block free online You had a reasonable cause for not making the payment. H&r block free online Your underpayment was not due to willful neglect. H&r block free online How to request a waiver. H&r block free online   To request a waiver, see the Instructions for Form 2210. H&r block free online Farmers and fishermen. H&r block free online   To request a waiver, see the Instructions for Form 2210-F. H&r block free online Federally declared disaster. H&r block free online   Certain estimated tax payment deadlines for taxpayers who reside or have a business in a federally declared disaster area are postponed for a period during and after the disaster. H&r block free online During the processing of your tax return, the IRS automatically identifies taxpayers located in a covered disaster area (by county or parish) and applies the appropriate penalty relief. H&r block free online Do not file Form 2210 or 2210-F if your underpayment was due to a federally declared disaster. H&r block free online If you still owe a penalty after the automatic waiver is applied, we will send you a bill. H&r block free online   Individuals, estates, and trusts not in a covered disaster area but whose books, records, or tax professionals' offices are in a covered area are also entitled to relief. H&r block free online Also eligible are relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in a covered disaster area. H&r block free online If you meet either of these eligibility requirements, you must call the IRS disaster hotline at 1-866-562-5227 and identify yourself as eligible for this relief. H&r block free online   Details on the applicable disaster postponement period can be found at IRS. H&r block free online gov. H&r block free online Enter Tax Relief in Disaster Situations. H&r block free online Select the federally declared disaster that affected you. H&r block free online    Worksheet 4-1. H&r block free online 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Note. H&r block free online To figure the annualized entries for lines 2, 3, and 5 below, multiply the expected amount for the period by the  annualization amount on line 2 of Schedule AI for the same period. H&r block free online                   1. H&r block free online Enter line 11 of your Schedule AI, or line 3 from Worksheet 4-2 1. H&r block free online       2. H&r block free online Enter your annualized qualified dividends for the period 2. H&r block free online           3. H&r block free online Are you filing Schedule D?               □ Yes. H&r block free online Enter the smaller of your annualized amount from line 15 or line 16 of Schedule D. H&r block free online If either line 15 or line 16 is blank or a loss, enter -0-. H&r block free online 3. H&r block free online             □ No. H&r block free online Enter your annualized capital gain distributions from Form 1040, line 13             4. H&r block free online Add lines 2 and 3   4. H&r block free online           5. H&r block free online If you are claiming investment interest expense on Form 4952, enter your annualized amount from line 4g of that form. H&r block free online Otherwise, enter -0-   5. H&r block free online           6. H&r block free online Subtract line 5 from line 4. H&r block free online If zero or less, enter -0- 6. H&r block free online       7. H&r block free online Subtract line 6 from line 1. H&r block free online If zero or less, enter -0- 7. H&r block free online       8. H&r block free online Enter: $36,900 if single or married filing separately, $73,800 if married filing jointly or qualifying widow(er), $49,400 if head of household. H&r block free online 8. H&r block free online       9. H&r block free online Enter the smaller of line 1 or line 8 9. H&r block free online       10. H&r block free online Enter the smaller of line 7 or line 9 10. H&r block free online       11. H&r block free online Subtract line 10 from line 9. H&r block free online This amount is taxed at 0% 11. H&r block free online       12. H&r block free online Enter the smaller of line 1 or line 6 12. H&r block free online       13. H&r block free online Enter the amount from line 11 13. H&r block free online       14. H&r block free online Subtract line 13 from line 12 14. H&r block free online       15. H&r block free online Multiply line 14 by 15% (. H&r block free online 15) 15. H&r block free online   16. H&r block free online Figure the tax on the amount on line 7. H&r block free online If the amount on line 7 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. H&r block free online If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 16. H&r block free online   17. H&r block free online Add lines 15 and 16 17. H&r block free online   18. H&r block free online Figure the tax on the amount on line 1. H&r block free online If the amount on line 1 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. H&r block free online If the amount on line 1 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 18. H&r block free online   19. H&r block free online Tax on all taxable income. H&r block free online Enter the smaller of line 17 or line 18. H&r block free online Also enter this amount on line 12 of Schedule AI in the appropriate column. H&r block free online However, if you are using this worksheet to figure the tax on the amount on line 3 of Worksheet 4-2, enter the amount from line 19 on Worksheet 4-2, line 4 19. H&r block free online   Worksheet 4-2. H&r block free online 2013 Form 2210, Schedule AI—Line 12 Foreign Earned Income Tax Worksheet Before you begin:If Schedule AI, line 11, is zero for the period, do not complete this worksheet. H&r block free online             1. H&r block free online Enter the amount from line 11 of Schedule AI for the period 1. H&r block free online   2. H&r block free online Enter the annualized amount* of foreign earned income and housing amount excluded or deducted (from  Form 2555, lines 45 and 50, or Form 2555-EZ, line 18) in figuring the amount entered for the period on line 1  of Schedule AI 2. H&r block free online   3. H&r block free online Add lines 1 and 2 3. H&r block free online   4. H&r block free online Tax on the amount on line 3. H&r block free online Use the Tax Table, Tax Computation Worksheet, Form 8615**, Qualified Dividends and Capital Gain Tax Worksheet***, or Schedule D Tax Worksheet***, whichever applies. H&r block free online See the 2013 Instructions for Form 1040, line 44, to find out which tax computation method to use. H&r block free online (Note. H&r block free online You do not have to use the same method for each period on Schedule AI. H&r block free online ) 4. H&r block free online   5. H&r block free online Tax on the amount on line 2. H&r block free online If the amount on line 2 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. H&r block free online If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 5. H&r block free online   6. H&r block free online Subtract line 5 from line 4. H&r block free online Enter the result here and on line 12 of Schedule AI. H&r block free online If zero or less,  enter -0- 6. H&r block free online             * To figure the annualized amount for line 2, multiply the exclusion or deduction for the period by the annualization amount on line 2 of Schedule AI for the same period. H&r block free online     ** If you use Form 8615 to figure the tax on line 4 above, enter the amount from line 3 above on line 4 of Form 8615. H&r block free online If the child's parent files Form 2555 or 2555-EZ, enter the amounts from lines 3 and 4 of the parent's Foreign Earned Income Tax Worksheet on lines 6 and 10, respectively, of Form 8615. H&r block free online Complete the rest of Form 8615 according to its instructions. H&r block free online Then complete lines 5 and 6 above. H&r block free online     *** Enter the amount from line 3 above on line 1 of the Qualified Dividends and Capital Gain Tax Worksheet (or Worksheet 4-1 in this chapter) or the Schedule D Tax Worksheet, whichever worksheet you use to figure the tax on line 4 above. H&r block free online Complete that worksheet through line 6 (line 10 if you use the Schedule D Tax Worksheet). H&r block free online Next, determine if you have a capital gain excess. H&r block free online     Figuring capital gain excess. H&r block free online To find out if you have a capital gain excess for the appropriate period, subtract line 11 of Schedule AI from line 6 of Worksheet 4-1 or your Qualified Dividends and Capital Gain Tax Worksheet (line 10 of your Schedule D Tax Worksheet). H&r block free online If the result is more than zero, that amount is your capital gain excess. H&r block free online     No capital gain excess. H&r block free online If you do not have a capital gain excess, complete the rest of Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or the Schedule D Tax Worksheet according to the worksheet's instructions. H&r block free online Then complete lines 5 and 6 above. H&r block free online     Capital gain excess. H&r block free online If you have a capital gain excess, complete a second Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or Schedule D Tax Worksheet (whichever applies) as instructed above but in its entirety and with the following additional modifications. H&r block free online Then complete lines 5 and 6 above. H&r block free online     Make the modifications below only for purposes of filling out Worksheet 4-2 above. H&r block free online     a. H&r block free online Reduce (but not below zero) the amount you otherwise would enter on line 3 of your Worksheet 4-1, line 3 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 9 of your Schedule D Tax Worksheet by your capital gain excess. H&r block free online     b. H&r block free online Reduce (but not below zero) the amount you otherwise would enter on line 2 of your Worksheet 4-1, line 2 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 6 of your Schedule D Tax Worksheet by any of your capital gain excess not used in (a) above. H&r block free online     c. H&r block free online Reduce (but not below zero) the amount on your Schedule D (Form 1040), line 18, by your capital gain excess. H&r block free online     d. H&r block free online Include your capital gain excess as a loss on line 16 of your Unrecaptured Section 1250 Gain Worksheet in the 2013 Instructions for Schedule D (Form 1040). 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H&r block free online Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. H&r block free online Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. H&r block free online Method 2. H&r block free online How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. H&r block free online In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. H&r block free online You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. H&r block free online Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. H&r block free online If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. H&r block free online These wages must be included on line 7 of Form 1040. H&r block free online See Form 8919 for more information. H&r block free online Childcare providers. H&r block free online   If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. H&r block free online If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. H&r block free online You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. H&r block free online Babysitting. H&r block free online   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. H&r block free online Bankruptcy. H&r block free online   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. H&r block free online Your W-2 will show your total wages and withheld income tax for the year. H&r block free online On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. H&r block free online Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. H&r block free online If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. H&r block free online   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. H&r block free online For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. H&r block free online   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. H&r block free online The statement must show the allocation and describe the method used to make the allocation. H&r block free online For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. H&r block free online R. H&r block free online B. H&r block free online 596, available at www. H&r block free online irs. H&r block free online gov/irb/2006-40_IRB/ar12. H&r block free online html. H&r block free online Miscellaneous Compensation This section discusses many types of employee compensation. H&r block free online The subjects are arranged in alphabetical order. H&r block free online Advance commissions and other earnings. H&r block free online   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. H&r block free online    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. H&r block free online If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. H&r block free online See Repayments , later. H&r block free online Allowances and reimbursements. H&r block free online    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. H&r block free online If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. H&r block free online Back pay awards. H&r block free online   Include in income amounts you are awarded in a settlement or judgment for back pay. H&r block free online These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. H&r block free online They should be reported to you by your employer on Form W-2. H&r block free online Bonuses and awards. H&r block free online    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. H&r block free online These include prizes such as vacation trips for meeting sales goals. H&r block free online If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. H&r block free online However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. H&r block free online Employee achievement award. H&r block free online   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. H&r block free online However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. H&r block free online Your employer can tell you whether your award is a qualified plan award. H&r block free online Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. H&r block free online   However, the exclusion does not apply to the following awards. H&r block free online A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. H&r block free online A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. H&r block free online Example. H&r block free online Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. H&r block free online Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. H&r block free online However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. H&r block free online Differential wage payments. H&r block free online   This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. H&r block free online These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. H&r block free online The payments are reported as wages on Form W-2. H&r block free online Government cost-of-living allowances. H&r block free online   Most payments received by U. H&r block free online S. H&r block free online Government civilian employees for working abroad are taxable. H&r block free online However, certain cost-of-living allowances are tax free. H&r block free online Publication 516, U. H&r block free online S. H&r block free online Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. H&r block free online Nonqualified deferred compensation plans. H&r block free online   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. H&r block free online This amount is shown on Form W-2, box 12, using code Y. H&r block free online This amount is not included in your income. H&r block free online   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. H&r block free online This amount is included in your wages shown on Form W-2, box 1. H&r block free online It is also shown on Form W-2, box 12, using code Z. H&r block free online Nonqualified deferred compensation plans of nonqualified entities. H&r block free online   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. H&r block free online For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. H&r block free online A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. H&r block free online Note received for services. H&r block free online   If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. H&r block free online When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. H&r block free online Do not include that part again in your income. H&r block free online Include the rest of the payment in your income in the year of payment. H&r block free online   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. H&r block free online Severance pay. H&r block free online   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. H&r block free online Accrued leave payment. H&r block free online   If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. H&r block free online   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. H&r block free online You can reduce gross wages by the amount you repaid in the same tax year in which you received it. H&r block free online Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. H&r block free online Outplacement services. H&r block free online   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. H&r block free online    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). H&r block free online Sick pay. H&r block free online   Pay you receive from your employer while you are sick or injured is part of your salary or wages. H&r block free online In addition, you must include in your income sick pay benefits received from any of the following payers. H&r block free online A welfare fund. H&r block free online A state sickness or disability fund. H&r block free online An association of employers or employees. H&r block free online An insurance company, if your employer paid for the plan. H&r block free online However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. H&r block free online For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. H&r block free online Social security and Medicare taxes paid by employer. H&r block free online   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. H&r block free online The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. H&r block free online However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. H&r block free online Stock appreciation rights. H&r block free online   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. H&r block free online When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. H&r block free online You include the cash payment in income in the year you use the right. H&r block free online Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. H&r block free online Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. H&r block free online See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. H&r block free online Recipient of fringe benefit. H&r block free online   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. H&r block free online You are considered to be the recipient even if it is given to another person, such as a member of your family. H&r block free online An example is a car your employer gives to your spouse for services you perform. H&r block free online The car is considered to have been provided to you and not to your spouse. H&r block free online   You do not have to be an employee of the provider to be a recipient of a fringe benefit. H&r block free online If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. H&r block free online Provider of benefit. H&r block free online   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. H&r block free online The provider can be a client or customer of an independent contractor. H&r block free online Accounting period. H&r block free online   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. H&r block free online Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. H&r block free online The general rule: benefits are reported for a full calendar year (January 1–December 31). H&r block free online The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. H&r block free online For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. H&r block free online Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. H&r block free online   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). H&r block free online Form W-2. H&r block free online   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. H&r block free online Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). H&r block free online However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). H&r block free online Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. H&r block free online Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . H&r block free online For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. H&r block free online Long-term care coverage. H&r block free online   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. H&r block free online However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. H&r block free online This amount will be reported as wages in box 1 of your Form W-2. H&r block free online Archer MSA contributions. H&r block free online    Contributions by your employer to your Archer MSA generally are not included in your income. H&r block free online Their total will be reported in box 12 of Form W-2, with code R. H&r block free online You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. H&r block free online File the form with your return. H&r block free online Health flexible spending arrangement (health FSA). H&r block free online   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. H&r block free online   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. H&r block free online The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. H&r block free online For more information, see Notice 2012-40, 2012-26 I. H&r block free online R. H&r block free online B. H&r block free online 1046, available at www. H&r block free online irs. H&r block free online gov/irb/2012-26 IRB/ar09. H&r block free online html. H&r block free online Health reimbursement arrangement (HRA). H&r block free online   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. H&r block free online Health savings accounts (HSA). H&r block free online   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. H&r block free online Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. H&r block free online Contributions made by your employer are not included in your income. H&r block free online Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. H&r block free online Distributions not used for qualified medical expenses are included in your income. H&r block free online See Publication 969 for the requirements of an HSA. H&r block free online   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. H&r block free online The contributions are treated as a distribution of money and are not included in the partner's gross income. H&r block free online Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. H&r block free online In both situations, the partner can deduct the contribution made to the partner's HSA. H&r block free online   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. H&r block free online The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. H&r block free online Qualified HSA funding distribution. H&r block free online   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. H&r block free online See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. H&r block free online Failure to maintain eligibility. H&r block free online   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. H&r block free online If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. H&r block free online This income is also subject to an additional 10% tax. H&r block free online Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. H&r block free online See Instructions for Form 8839, Qualified Adoption Expenses, for more information. H&r block free online Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. H&r block free online They also are included as social security and Medicare wages in boxes 3 and 5. H&r block free online However, they are not included as wages in box 1. H&r block free online To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. H&r block free online File the form with your return. H&r block free online Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. H&r block free online The gym must be used primarily by employees, their spouses, and their dependent children. H&r block free online If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. H&r block free online De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. H&r block free online In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. H&r block free online Also see Employee Discounts , later. H&r block free online Holiday gifts. H&r block free online   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. H&r block free online However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. H&r block free online Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. H&r block free online Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. H&r block free online The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). H&r block free online Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. H&r block free online Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. H&r block free online To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. H&r block free online See the Instructions for Form 2441 for more information. H&r block free online Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. H&r block free online For more information, see Publication 970. H&r block free online Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. H&r block free online The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. H&r block free online However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). H&r block free online The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. H&r block free online For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. H&r block free online (Ask your employer for this percentage. H&r block free online ) For a discount on services, 20%. H&r block free online Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. H&r block free online If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). H&r block free online Qualified retirement planning services paid for you by your employer may be excluded from your income. H&r block free online For more information, see Retirement Planning Services , later. H&r block free online Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. H&r block free online However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. H&r block free online For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. H&r block free online If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. H&r block free online Also, it is shown separately in box 12 with code C. H&r block free online Group-term life insurance. H&r block free online   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. H&r block free online Permanent benefits. H&r block free online   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. H&r block free online Your employer should be able to tell you the amount to include in your income. H&r block free online Accidental death benefits. H&r block free online   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. H&r block free online Former employer. H&r block free online   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. H&r block free online Also, it is shown separately in box 12 with code C. H&r block free online Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. H&r block free online You must pay these taxes with your income tax return. H&r block free online Include them on line 60, Form 1040, and follow the instructions forline 60. H&r block free online For more information, see the Instructions for Form 1040. H&r block free online Two or more employers. H&r block free online   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. H&r block free online If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. H&r block free online You must figure how much to include in your income. H&r block free online Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. H&r block free online Figuring the taxable cost. H&r block free online    Use the following worksheet to figure the amount to include in your income. H&r block free online   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. H&r block free online However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . H&r block free online Worksheet 1. H&r block free online Figuring the Cost of Group-Term Life Insurance To Include in Income 1. H&r block free online Enter the total amount of your insurance coverage from your employer(s) 1. H&r block free online   2. H&r block free online Limit on exclusion for employer-provided group-term life insurance coverage 2. H&r block free online 50,000 3. H&r block free online Subtract line 2 from line 1 3. H&r block free online   4. H&r block free online Divide line 3 by $1,000. H&r block free online Figure to the nearest tenth 4. H&r block free online   5. H&r block free online Go to Table 1. H&r block free online Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. H&r block free online   6. H&r block free online Multiply line 4 by line 5 6. H&r block free online     7. H&r block free online Enter the number of full months of coverage at this cost 7. H&r block free online   8. H&r block free online Multiply line 6 by line 7 8. H&r block free online   9. H&r block free online Enter the premiums you paid per month 9. H&r block free online       10. H&r block free online Enter the number of months you paid the  premiums 10. H&r block free online       11. H&r block free online Multiply line 9 by line 10. H&r block free online 11. H&r block free online   12. H&r block free online Subtract line 11 from line 8. H&r block free online Include this amount in your income as wages 12. H&r block free online   Table 1. H&r block free online Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . H&r block free online 05     25 through 29 . H&r block free online 06     30 through 34 . H&r block free online 08     35 through 39 . H&r block free online 09     40 through 44 . H&r block free online 10     45 through 49 . H&r block free online 15     50 through 54 . H&r block free online 23     55 through 59 . H&r block free online 43     60 through 64 . H&r block free online 66     65 through 69 1. H&r block free online 27     70 and older 2. H&r block free online 06   Example. H&r block free online You are 51 years old and work for employers A and B. H&r block free online Both employers provide group-term life insurance coverage for you for the entire year. H&r block free online Your coverage is $35,000 with employer A and $45,000 with employer B. H&r block free online You pay premiums of $4. H&r block free online 15 a month under the employer B group plan. H&r block free online You figure the amount to include in your income as follows. H&r block free online   Worksheet 1. H&r block free online Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. H&r block free online Enter the total amount of your insurance coverage from your employer(s) 1. H&r block free online 80,000 2. H&r block free online Limit on exclusion for employer-provided group-term life insurance coverage 2. H&r block free online 50,000 3. H&r block free online Subtract line 2 from line 1 3. H&r block free online 30,000 4. H&r block free online Divide line 3 by $1,000. H&r block free online Figure to the nearest tenth 4. H&r block free online 30. H&r block free online 0 5. H&r block free online Go to Table 1. H&r block free online Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. H&r block free online . H&r block free online 23 6. H&r block free online Multiply line 4 by line 5 6. H&r block free online 6. H&r block free online 90 7. H&r block free online Enter the number of full months of coverage at this cost. H&r block free online 7. H&r block free online 12 8. H&r block free online Multiply line 6 by line 7 8. H&r block free online 82. H&r block free online 80 9. H&r block free online Enter the premiums you paid per month 9. H&r block free online 4. H&r block free online 15     10. H&r block free online Enter the number of months you paid the premiums 10. H&r block free online 12     11. H&r block free online Multiply line 9 by line 10. H&r block free online 11. H&r block free online 49. H&r block free online 80 12. H&r block free online Subtract line 11 from line 8. H&r block free online Include this amount in your income as wages 12. H&r block free online 33. H&r block free online 00 The total amount to include in income for the cost of excess group-term life insurance is $33. H&r block free online Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. H&r block free online You must add it to the wages shown on your Forms W-2 and include the total on your return. H&r block free online Entire cost excluded. H&r block free online   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. H&r block free online You are permanently and totally disabled and have ended your employment. H&r block free online Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. H&r block free online A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. H&r block free online (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. H&r block free online ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. H&r block free online Entire cost taxed. H&r block free online   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. H&r block free online The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. H&r block free online You are a key employee and your employer's plan discriminates in favor of key employees. H&r block free online Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. H&r block free online The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. H&r block free online The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. H&r block free online (You must accept it in order to be able to properly perform your duties. H&r block free online ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. H&r block free online See De Minimis (Minimal) Benefits , earlier. H&r block free online Faculty lodging. H&r block free online   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. H&r block free online However, the lodging must be qualified campus lodging, and you must pay an adequate rent. H&r block free online Academic health center. H&r block free online   This is an organization that meets the following conditions. H&r block free online Its principal purpose or function is to provide medical or hospital care or medical education or research. H&r block free online It receives payments for graduate medical education under the Social Security Act. H&r block free online One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. H&r block free online Qualified campus lodging. H&r block free online   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. H&r block free online The lodging must be located on or near a campus of the educational institution or academic health center. H&r block free online Adequate rent. H&r block free online   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. H&r block free online If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. H&r block free online   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. H&r block free online Example. H&r block free online Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. H&r block free online The house is appraised at $200,000. H&r block free online The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. H&r block free online Carl pays an annual rent of $11,000. H&r block free online Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). H&r block free online If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). H&r block free online Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. H&r block free online See Publication 521 for more information. H&r block free online No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). H&r block free online In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. H&r block free online Example. H&r block free online You are employed as a flight attendant for a company that owns both an airline and a hotel chain. H&r block free online Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. H&r block free online The value of the personal flight is not included in your income. H&r block free online However, the value of the hotel room is included in your income because you do not work in the hotel business. H&r block free online Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. H&r block free online Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. H&r block free online You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. H&r block free online Also, see Financial Counseling Fees , earlier. H&r block free online Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. H&r block free online A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. H&r block free online Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. H&r block free online However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. H&r block free online Exclusion limit. H&r block free online   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. H&r block free online   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. H&r block free online   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. H&r block free online   If the benefits have a value that is more than these limits, the excess must be included in your income. H&r block free online You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. H&r block free online Commuter highway vehicle. H&r block free online   This is a highway vehicle that seats at least six adults (not including the driver). H&r block free online At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). H&r block free online Transit pass. H&r block free online   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. H&r block free online Qualified parking. H&r block free online   This is parking provided to an employee at or near the employer's place of business. H&r block free online It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. H&r block free online It does not include parking at or near the employee's home. H&r block free online Qualified bicycle commuting. H&r block free online   This is reimbursement based on the number of qualified bicycle commuting months for the year. H&r block free online A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. H&r block free online The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. H&r block free online Tuition Reduction You can exclude a qualified tuition reduction from your income. H&r block free online This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. H&r block free online For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. H&r block free online Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. H&r block free online For more information, see Publication 970. H&r block free online Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. H&r block free online Example. H&r block free online You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. H&r block free online The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. H&r block free online Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. H&r block free online For an exception, see Group-Term Life Insurance , earlier. H&r block free online General valuation rule. H&r block free online   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. H&r block free online If you pay fair market value for a fringe benefit, no amount is included in your income. H&r block free online Fair market value. H&r block free online   The fair market value of a fringe benefit is determined by all the facts and circumstances. H&r block free online It is the amount you would have to pay a third party to buy or lease the benefit. H&r block free online This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. H&r block free online Employer-provided vehicles. H&r block free online   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. H&r block free online   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. H&r block free online An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. H&r block free online The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. H&r block free online Flights on employer-provided aircraft. H&r block free online   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. H&r block free online   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. H&r block free online The division must be based on all the facts, including which employee or employees control the use of the aircraft. H&r block free online Special valuation rules. H&r block free online   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. H&r block free online If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. H&r block free online You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. H&r block free online   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. H&r block free online The special valuation rules are the following. H&r block free online The automobile lease rule. H&r block free online The vehicle cents-per-mile rule. H&r block free online The commuting rule. H&r block free online The unsafe conditions commuting rule. H&r block free online The employer-operated eating-facility rule. H&r block free online   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. H&r block free online    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. H&r block free online 61-21(g) and 1. H&r block free online 61-21(h) of the regulations. H&r block free online Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. H&r block free online (Your employer can tell you whether your retirement plan is qualified. H&r block free online ) However, the cost of life insurance coverage included in the plan may have to be included. H&r block free online See Group-Term Life Insurance , earlier, under Fringe Benefits. H&r block free online If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. H&r block free online However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. H&r block free online For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. H&r block free online S. H&r block free online Civil Service Retirement Benefits, if you are a federal employee or retiree). H&r block free online Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. H&r block free online The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. H&r block free online An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. H&r block free online However, it is included in wages subject to social security and Medicare taxes. H&r block free online Elective deferrals include elective contributions to the following retirement plans. H&r block free online Cash or deferred arrangements (section 401(k) plans). H&r block free online The Thrift Savings Plan for federal employees. H&r block free online Salary reduction simplified employee pension plans (SARSEP). H&r block free online Savings incentive match plans for employees (SIMPLE plans). H&r block free online Tax-sheltered annuity plans (403(b) plans). H&r block free online Section 501(c)(18)(D) plans. H&r block free online (But see Reporting by employer , later. H&r block free online ) Section 457 plans. H&r block free online Qualified automatic contribution arrangements. H&r block free online   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. H&r block free online You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. H&r block free online The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. H&r block free online   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. H&r block free online Overall limit on deferrals. H&r block free online   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. H&r block free online The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. H&r block free online Amounts deferred under specific plan limits are part of the overall limit on deferrals. H&r block free online   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. H&r block free online However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. H&r block free online Catch-up contributions. H&r block free online   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. H&r block free online For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. H&r block free online   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. H&r block free online SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. H&r block free online Section 457 plans, see Limit for deferrals under section 457 plans , later. H&r block free online Limit for deferrals under SIMPLE plans. H&r block free online   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. H&r block free online Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. H&r block free online Limit for tax-sheltered annuities. H&r block free online   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. H&r block free online However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. H&r block free online $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. H&r block free online   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. H&r block free online   For more information, see Publication 571. H&r block free online Limit for deferral under section 501(c)(18) plans. H&r block free online   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. H&r block free online Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. H&r block free online Limit for deferrals under section 457 plans. H&r block free online   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. H&r block free online However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. H&r block free online See Increased limit , later. H&r block free online Includible compensation. H&r block free online   This is the pay you received for the year from the employer who maintained the section 457 plan. H&r block free online In most cases, it includes all the following payments. H&r block free online Wages and salaries. H&r block free online Fees for professional services. H&r block free online The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. H&r block free online Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. H&r block free online Commissions and tips. H&r block free online Fringe benefits. H&r block free online Bonuses. H&r block free online Employer contributions (elective deferrals) to: The section 457 plan. H&r block free online Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. H&r block free online A salary reduction simplified employee pension (SARSEP). H&r block free online A tax-sheltered annuity (section 403(b) plan). H&r block free online A savings incentive match plan for employees (SIMPLE plan). H&r block free online A section 125 cafeteria plan. H&r block free online   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. H&r block free online Your wages as defined for income tax withholding purposes. H&r block free online Your wages as reported in box 1 of Form W-2. H&r block free online Your wages that are subject to social security withholding (including elective deferrals). H&r block free online Increased limit. H&r block free online   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). H&r block free online Catch-up contributions. H&r block free online   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. H&r block free online If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. H&r block free online However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. H&r block free online Designated Roth contributions. H&r block free online   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. H&r block free online Designated Roth contributions are treated as elective deferrals, except that they are included in income. H&r block free online Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. H&r block free online   Qualified distributions from a Roth plan are not included in income. H&r block free online In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. H&r block free online Reporting by employer. H&r block free online   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. H&r block free online Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. H&r block free online Section 501(c)(18)(D) contributions. H&r block free online   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. H&r block free online The amount you contributed should be identified with code “H” in box 12. H&r block free online You may deduct the amount deferred subject to the limits that apply. H&r block free online Include your deduction in the total on Form 1040, line 36. H&r block free online Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. H&r block free online Designated Roth contributions. H&r block free online    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. H&r block free online Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. H&r block free online Excess deferrals. H&r block free online   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. H&r block free online If the plan permits, the excess amount will be distributed to you. H&r block free online If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. H&r block free online You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. H&r block free online The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. H&r block free online   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. H&r block free online File Form 1040 to add the excess deferral amount to your wages on line 7. H&r block free online Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. H&r block free online Excess not distributed. H&r block free online   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. H&r block free online Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. H&r block free online Excess distributed to you. H&r block free online   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. H&r block free online If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. H&r block free online Any income on the excess deferral taken out is taxable in the tax year in which you take it out. H&r block free online If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. H&r block free online    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. H&r block free online Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. H&r block free online If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. H&r block free online Add the excess deferral amount to your wages on your 2013 tax return. H&r block free online If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. H&r block free online Do not add this amount to your wages on your 2013 return. H&r block free online If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. H&r block free online If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. H&r block free online S. H&r block free online Individual Income Tax Return. H&r block free online If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. H&r block free online If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. H&r block free online Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. H&r block free online Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. H&r block free online Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. H&r block free online ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. H&r block free online It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. H&r block free online Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. H&r block free online If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. H&r block free online You must include the excess contributions in your income as wages on Form 1040, line 7. H&r block free online You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. H&r block free online If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. H&r block free online The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. H&r block free online You should receive a Form 1099-R for the year the excess contributions are distributed to you. H&r block free online Add the distribution to your wages for that year. H&r block free online Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. H&r block free online It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. H&r block free online Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. H&r block free online Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. H&r block free online A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. H&r block free online A corrective payment consisting of your after-tax contributions is not taxable. H&r block free online If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. H&r block free online Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. H&r block free online Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. H&r block free online Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. H&r block free online It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. H&r block free online Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. H&r block free online The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. H&r block free online Your employer can tell you which kind of option you hold. H&r block free online Nonstatutory Stock Options Grant of option. H&r block free online   If you are granted a nonstatutory stock option, you may have income when you receive the option. H&r block free online The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. H&r block free online The fair market value of an option can be readily determined if it is actively traded on an established market. H&r block free online    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. H&r block free online You can transfer the option. H&r block free online You can exercise the option immediately in full. H&r block free online The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. H&r block free online The fair market value of the option privilege can be readily determined. H&r block free online The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. H&r block free online For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. H&r block free online The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. H&r block free online If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. H&r block free online For more information on the excise tax, see Internal Revenue Code section 4985. H&r block free online Option with readily determinable value. H&r block free online   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. H&r block free online See Restricted Property , later, for rules on how much income to include and when to include it. H&r block free online However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. H&r block free online Option without readily determinable value. H&r block free online   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. H&r block free online    Exercise or transfer of option. H&r block free online   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. H&r block free online Option with readily determinable value. H&r block free online   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. H&r block free online Option without readily determinable value. H&r block free online   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope