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H&rblock Free File

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H&rblock Free File

H&rblock free file 1. H&rblock free file   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). H&rblock free file  You can set up and make contributions to an IRA if you receive taxable compensation. H&rblock free file Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. H&rblock free file For more information about IRAs, see Publication 590. H&rblock free file Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. H&rblock free file The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. H&rblock free file Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. H&rblock free file Many types of educational assistance are tax free if they meet the requirements discussed here. H&rblock free file Special rules apply to U. H&rblock free file S. H&rblock free file citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. H&rblock free file For information about these rules, see Publication 54, Tax Guide for U. H&rblock free file S. H&rblock free file Citizens and Resident Aliens Abroad. H&rblock free file Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. H&rblock free file A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. H&rblock free file Amount of scholarship or fellowship. H&rblock free file   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. H&rblock free file This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. H&rblock free file The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. H&rblock free file Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. H&rblock free file Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. H&rblock free file A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. H&rblock free file (But for exceptions, see Payment for services,later. H&rblock free file Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. H&rblock free file Candidate for a degree. H&rblock free file   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. H&rblock free file Eligible educational institution. H&rblock free file   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. H&rblock free file Qualified education expenses. H&rblock free file   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. H&rblock free file These items must be required of all students in your course of instruction. H&rblock free file Expenses that do not qualify. H&rblock free file   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. H&rblock free file Payment for services. H&rblock free file   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. H&rblock free file This applies even if all candidates for a degree must perform the services to receive the degree. H&rblock free file (See exceptions next. H&rblock free file ) Exceptions. H&rblock free file   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. H&rblock free file Example 1. H&rblock free file You received a scholarship of $2,500. H&rblock free file The scholarship was not received under either of the exceptions mentioned above. H&rblock free file As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. H&rblock free file Of the $2,500 scholarship, $1,000 represents payment for teaching. H&rblock free file The provider of your scholarship gives you a Form W-2 showing $1,000 as income. H&rblock free file Your qualified education expenses were at least $1,500. H&rblock free file Assuming that all other conditions are met, $1,500 of your scholarship is tax free. H&rblock free file The $1,000 you received for teaching is taxable. H&rblock free file Example 2. H&rblock free file You are a candidate for a degree at a medical school. H&rblock free file You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. H&rblock free file The terms of your scholarship require you to perform future services. H&rblock free file A substantial penalty applies if you do not comply. H&rblock free file The entire amount of your grant is taxable as payment for services in the year it is received. H&rblock free file Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. H&rblock free file Worksheet 1-1. H&rblock free file    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. H&rblock free file    Worksheet 1-1. H&rblock free file Taxable Scholarship and Fellowship Income 1. H&rblock free file Enter the total amount of any scholarship or fellowship for 2013. H&rblock free file See Amount of scholarship or fellowship, earlier. H&rblock free file 1. H&rblock free file       If you are a degree candidate at an eligible educational institution, go to line 2. H&rblock free file If you are not a degree candidate at an eligible educational institution, stop here. H&rblock free file The entire amount is taxable. H&rblock free file For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. H&rblock free file       2. H&rblock free file Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. H&rblock free file (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. H&rblock free file ) 2. H&rblock free file     3. H&rblock free file Subtract line 2 from line 1 3. H&rblock free file     4. H&rblock free file Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. H&rblock free file     5. H&rblock free file Subtract line 4 from line 3 5. H&rblock free file     6. H&rblock free file Enter the amount of your qualified education expenses 6. H&rblock free file     7. H&rblock free file Enter the smaller of line 5 or line 6. H&rblock free file This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. H&rblock free file     8. H&rblock free file Subtract line 7 from line 5 8. H&rblock free file     9. H&rblock free file Taxable part. H&rblock free file Add lines 2, 4, and 8. H&rblock free file See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. H&rblock free file     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. H&rblock free file You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. H&rblock free file Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. H&rblock free file If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. H&rblock free file If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. H&rblock free file You must report the taxable amount whether or not you received a Form W-2. H&rblock free file If you receive an incorrect Form W-2, ask the payer for a corrected one. H&rblock free file For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. H&rblock free file How To Report How you report any taxable scholarship or fellowship income depends on which return you file. H&rblock free file Form 1040EZ. H&rblock free file   If you file Form 1040EZ, include the taxable amount in the total on line 1. H&rblock free file If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. H&rblock free file Form 1040A. H&rblock free file   If you file Form 1040A, include the taxable amount in the total on line 7. H&rblock free file If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. H&rblock free file Form 1040. H&rblock free file   If you file Form 1040, include the taxable amount in the total on line 7. H&rblock free file If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. H&rblock free file Schedule SE (Form 1040). H&rblock free file   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. H&rblock free file If your net earnings are $400 or more, you must pay self-employment tax. H&rblock free file Use Schedule SE, Self-Employment Tax, to figure this tax. H&rblock free file Form 1040NR. H&rblock free file   If you file Form 1040NR, report the taxable amount on line 12. H&rblock free file Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. H&rblock free file S. H&rblock free file Source Income Subject to Withholding. H&rblock free file See the Instructions for Form 1040NR for more information. H&rblock free file Form 1040NR-EZ. H&rblock free file   If you file Form 1040NR-EZ, report the taxable amount on line 5. H&rblock free file Generally, you must report the amount shown in box 2 of Form(s) 1042-S. H&rblock free file See the Instructions for Form 1040NR-EZ for more information. H&rblock free file Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. H&rblock free file Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. H&rblock free file Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. H&rblock free file They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. H&rblock free file Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. H&rblock free file Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. H&rblock free file Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. H&rblock free file Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. H&rblock free file Do not include these payments as income on your federal tax return. H&rblock free file If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. H&rblock free file This applies only to the part of your VA payments that is required to be used for education expenses. H&rblock free file You may want to visit the Veteran's Administration website at www. H&rblock free file gibill. H&rblock free file va. H&rblock free file gov for specific information about the various VA benefits for education. H&rblock free file Example. H&rblock free file You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. H&rblock free file Neither of these benefits is taxable and you do not report them on your tax return. H&rblock free file You also want to claim an American opportunity credit on your return. H&rblock free file You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). H&rblock free file To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. H&rblock free file You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. H&rblock free file Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. H&rblock free file This is called a “tuition reduction. H&rblock free file ” You do not have to include a qualified tuition reduction in your income. H&rblock free file A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. H&rblock free file You do not have to use the tuition reduction at the eligible educational institution from which you received it. H&rblock free file In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. H&rblock free file The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. H&rblock free file You must include in your income any tuition reduction you receive that is payment for your services. H&rblock free file Eligible educational institution. H&rblock free file   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. H&rblock free file Officers, owners, and highly compensated employees. H&rblock free file   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. H&rblock free file This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. H&rblock free file The group must be defined under a reasonable classification set up by the employer. H&rblock free file The classification must not discriminate in favor of owners, officers, or highly compensated employees. H&rblock free file Payment for services. H&rblock free file   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. H&rblock free file This applies even if all candidates for a degree must perform the services to receive the degree. H&rblock free file (See below for exceptions. H&rblock free file ) Exceptions. H&rblock free file   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. H&rblock free file Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. H&rblock free file You are an employee of the eligible educational institution. H&rblock free file You were an employee of the eligible educational institution, but you retired or left on disability. H&rblock free file You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. H&rblock free file You are the dependent child or spouse of an individual described in (1) through (3), above. H&rblock free file Child of deceased parents. H&rblock free file   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. H&rblock free file Child of divorced parents. H&rblock free file   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. H&rblock free file Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. H&rblock free file It is provided by an eligible educational institution. H&rblock free file You are a graduate student who performs teaching or research activities for the educational institution. H&rblock free file You must include in income any other tuition reductions for graduate education that you receive. H&rblock free file How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. H&rblock free file Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). H&rblock free file Prev  Up  Next   Home   More Online Publications
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Letter 1962C Frequently Asked Questions (FAQs)

What is the letter telling me?

This letter confirms your written request for a Direct Debit Installment Agreement has been approved. It explains the fees we charge for establishing your agreement. It also explains what to do if you qualify for a Low Income Fee Reduction.

What do I have to do?

Be sure to have the amount of your payment in your checking account by the due date in the letter.

What happens if the funds are not available?

If you are unable to have sufficient funds in your checking account, you must call us at least 10 days prior to your payment due date.

How much time do I have?

The customer has to make one manual payment before we can begin to take payments electronically.

What happens if I don't take any action?

If you do not ensure there are sufficient funds in your checking account, then your installment agreement will default. Your bank may charge you fees for insufficient funds.

Who should I contact?

The telephone number will be provided in your acknowledgement letter.

What if I don't agree or have already taken corrective action?

If you do not agree with this letter, call us immediately at the number included. We will do our best to help you. If you have called us about this matter before, but we did not correct the problem, you may want to contact the Office of the Taxpayer Advocate.

Page Last Reviewed or Updated: 30-Jan-2014

The H&rblock Free File

H&rblock free file 3. H&rblock free file   Limit on Annual Additions Table of Contents Ministers and church employees. H&rblock free file Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. H&rblock free file This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. H&rblock free file The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. H&rblock free file More than one 403(b) account. H&rblock free file If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. H&rblock free file Ministers and church employees. H&rblock free file   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. H&rblock free file For more information, see chapter 5. H&rblock free file Participation in a qualified plan. H&rblock free file If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. H&rblock free file You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. H&rblock free file Includible Compensation for Your Most Recent Year of Service Definition. H&rblock free file   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. H&rblock free file When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. H&rblock free file This can happen if your tax year is not the same as your employer's annual work period. H&rblock free file When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. H&rblock free file Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. H&rblock free file Tax year different from employer's annual work period. H&rblock free file   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. H&rblock free file Example. H&rblock free file A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). H&rblock free file To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. H&rblock free file Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. H&rblock free file A full year of service is equal to full-time employment for your employer's annual work period. H&rblock free file After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. H&rblock free file Part-time or employed only part of the year. H&rblock free file   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. H&rblock free file To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. H&rblock free file Example. H&rblock free file You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). H&rblock free file Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). H&rblock free file Not yet employed for 1 year. H&rblock free file   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. H&rblock free file Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. H&rblock free file Includible compensation is not the same as income included on your tax return. H&rblock free file Compensation is a combination of income and benefits received in exchange for services provided to your employer. H&rblock free file Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. H&rblock free file Includible compensation includes the following amounts. H&rblock free file Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). H&rblock free file Amounts contributed or deferred by your employer under a section 125 cafeteria plan. H&rblock free file Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). H&rblock free file  Note. H&rblock free file For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. H&rblock free file Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. H&rblock free file Income otherwise excluded under the foreign earned income exclusion. H&rblock free file Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. H&rblock free file Includible compensation does not include the following items. H&rblock free file Your employer's contributions to your 403(b) account. H&rblock free file Compensation earned while your employer was not an eligible employer. H&rblock free file Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. H&rblock free file The cost of incidental life insurance. H&rblock free file See Cost of Incidental Life Insurance, later. H&rblock free file If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. H&rblock free file Contributions after retirement. H&rblock free file   Nonelective contributions may be made for an employee for up to 5 years after retirement. H&rblock free file These contributions would be based on includible compensation for the last year of service before retirement. H&rblock free file Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. H&rblock free file If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. H&rblock free file If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. H&rblock free file If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. H&rblock free file Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. H&rblock free file Not all annuity contracts include life insurance. H&rblock free file Contact your plan administrator to determine if your contract includes incidental life insurance. H&rblock free file If it does, you will need to figure the cost of life insurance each year the policy is in effect. H&rblock free file Figuring the cost of incidental life insurance. H&rblock free file If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. H&rblock free file To determine the amount of the life insurance premiums, you will need to know the following information. H&rblock free file The value of your life insurance contract, which is the amount payable upon your death. H&rblock free file The cash value of your life insurance contract at the end of the tax year. H&rblock free file Your age on your birthday nearest the beginning of the policy year. H&rblock free file Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. H&rblock free file You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. H&rblock free file Example. H&rblock free file Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. H&rblock free file Your cash value in the contract at the end of the first year is zero. H&rblock free file Your current life insurance protection for the first year is $10,000 ($10,000 − 0). H&rblock free file The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). H&rblock free file The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . H&rblock free file The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. H&rblock free file Figure 3-1. H&rblock free file Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. H&rblock free file 70   35 $0. H&rblock free file 99   70 $20. H&rblock free file 62 1 0. H&rblock free file 41   36 1. H&rblock free file 01   71 22. H&rblock free file 72 2 0. H&rblock free file 27   37 1. H&rblock free file 04   72 25. H&rblock free file 07 3 0. H&rblock free file 19   38 1. H&rblock free file 06   73 27. H&rblock free file 57 4 0. H&rblock free file 13   39 1. H&rblock free file 07   74 30. H&rblock free file 18 5 0. H&rblock free file 13   40 1. H&rblock free file 10   75 33. H&rblock free file 05 6 0. H&rblock free file 14   41 1. H&rblock free file 13   76 36. H&rblock free file 33 7 0. H&rblock free file 15   42 1. H&rblock free file 20   77 40. H&rblock free file 17 8 0. H&rblock free file 16   43 1. H&rblock free file 29   78 44. H&rblock free file 33 9 0. H&rblock free file 16   44 1. H&rblock free file 40   79 49. H&rblock free file 23 10 0. H&rblock free file 16   45 1. H&rblock free file 53   80 54. H&rblock free file 56 11 0. H&rblock free file 19   46 1. H&rblock free file 67   81 60. H&rblock free file 51 12 0. H&rblock free file 24   47 1. H&rblock free file 83   82 66. H&rblock free file 74 13 0. H&rblock free file 28   48 1. H&rblock free file 98   83 73. H&rblock free file 07 14 0. H&rblock free file 33   49 2. H&rblock free file 13   84 80. H&rblock free file 35 15 0. H&rblock free file 38   50 2. H&rblock free file 30   85 88. H&rblock free file 76 16 0. H&rblock free file 52   51 2. H&rblock free file 52   86 99. H&rblock free file 16 17 0. H&rblock free file 57   52 2. H&rblock free file 81   87 110. H&rblock free file 40 18 0. H&rblock free file 59   53 3. H&rblock free file 20   88 121. H&rblock free file 85 19 0. H&rblock free file 61   54 3. H&rblock free file 65   89 133. H&rblock free file 40 20 0. H&rblock free file 62   55 4. H&rblock free file 15   90 144. H&rblock free file 30 21 0. H&rblock free file 62   56 4. H&rblock free file 68   91 155. H&rblock free file 80 22 0. H&rblock free file 64   57 5. H&rblock free file 20   92 168. H&rblock free file 75 23 0. H&rblock free file 66   58 5. H&rblock free file 66   93 186. H&rblock free file 44 24 0. H&rblock free file 68   59 6. H&rblock free file 06   94 206. H&rblock free file 70 25 0. H&rblock free file 71   60 6. H&rblock free file 51   95 228. H&rblock free file 35 26 0. H&rblock free file 73   61 7. H&rblock free file 11   96 250. H&rblock free file 01 27 0. H&rblock free file 76   62 7. H&rblock free file 96   97 265. H&rblock free file 09 28 0. H&rblock free file 80   63 9. H&rblock free file 08   98 270. H&rblock free file 11 29 0. H&rblock free file 83   64 10. H&rblock free file 41   99 281. H&rblock free file 05 30 0. H&rblock free file 87   65 11. H&rblock free file 90       31 0. H&rblock free file 90   66 13. H&rblock free file 51       32 0. H&rblock free file 93   67 15. H&rblock free file 20       33 0. H&rblock free file 96   68 16. H&rblock free file 92       34 0. H&rblock free file 98   69 18. H&rblock free file 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. H&rblock free file Example 1. H&rblock free file Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. H&rblock free file The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. H&rblock free file Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. H&rblock free file Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. H&rblock free file When figuring her includible compensation for this year, Lynne will subtract $28. H&rblock free file Table 3-1. H&rblock free file Worksheet A. H&rblock free file Cost of Incidental Life Insurance Note. H&rblock free file Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. H&rblock free file This amount will be used to figure includible compensation for your most recent year of service. H&rblock free file 1. H&rblock free file Enter the value of the contract (amount payable upon your death) 1. H&rblock free file $20,000. H&rblock free file 00 2. H&rblock free file Enter the cash value in the contract at the end of the year 2. H&rblock free file 0. H&rblock free file 00 3. H&rblock free file Subtract line 2 from line 1. H&rblock free file This is the value of your current life insurance protection 3. H&rblock free file $20,000. H&rblock free file 00 4. H&rblock free file Enter your age on your birthday nearest the beginning of the policy year 4. H&rblock free file 44 5. H&rblock free file Enter the 1-year term premium for $1,000 of life insurance based on your age. H&rblock free file (From Figure 3-1) 5. H&rblock free file $1. H&rblock free file 40 6. H&rblock free file Divide line 3 by $1,000 6. H&rblock free file 20 7. H&rblock free file Multiply line 6 by line 5. H&rblock free file This is the cost of your incidental life insurance 7. H&rblock free file $28. H&rblock free file 00 Example 2. H&rblock free file Lynne's cash value in the contract at the end of the second year is $1,000. H&rblock free file In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. H&rblock free file In year two, Lynne's employer will include $29. H&rblock free file 07 in her current year's income. H&rblock free file Lynne will subtract this amount when figuring her includible compensation. H&rblock free file Table 3-2. H&rblock free file Worksheet A. H&rblock free file Cost of Incidental Life Insurance Note. H&rblock free file Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. H&rblock free file This amount will be used to figure includible compensation for your most recent year of service. H&rblock free file 1. H&rblock free file Enter the value of the contract (amount payable upon your death) 1. H&rblock free file $20,000. H&rblock free file 00 2. H&rblock free file Enter the cash value in the contract at the end of the year 2. H&rblock free file $1,000. H&rblock free file 00 3. H&rblock free file Subtract line 2 from line 1. H&rblock free file This is the value of your current life insurance protection 3. H&rblock free file $19,000. H&rblock free file 00 4. H&rblock free file Enter your age on your birthday nearest the beginning of the policy year 4. H&rblock free file 45 5. H&rblock free file Enter the 1-year term premium for $1,000 of life insurance based on your age. H&rblock free file (From Figure 3-1) 5. H&rblock free file $1. H&rblock free file 53 6. H&rblock free file Divide line 3 by $1,000 6. H&rblock free file 19 7. H&rblock free file Multiply line 6 by line 5. H&rblock free file This is the cost of your incidental life insurance 7. H&rblock free file $29. H&rblock free file 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. H&rblock free file Example. H&rblock free file Floyd has been periodically working full-time for a local hospital since September 2011. H&rblock free file He needs to figure his limit on annual additions for 2014. H&rblock free file The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. H&rblock free file During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. H&rblock free file Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. H&rblock free file Floyd has never worked abroad and there is no life insurance provided under the plan. H&rblock free file Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. H&rblock free file Table 3-3. H&rblock free file Floyd's Compensation Note. H&rblock free file This table shows information Floyd will use to figure includible compensation for his most recent year of service. H&rblock free file   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. H&rblock free file Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. H&rblock free file If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. H&rblock free file He figures his most recent year of service shown in the following list. H&rblock free file Time he will work in 2014 is 6/12 of a year. H&rblock free file Time worked in 2013 is 4/12 of a year. H&rblock free file All of this time will be used to determine Floyd's most recent year of service. H&rblock free file Time worked in 2012 is 4/12 of a year. H&rblock free file Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. H&rblock free file Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. H&rblock free file Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). H&rblock free file His includible compensation for his most recent year of service is figured as shown in Table 3-4. H&rblock free file After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. H&rblock free file Table 3-4. H&rblock free file Worksheet B. H&rblock free file Includible Compensation for Your Most Recent Year of Service1 Note. H&rblock free file Use this worksheet to figure includible compensation for your most recent year of service. H&rblock free file 1. H&rblock free file Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. H&rblock free file $66,000 2. H&rblock free file Enter elective deferrals excluded from your gross income for your most recent year of service2 2. H&rblock free file 4,4753 3. H&rblock free file Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. H&rblock free file -0- 4. H&rblock free file Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. H&rblock free file -0- 5. H&rblock free file Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. H&rblock free file -0- 6. H&rblock free file Enter your foreign earned income exclusion for your most recent year of service 6. H&rblock free file -0- 7. H&rblock free file Add lines 1, 2, 3, 4, 5, and 6 7. H&rblock free file 70,475 8. H&rblock free file Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. H&rblock free file -0- 9. H&rblock free file Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. H&rblock free file -0- 10. H&rblock free file Add lines 8 and 9 10. H&rblock free file -0- 11. H&rblock free file Subtract line 10 from line 7. H&rblock free file This is your includible compensation for your most recent year of service 11. H&rblock free file 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. H&rblock free file 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. H&rblock free file  3$4,475 ($2,000 + $1,650 + $825). H&rblock free file Prev  Up  Next   Home   More Online Publications