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How To Amend Taxes

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How To Amend Taxes

How to amend taxes 4. How to amend taxes   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. How to amend taxes Loan secured by benefits. How to amend taxes Waiver of survivor benefits. How to amend taxes Waiver of 30-day waiting period before annuity starting date. How to amend taxes Involuntary cash-out of benefits not more than dollar limit. How to amend taxes Exception for certain loans. How to amend taxes Exception for QDRO. How to amend taxes SIMPLE and safe harbor 401(k) plan exception. How to amend taxes Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. How to amend taxes Installment percentage. How to amend taxes Extended period for making contributions. How to amend taxes ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. How to amend taxes Caution: Form 5500-EZ not required. How to amend taxes Form 5500. How to amend taxes Electronic filing of Forms 5500 and 5500-SF. How to amend taxes Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. How to amend taxes dol. How to amend taxes gov/ebsa/pdf/2013-5500. How to amend taxes pdf www. How to amend taxes dol. How to amend taxes gov/ebsa/pdf/2013-5500-SF. How to amend taxes pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. How to amend taxes 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. How to amend taxes 1040 U. How to amend taxes S. How to amend taxes Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. How to amend taxes For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. How to amend taxes For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. How to amend taxes R. How to amend taxes 10 plans. How to amend taxes A sole proprietor or a partnership can set up one of these plans. How to amend taxes A common-law employee or a partner cannot set up one of these plans. How to amend taxes The plans described here can also be set up and maintained by employers that are corporations. How to amend taxes All the rules discussed here apply to corporations except where specifically limited to the self-employed. How to amend taxes The plan must be for the exclusive benefit of employees or their beneficiaries. How to amend taxes These qualified plans can include coverage for a self-employed individual. How to amend taxes As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. How to amend taxes The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. How to amend taxes Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. How to amend taxes You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. How to amend taxes Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. How to amend taxes It provides benefits to a participant largely based on the amount contributed to that participant's account. How to amend taxes Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. How to amend taxes A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. How to amend taxes Profit-sharing plan. How to amend taxes   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). How to amend taxes A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. How to amend taxes An employer may even make no contribution to the plan for a given year. How to amend taxes   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. How to amend taxes   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). How to amend taxes Money purchase pension plan. How to amend taxes   Contributions to a money purchase pension plan are fixed and are not based on your business profits. How to amend taxes For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. How to amend taxes This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. How to amend taxes Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. How to amend taxes Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. How to amend taxes Actuarial assumptions and computations are required to figure these contributions. How to amend taxes Generally, you will need continuing professional help to have a defined benefit plan. How to amend taxes Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. How to amend taxes Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. How to amend taxes The following is a brief overview of important qualification rules that generally have not yet been discussed. How to amend taxes It is not intended to be all-inclusive. How to amend taxes See Setting Up a Qualified Plan , later. How to amend taxes Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. How to amend taxes A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. How to amend taxes Plan assets must not be diverted. How to amend taxes   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. How to amend taxes As a general rule, the assets cannot be diverted to the employer. How to amend taxes Minimum coverage requirement must be met. How to amend taxes   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. How to amend taxes 50 employees, or The greater of: 40% of all employees, or Two employees. How to amend taxes If there is only one employee, the plan must benefit that employee. How to amend taxes Contributions or benefits must not discriminate. How to amend taxes   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. How to amend taxes Contributions and benefits must not be more than certain limits. How to amend taxes   Your plan must not provide for contributions or benefits that are more than certain limits. How to amend taxes The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. How to amend taxes These limits are discussed later in this chapter under Contributions. How to amend taxes Minimum vesting standard must be met. How to amend taxes   Your plan must satisfy certain requirements regarding when benefits vest. How to amend taxes A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. How to amend taxes A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. How to amend taxes Special rules apply to forfeited benefit amounts. How to amend taxes In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. How to amend taxes   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. How to amend taxes Forfeitures must be used instead to reduce employer contributions. How to amend taxes Participation. How to amend taxes   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. How to amend taxes Has reached age 21. How to amend taxes Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). How to amend taxes A plan cannot exclude an employee because he or she has reached a specified age. How to amend taxes Leased employee. How to amend taxes   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. How to amend taxes These rules include those in all the following areas. How to amend taxes Nondiscrimination in coverage, contributions, and benefits. How to amend taxes Minimum age and service requirements. How to amend taxes Vesting. How to amend taxes Limits on contributions and benefits. How to amend taxes Top-heavy plan requirements. How to amend taxes Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. How to amend taxes Benefit payment must begin when required. How to amend taxes   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. How to amend taxes The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. How to amend taxes The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. How to amend taxes The plan year in which the participant separates from service. How to amend taxes Early retirement. How to amend taxes   Your plan can provide for payment of retirement benefits before the normal retirement age. How to amend taxes If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. How to amend taxes Satisfies the service requirement for the early retirement benefit. How to amend taxes Separates from service with a nonforfeitable right to an accrued benefit. How to amend taxes The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. How to amend taxes Required minimum distributions. How to amend taxes   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. How to amend taxes See Required Distributions , under Distributions, later. How to amend taxes Survivor benefits. How to amend taxes   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. How to amend taxes A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. How to amend taxes A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. How to amend taxes   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. How to amend taxes The participant does not choose benefits in the form of a life annuity. How to amend taxes The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. How to amend taxes The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. How to amend taxes Loan secured by benefits. How to amend taxes   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. How to amend taxes Waiver of survivor benefits. How to amend taxes   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. How to amend taxes The plan also must allow the participant to withdraw the waiver. How to amend taxes The spouse's consent must be witnessed by a plan representative or notary public. How to amend taxes Waiver of 30-day waiting period before annuity starting date. How to amend taxes    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. How to amend taxes   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. How to amend taxes Involuntary cash-out of benefits not more than dollar limit. How to amend taxes   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. How to amend taxes   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. How to amend taxes If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. How to amend taxes   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. How to amend taxes   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. How to amend taxes A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. How to amend taxes See Section 402(f) Notice under Distributions, later, for more details. How to amend taxes Consolidation, merger, or transfer of assets or liabilities. How to amend taxes   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. How to amend taxes (if the plan had then terminated). How to amend taxes Benefits must not be assigned or alienated. How to amend taxes   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. How to amend taxes Exception for certain loans. How to amend taxes   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. How to amend taxes A disqualified person is defined later in this chapter under Prohibited Transactions. How to amend taxes Exception for QDRO. How to amend taxes   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. How to amend taxes   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. How to amend taxes Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. How to amend taxes No benefit reduction for social security increases. How to amend taxes   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. How to amend taxes This rule also applies to plans supplementing the benefits provided by other federal or state laws. How to amend taxes Elective deferrals must be limited. How to amend taxes   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. How to amend taxes See Limit on Elective Deferrals later in this chapter. How to amend taxes Top-heavy plan requirements. How to amend taxes   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. How to amend taxes   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. How to amend taxes Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. How to amend taxes   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. How to amend taxes These qualification requirements for top-heavy plans are explained in section 416 and its regulations. How to amend taxes SIMPLE and safe harbor 401(k) plan exception. How to amend taxes   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. How to amend taxes QACAs (discussed later) also are not subject to top-heavy requirements. How to amend taxes Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. How to amend taxes First you adopt a written plan. How to amend taxes Then you invest the plan assets. How to amend taxes You, the employer, are responsible for setting up and maintaining the plan. How to amend taxes If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. How to amend taxes If you have employees, see Participation, under Qualification Rules, earlier. How to amend taxes Set-up deadline. How to amend taxes   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). How to amend taxes Credit for startup costs. How to amend taxes   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. How to amend taxes For more information, see Credit for startup costs under Reminders, earlier. How to amend taxes Adopting a Written Plan You must adopt a written plan. How to amend taxes The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. How to amend taxes Or it can be an individually designed plan. How to amend taxes Written plan requirement. How to amend taxes   To qualify, the plan you set up must be in writing and must be communicated to your employees. How to amend taxes The plan's provisions must be stated in the plan. How to amend taxes It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. How to amend taxes Master or prototype plans. How to amend taxes   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. How to amend taxes Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). How to amend taxes Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. How to amend taxes Under a prototype plan, a separate trust or custodial account is established for each employer. How to amend taxes Plan providers. How to amend taxes   The following organizations generally can provide IRS-approved master or prototype plans. How to amend taxes Banks (including some savings and loan associations and federally insured credit unions). How to amend taxes Trade or professional organizations. How to amend taxes Insurance companies. How to amend taxes Mutual funds. How to amend taxes Individually designed plan. How to amend taxes   If you prefer, you can set up an individually designed plan to meet specific needs. How to amend taxes Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. How to amend taxes You may need professional help for this. How to amend taxes See Rev. How to amend taxes Proc. How to amend taxes 2014-6, 2014-1 I. How to amend taxes R. How to amend taxes B. How to amend taxes 198, available at www. How to amend taxes irs. How to amend taxes gov/irb/2014-1_IRB/ar10. How to amend taxes html, as annually updated, that may help you decide whether to apply for approval. How to amend taxes Internal Revenue Bulletins are available on the IRS website at IRS. How to amend taxes gov They are also available at most IRS offices and at certain libraries. How to amend taxes User fee. How to amend taxes   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. How to amend taxes At least one of them must be a non-highly compensated employee participating in the plan. How to amend taxes The fee does not apply to requests made by the later of the following dates. How to amend taxes The end of the 5th plan year the plan is in effect. How to amend taxes The end of any remedial amendment period for the plan that begins within the first 5 plan years. How to amend taxes The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. How to amend taxes   For more information about whether the user fee applies, see Rev. How to amend taxes Proc. How to amend taxes 2014-8, 2014-1 I. How to amend taxes R. How to amend taxes B. How to amend taxes 242, available at www. How to amend taxes irs. How to amend taxes gov/irb/2014-1_IRB/ar12. How to amend taxes html, as may be annually updated; Notice 2003-49, 2003-32 I. How to amend taxes R. How to amend taxes B. How to amend taxes 294, available at www. How to amend taxes irs. How to amend taxes gov/irb/2003-32_IRB/ar13. How to amend taxes html; and Notice 2011-86, 2011-45 I. How to amend taxes R. How to amend taxes B. How to amend taxes 698, available at www. How to amend taxes irs. How to amend taxes gov/irb/2011-45_IRB/ar11. How to amend taxes html. How to amend taxes Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. How to amend taxes You can establish a trust or custodial account to invest the funds. How to amend taxes You, the trust, or the custodial account can buy an annuity contract from an insurance company. How to amend taxes Life insurance can be included only if it is incidental to the retirement benefits. How to amend taxes You set up a trust by a legal instrument (written document). How to amend taxes You may need professional help to do this. How to amend taxes You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. How to amend taxes You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. How to amend taxes If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. How to amend taxes Other plan requirements. How to amend taxes   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. How to amend taxes Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. How to amend taxes Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. How to amend taxes For information on this funding requirement, see section 412 and its regulations. How to amend taxes Quarterly installments of required contributions. How to amend taxes   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. How to amend taxes If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. How to amend taxes Due dates. How to amend taxes   The due dates for the installments are 15 days after the end of each quarter. How to amend taxes For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). How to amend taxes Installment percentage. How to amend taxes   Each quarterly installment must be 25% of the required annual payment. How to amend taxes Extended period for making contributions. How to amend taxes   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. How to amend taxes Contributions A qualified plan is generally funded by your contributions. How to amend taxes However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. How to amend taxes See Employee Contributions and Elective Deferrals later. How to amend taxes Contributions deadline. How to amend taxes   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. How to amend taxes Self-employed individual. How to amend taxes   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. How to amend taxes Your net earnings must be from your personal services, not from your investments. How to amend taxes If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. How to amend taxes Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. How to amend taxes There are also limits on the amount you can deduct. How to amend taxes See Deduction Limits , later. How to amend taxes Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. How to amend taxes The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. How to amend taxes Defined benefit plan. How to amend taxes   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. How to amend taxes 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. How to amend taxes $205,000 ($210,000 for 2014). How to amend taxes Defined contribution plan. How to amend taxes   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. How to amend taxes 100% of the participant's compensation. How to amend taxes $51,000 ($52,000 for 2014). How to amend taxes   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. How to amend taxes Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. How to amend taxes Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. How to amend taxes Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. How to amend taxes See Regulations sections 1. How to amend taxes 401(k)-2 and 1. How to amend taxes 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). How to amend taxes When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. How to amend taxes But you can apply them to the previous year if all the following requirements are met. How to amend taxes You make them by the due date of your tax return for the previous year (plus extensions). How to amend taxes The plan was established by the end of the previous year. How to amend taxes The plan treats the contributions as though it had received them on the last day of the previous year. How to amend taxes You do either of the following. How to amend taxes You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. How to amend taxes You deduct the contributions on your tax return for the previous year. How to amend taxes A partnership shows contributions for partners on Form 1065. How to amend taxes Employer's promissory note. How to amend taxes   Your promissory note made out to the plan is not a payment that qualifies for the deduction. How to amend taxes Also, issuing this note is a prohibited transaction subject to tax. How to amend taxes See Prohibited Transactions , later. How to amend taxes Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. How to amend taxes The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. How to amend taxes Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. How to amend taxes Defined contribution plans. How to amend taxes   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. How to amend taxes If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. How to amend taxes See Deduction Limit for Self-Employed Individuals , later. How to amend taxes   When figuring the deduction limit, the following rules apply. How to amend taxes Elective deferrals (discussed later) are not subject to the limit. How to amend taxes Compensation includes elective deferrals. How to amend taxes The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). How to amend taxes Defined benefit plans. How to amend taxes   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. How to amend taxes Consequently, an actuary must figure your deduction limit. How to amend taxes    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. How to amend taxes Table 4–1. How to amend taxes Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. How to amend taxes Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. How to amend taxes Compensation is your net earnings from self-employment, defined in chapter 1. How to amend taxes This definition takes into account both the following items. How to amend taxes The deduction for the deductible part of your self-employment tax. How to amend taxes The deduction for contributions on your behalf to the plan. How to amend taxes The deduction for your own contributions and your net earnings depend on each other. How to amend taxes For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. How to amend taxes To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. How to amend taxes Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. How to amend taxes Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. How to amend taxes For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. How to amend taxes Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. How to amend taxes (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. How to amend taxes ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. How to amend taxes Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. How to amend taxes For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. How to amend taxes However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. How to amend taxes See Deduction Limit for Self-Employed Individuals, earlier. How to amend taxes The amount you carry over and deduct may be subject to the excise tax discussed next. How to amend taxes Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. How to amend taxes Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. How to amend taxes In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. How to amend taxes Special rule for self-employed individuals. How to amend taxes   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. How to amend taxes Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. How to amend taxes See Minimum Funding Requirement , earlier. How to amend taxes Reporting the tax. How to amend taxes   You must report the tax on your nondeductible contributions on Form 5330. How to amend taxes Form 5330 includes a computation of the tax. How to amend taxes See the separate instructions for completing the form. How to amend taxes Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. How to amend taxes A plan with this type of arrangement is popularly known as a “401(k) plan. How to amend taxes ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. How to amend taxes ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. How to amend taxes In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. How to amend taxes A profit-sharing plan. How to amend taxes A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. How to amend taxes Partnership. How to amend taxes   A partnership can have a 401(k) plan. How to amend taxes Restriction on conditions of participation. How to amend taxes   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. How to amend taxes Matching contributions. How to amend taxes   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. How to amend taxes For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. How to amend taxes Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. How to amend taxes Nonelective contributions. How to amend taxes   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. How to amend taxes These are called nonelective contributions. How to amend taxes Employee compensation limit. How to amend taxes   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. How to amend taxes This limit is $260,000 in 2014. How to amend taxes SIMPLE 401(k) plan. How to amend taxes   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. How to amend taxes A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. How to amend taxes For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. How to amend taxes Distributions. How to amend taxes   Certain rules apply to distributions from 401(k) plans. How to amend taxes See Distributions From 401(k) Plans , later. How to amend taxes Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. How to amend taxes This limit applies without regard to community property laws. How to amend taxes Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. How to amend taxes For 2013 and 2014, the basic limit on elective deferrals is $17,500. How to amend taxes This limit applies to all salary reduction contributions and elective deferrals. How to amend taxes If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. How to amend taxes Catch-up contributions. How to amend taxes   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. How to amend taxes The catch-up contribution limit for 2013 and 2014 is $5,500. How to amend taxes Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). How to amend taxes However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. How to amend taxes The catch-up contribution limit. How to amend taxes The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. How to amend taxes Treatment of contributions. How to amend taxes   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. How to amend taxes Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. How to amend taxes Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. How to amend taxes Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. How to amend taxes Forfeiture. How to amend taxes   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. How to amend taxes Reporting on Form W-2. How to amend taxes   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. How to amend taxes You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. How to amend taxes You must also include them in box 12. How to amend taxes Mark the “Retirement plan” checkbox in box 13. How to amend taxes For more information, see the Form W-2 instructions. How to amend taxes Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. How to amend taxes Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. How to amend taxes These contributions are elective deferrals. How to amend taxes An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). How to amend taxes For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. How to amend taxes Eligible automatic contribution arrangement. How to amend taxes   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. How to amend taxes This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). How to amend taxes There is no required deferral percentage. How to amend taxes Withdrawals. How to amend taxes   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. How to amend taxes The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. How to amend taxes The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. How to amend taxes   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. How to amend taxes The additional 10% tax on early distributions will not apply to the distribution. How to amend taxes Notice requirement. How to amend taxes   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. How to amend taxes The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. How to amend taxes The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. How to amend taxes The notice also must explain how contributions will be invested in the absence of an investment election by the employee. How to amend taxes Qualified automatic contribution arrangement. How to amend taxes    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. How to amend taxes It contains an automatic enrollment feature, and mandatory employer contributions are required. How to amend taxes If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). How to amend taxes Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. How to amend taxes Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. How to amend taxes In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). How to amend taxes If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. How to amend taxes It must be applied uniformly. How to amend taxes It must not exceed 10%. How to amend taxes It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. How to amend taxes It must increase to at least 4% in the following plan year. How to amend taxes It must increase to at least 5% in the following plan year. How to amend taxes It must increase to at least 6% in subsequent plan years. How to amend taxes Matching or nonelective contributions. How to amend taxes   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. How to amend taxes Matching contributions. How to amend taxes You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. How to amend taxes An amount equal to 100% of elective deferrals, up to 1% of compensation. How to amend taxes An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. How to amend taxes Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. How to amend taxes The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. How to amend taxes Nonelective contributions. How to amend taxes You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. How to amend taxes Vesting requirements. How to amend taxes   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. How to amend taxes These contributions are subject to special withdrawal restrictions, discussed later. How to amend taxes Notice requirements. How to amend taxes   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. How to amend taxes The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. How to amend taxes The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. How to amend taxes Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. How to amend taxes The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. How to amend taxes Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. How to amend taxes He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. How to amend taxes The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. How to amend taxes Excess withdrawn by April 15. How to amend taxes   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. How to amend taxes However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. How to amend taxes The distribution is not subject to the additional 10% tax on early distributions. How to amend taxes   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. How to amend taxes   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. How to amend taxes Excess not withdrawn by April 15. How to amend taxes   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. How to amend taxes In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. How to amend taxes Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. How to amend taxes Reporting corrective distributions on Form 1099-R. How to amend taxes   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. How to amend taxes For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. How to amend taxes Tax on excess contributions of highly compensated employees. How to amend taxes   The law provides tests to detect discrimination in a plan. How to amend taxes If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. How to amend taxes Report the tax on Form 5330. How to amend taxes The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. How to amend taxes Also, the ACP test does not apply to these plans if certain additional requirements are met. How to amend taxes   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. How to amend taxes Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. How to amend taxes   See Regulations sections 1. How to amend taxes 401(k)-2 and 1. How to amend taxes 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). How to amend taxes    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. How to amend taxes Safe harbor 401(k) plan. How to amend taxes If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. How to amend taxes For your plan to be a safe harbor plan, you must meet the following conditions. How to amend taxes Matching or nonelective contributions. How to amend taxes You must make matching or nonelective contributions according to one of the following formulas. How to amend taxes Matching contributions. How to amend taxes You must make matching contributions according to the following rules. How to amend taxes You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. How to amend taxes You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. How to amend taxes The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. How to amend taxes Nonelective contributions. How to amend taxes You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. How to amend taxes These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. How to amend taxes Notice requirement. How to amend taxes You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. How to amend taxes The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. How to amend taxes Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. How to amend taxes Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. How to amend taxes However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. How to amend taxes Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. How to amend taxes Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. How to amend taxes Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. How to amend taxes An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. How to amend taxes The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. How to amend taxes Rollover. How to amend taxes   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. How to amend taxes For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. How to amend taxes R. How to amend taxes B. How to amend taxes 872, available at www. How to amend taxes irs. How to amend taxes gov/irb/2010-51_IRB/ar11. How to amend taxes html, and Notice 2013-74. How to amend taxes A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. How to amend taxes Rollover amounts do not apply toward the annual deferral limit. How to amend taxes Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. How to amend taxes See the Form W-2 and 1099-R instructions for detailed information. How to amend taxes Distributions Amounts paid to plan participants from a qualified plan are called distributions. How to amend taxes Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. How to amend taxes Also, certain loans may be treated as distributions. How to amend taxes See Loans Treated as Distributions in Publication 575. How to amend taxes Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). How to amend taxes These distribution rules apply individually to each qualified plan. How to amend taxes You cannot satisfy the requirement for one plan by taking a distribution from another. How to amend taxes The plan must provide that these rules override any inconsistent distribution options previously offered. How to amend taxes Minimum distribution. How to amend taxes   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. How to amend taxes This minimum is figured by dividing the account balance by the applicable life expectancy. How to amend taxes The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. How to amend taxes For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. How to amend taxes Required beginning date. How to amend taxes   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. How to amend taxes   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. How to amend taxes Calendar year in which he or she reaches age 70½. How to amend taxes Calendar year in which he or she retires from employment with the employer maintaining the plan. How to amend taxes However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. How to amend taxes   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. How to amend taxes For more information, see Tax on Excess Accumulation in Publication 575. How to amend taxes Distributions after the starting year. How to amend taxes   The distribution required to be made by April 1 is treated as a distribution for the starting year. How to amend taxes (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. How to amend taxes ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. How to amend taxes If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). How to amend taxes Distributions after participant's death. How to amend taxes   See Publication 575 for the special rules covering distributions made after the death of a participant. How to amend taxes Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. How to amend taxes The employee retires, dies, becomes disabled, or otherwise severs employment. How to amend taxes The plan ends and no other defined contribution plan is established or continued. How to amend taxes In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. How to amend taxes For the rules on hardship distributions, including the limits on them, see Regulations section 1. How to amend taxes 401(k)-1(d). How to amend taxes The employee becomes eligible for a qualified reservist distribution (defined next). How to amend taxes Certain distributions listed above may be subject to the tax on early distributions discussed later. How to amend taxes Qualified reservist distributions. How to amend taxes   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. How to amend taxes All or part of a qualified reservist distribution can be recontributed to an IRA. How to amend taxes The additional 10% tax on early distributions does not apply to a qualified reservist distribution. How to amend taxes Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. How to amend taxes Since most recipients have no cost basis, a distribution is generally fully taxable. How to amend taxes An exception is a distribution that is properly rolled over as discussed under Rollover, next. How to amend taxes The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. How to amend taxes See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. How to amend taxes Note. How to amend taxes A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. How to amend taxes Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. How to amend taxes See Qualified distributions under Qualified Roth Contribution Program, earlier. How to amend taxes Rollover. How to amend taxes   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. How to amend taxes However, it may be subject to withholding as discussed under Withholding requirement, later. How to amend taxes A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. How to amend taxes Eligible rollover distribution. How to amend taxes   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. How to amend taxes A required minimum distribution. How to amend taxes See Required Distributions , earlier. How to amend taxes Any of a series of substantially equal payments made at least once a year over any of the following periods. How to amend taxes The employee's life or life expectancy. How to amend taxes The joint lives or life expectancies of the employee and beneficiary. How to amend taxes A period of 10 years or longer. How to amend taxes A hardship distribution. How to amend taxes The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. How to amend taxes See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. How to amend taxes Loans treated as distributions. How to amend taxes Dividends on employer securities. How to amend taxes The cost of any life insurance coverage provided under a qualified retirement plan. How to amend taxes Similar items designated by the IRS in published guidance. How to amend taxes See, for example, the Instructions for Forms 1099-R and 5498. How to amend taxes Rollover of nontaxable amounts. How to amend taxes   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. How to amend taxes If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. How to amend taxes If the rollover is to an IRA, the transfer can be made by any rollover method. How to amend taxes Note. How to amend taxes A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. How to amend taxes If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). How to amend taxes More information. How to amend taxes   For more information about rollovers, see Rollovers in Pubs. How to amend taxes 575 and 590. How to amend taxes Withholding requirement. How to amend taxes   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. How to amend taxes Exceptions. How to amend taxes   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. How to amend taxes   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. How to amend taxes Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). How to amend taxes However, the participant can choose not to have tax withheld from these distributions. How to amend taxes If the participant does not make this choice, the following withholding rules apply. How to amend taxes For periodic distributions, withholding is based on their treatment as wages. How to amend taxes For nonperiodic distributions, 10% of the taxable part is withheld. How to amend taxes Estimated tax payments. How to amend taxes   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. How to amend taxes For more information, see Withholding Tax and Estimated Tax in Publication 575. How to amend taxes Section 402(f) Notice. How to amend taxes   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. How to amend taxes That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. How to amend taxes That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. How to amend taxes That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. How to amend taxes Certain other rules that may be applicable. How to amend taxes   Notice 2009-68, 2009-39 I. How to amend taxes R. How to amend taxes B. How to amend taxes 423, available at www. How to amend taxes irs. How to amend taxes gov/irb/2009-39_IRB/ar14. How to amend taxes html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. How to amend taxes If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. How to amend taxes Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. How to amend taxes Timing of notice. How to amend taxes   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. How to amend taxes Method of notice. How to amend taxes   The written notice must be provided individually to each distributee of an eligible rollover distribution. How to amend taxes Posting of the notice is not sufficient. How to amend taxes However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. How to amend taxes See Regulations section 1. How to amend taxes 401(a)-21. How to amend taxes Tax on failure to give notice. How to amend taxes   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. How to amend taxes The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. How to amend taxes Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. How to amend taxes This tax applies to the amount received that the employee must include in income. How to amend taxes Exceptions. How to amend taxes   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. How to amend taxes Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. How to amend taxes Made due to the employee having a qualifying disability. How to amend taxes Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. How to amend taxes (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. How to amend taxes ) Made to an employee after separation from service if the separation occurred during o
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The How To Amend Taxes

How to amend taxes 3. How to amend taxes   Exclusions From Gross Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident AliensForeign Earned Income and Housing Amount Nonresident AliensInterest Income Dividend Income Services Performed for Foreign Employer Gambling Winnings From Dog or Horse Racing Gain From the Sale of Your Main Home Scholarships and Fellowship GrantsExpenses that do not qualify. How to amend taxes Introduction Resident and nonresident aliens are allowed exclusions from gross income if they meet certain conditions. How to amend taxes An exclusion from gross income is generally income you receive that is not included in your U. How to amend taxes S. How to amend taxes income and is not subject to U. How to amend taxes S. How to amend taxes tax. How to amend taxes This chapter covers some of the more common exclusions allowed to resident and nonresident aliens. How to amend taxes Topics - This chapter discusses: Nontaxable interest, Nontaxable dividends, Certain compensation paid by a foreign employer, Gain from sale of home, and Scholarships and fellowship grants. How to amend taxes Useful Items - You may want to see: Publication 54 Tax Guide for U. How to amend taxes S. How to amend taxes Citizens and Resident Aliens Abroad 523 Selling Your Home See chapter 12 for information about getting these publications. How to amend taxes Resident Aliens Resident aliens may be able to exclude the following items from their gross income. How to amend taxes Foreign Earned Income and Housing Amount If you are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, you may qualify for the foreign earned income exclusion. How to amend taxes The exclusion is $97,600 in 2013. How to amend taxes In addition, you may be able to exclude or deduct certain foreign housing amounts. How to amend taxes You may also qualify if you are a bona fide resident of a foreign country and you are a citizen or national of a country with which the United States has an income tax treaty. How to amend taxes For more information, see Publication 54. How to amend taxes Foreign country. How to amend taxes    A foreign country is any territory under the sovereignty of a government other than that of the United States. How to amend taxes   The term “foreign country” includes the country's territorial waters and airspace, but not international waters and the airspace above them. How to amend taxes It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. How to amend taxes   The term “foreign country” does not include U. How to amend taxes S. How to amend taxes possessions or territories. How to amend taxes It does not include the Antarctic region. How to amend taxes Nonresident Aliens Nonresident aliens can exclude the following items from their gross income. How to amend taxes Interest Income Interest income that is not connected with a U. How to amend taxes S. How to amend taxes trade or business is excluded from income if it is from: Deposits (including certificates of deposit) with persons in the banking business, Deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law (if the interest paid or credited can be deducted by the association), and Amounts held by an insurance company under an agreement to pay interest on them. How to amend taxes State and local government obligations. How to amend taxes   Interest on obligations of a state or political subdivision, the District of Columbia, or a U. How to amend taxes S. How to amend taxes possession, generally is not included in income. How to amend taxes However, interest on certain private activity bonds, arbitrage bonds, and certain bonds not in registered form is included in income. How to amend taxes Portfolio interest. How to amend taxes   Interest and original issue discount that qualifies as portfolio interest is not subject to NRA withholding. How to amend taxes To qualify as portfolio interest, the interest must be paid on obligations issued after July 18, 1984, and otherwise subject to NRA withholding. How to amend taxes Note. How to amend taxes For obligations issued after March 18, 2012, portfolio interest does not include interest paid on debt that is not in registered form. How to amend taxes Before March 19, 2012, portfolio interest included interest on certain registered and nonregistered (bearer) bonds if the obligations meet the requirements described below. How to amend taxes Obligations in registered form. How to amend taxes   Portfolio interest includes interest paid on an obligation that is in registered form, and for which you have received documentation that the beneficial owner of the obligation is not a United States person. How to amend taxes   Generally, an obligation is in registered form if: (i) the obligation is registered as to both principal and any stated interest with the issuer (or its agent) and any transfer of the obligation may be effected only by surrender of the old obligation and reissuance to the new holder; (ii) the right to principal and stated interest with respect to the obligation may be transferred only through a book entry system maintained by the issuer or its agent; or (iii) the obligation is registered as to both principal and stated interest with the issuer or its agent and can be transferred both by surrender and reissuance and through a book entry system. How to amend taxes   An obligation that would otherwise be considered to be in registered form is not considered to be in registered form as of a particular time if it can be converted at any time in the future into an obligation that is not in registered form. How to amend taxes For more information on whether obligations are considered to be in registered form, see Portfolio interest in Publication 515. How to amend taxes Obligations not in registered form. How to amend taxes    For obligations issued before March 19, 2012, interest on an obligation that is not in registered form (bearer obligation) is portfolio interest if the obligation is foreign-targeted. How to amend taxes A bearer obligation is foreign-targeted if: There are arrangements to ensure that the obligation will be sold, or resold in connection with the original issue, only to a person who is not a United States person, Interest on the obligation is payable only outside the United States and its possessions, and The face of the obligation contains a statement that any United States person who holds the obligation will be subject to limits under the United States income tax laws. How to amend taxes   Documentation is not required for interest on bearer obligations to qualify as portfolio interest. How to amend taxes In some cases, however, you may need documentation for purposes of Form 1099 reporting and backup withholding. How to amend taxes Interest that does not qualify as portfolio interest. How to amend taxes   Payments to certain persons and payments of contingent interest do not qualify as portfolio interest. How to amend taxes You must withhold at the statutory rate on such payments unless some other exception, such as a treaty provision, applies. How to amend taxes Contingent interest. How to amend taxes   Portfolio interest does not include contingent interest. How to amend taxes Contingent interest is either of the following: Interest that is determined by reference to: Any receipts, sales, or other cash flow of the debtor or related person, Income or profits of the debtor or related person, Any change in value of any property of the debtor or a related person, or Any dividend, partnership distributions, or similar payments made by the debtor or a related person. How to amend taxes For exceptions, see Internal Revenue Code section 871(h)(4)(C). How to amend taxes Any other type of contingent interest that is identified by the Secretary of the Treasury in regulations. How to amend taxes Related persons. How to amend taxes   Related persons include the following. How to amend taxes Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. How to amend taxes ), and lineal descendants (children, grandchildren, etc. How to amend taxes ). How to amend taxes Any person who is a party to any arrangement undertaken for the purpose of avoiding the contingent interest rules. How to amend taxes Certain corporations, partnerships, and other entities. How to amend taxes For details, see Nondeductible Loss in chapter 2 of Publication 544. How to amend taxes Exception for existing debt. How to amend taxes   Contingent interest does not include interest paid or accrued on any debt with a fixed term that was issued: On or before April 7, 1993, or After April 7, 1993, pursuant to a written binding contract in effect on that date and at all times thereafter before that debt was issued. How to amend taxes Dividend Income The following dividend income is exempt from the 30% tax. How to amend taxes Certain dividends paid by foreign corporations. How to amend taxes   There is no 30% tax on U. How to amend taxes S. How to amend taxes source dividends you receive from a foreign corporation. How to amend taxes See Second exception under Dividends in chapter 2 for how to figure the amount of U. How to amend taxes S. How to amend taxes source dividends. How to amend taxes Certain interest-related dividends. How to amend taxes   There is no 30% tax on interest-related dividends from sources within the United States that you receive from a mutual fund or other regulated investment company in 2013. How to amend taxes The mutual fund will designate in writing which dividends are interest-related dividends. How to amend taxes Certain short-term capital gain dividends. How to amend taxes   There may not be any 30% tax on certain short-term capital gain dividends from sources within the United States that you receive from a mutual fund or other regulated investment company. How to amend taxes The mutual fund will designate in writing which dividends are short-term capital gain dividends. How to amend taxes This tax relief will not apply to you if you are present in the United States for 183 days or more during your tax year. How to amend taxes Services Performed for Foreign Employer If you were paid by a foreign employer, your U. How to amend taxes S. How to amend taxes source income may be exempt from U. How to amend taxes S. How to amend taxes tax, but only if you meet one of the situations discussed next. How to amend taxes Employees of foreign persons, organizations, or offices. How to amend taxes   Income for personal services performed in the United States as a nonresident alien is not considered to be from U. How to amend taxes S. How to amend taxes sources and is tax exempt if you meet all three of the following conditions. How to amend taxes You perform personal services as an employee of or under a contract with a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in a trade or business in the United States; or you work for an office or place of business maintained in a foreign country or possession of the United States by a U. How to amend taxes S. How to amend taxes corporation, a U. How to amend taxes S. How to amend taxes partnership, or a U. How to amend taxes S. How to amend taxes citizen or resident. How to amend taxes You perform these services while you are a nonresident alien temporarily present in the United States for a period or periods of not more than a total of 90 days during the tax year. How to amend taxes Your pay for these services is not more than $3,000. How to amend taxes If you do not meet all three conditions, your income from personal services performed in the United States is U. How to amend taxes S. How to amend taxes source income and is taxed according to the rules in chapter 4. How to amend taxes   If your pay for these services is more than $3,000, the entire amount is income from a trade or business within the United States. How to amend taxes To find if your pay is more than $3,000, do not include any amounts you get from your employer for advances or reimbursements of business travel expenses, if you were required to and did account to your employer for those expenses. How to amend taxes If the advances or reimbursements are more than your expenses, include the excess in your pay for these services. How to amend taxes   A day means a calendar day during any part of which you are physically present in the United States. How to amend taxes Example 1. How to amend taxes During 2013, Henry Smythe, a nonresident alien from a nontreaty country, worked for an overseas office of a U. How to amend taxes S. How to amend taxes partnership. How to amend taxes Henry, who uses the calendar year as his tax year, was temporarily present in the United States for 60 days during 2013 performing personal services for the overseas office of the partnership. How to amend taxes That office paid him a total gross salary of $2,800 for those services. How to amend taxes During 2013, he was not engaged in a trade or business in the United States. How to amend taxes The salary is not considered U. How to amend taxes S. How to amend taxes source income and is exempt from U. How to amend taxes S. How to amend taxes tax. How to amend taxes Example 2. How to amend taxes The facts are the same as in Example 1, except that Henry's total gross salary for the services performed in the United States during 2013 was $4,500. How to amend taxes He received $2,875 in 2013, and $1,625 in 2014. How to amend taxes During 2013, he was engaged in a trade or business in the United States because the compensation for his personal services in the United States was more than $3,000. How to amend taxes Henry's salary is U. How to amend taxes S. How to amend taxes source income and is taxed under the rules in chapter 4. How to amend taxes Crew members. How to amend taxes   Compensation for services performed by a nonresident alien in connection with the individual's temporary presence in the United States as a regular crew member of a foreign vessel (for example, a boat or ship) engaged in transportation between the United States and a foreign country or U. How to amend taxes S. How to amend taxes possession is not U. How to amend taxes S. How to amend taxes source income and is exempt from U. How to amend taxes S. How to amend taxes tax. How to amend taxes This exemption does not apply to compensation for services performed on foreign aircraft. How to amend taxes Students and exchange visitors. How to amend taxes   Nonresident alien students and exchange visitors present in the United States under “F,” “J,” or “Q” visas can exclude from gross income pay received from a foreign employer. How to amend taxes   This group includes bona fide students, scholars, trainees, teachers, professors, research assistants, specialists, or leaders in a field of specialized knowledge or skill, or persons of similar description. How to amend taxes It also includes the alien's spouse and minor children if they come with the alien or come later to join the alien. How to amend taxes   A nonresident alien temporarily present in the United States under a “J” visa includes an alien individual entering the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. How to amend taxes Foreign employer. How to amend taxes   A foreign employer is: A nonresident alien individual, foreign partnership, or foreign corporation, or An office or place of business maintained in a foreign country or in a U. How to amend taxes S. How to amend taxes possession by a U. How to amend taxes S. How to amend taxes corporation, a U. How to amend taxes S. How to amend taxes partnership, or an individual who is a U. How to amend taxes S. How to amend taxes citizen or resident. How to amend taxes   The term “foreign employer” does not include a foreign government. How to amend taxes Pay from a foreign government that is exempt from U. How to amend taxes S. How to amend taxes income tax is discussed in chapter 10. How to amend taxes Income from certain annuities. How to amend taxes   Do not include in income any annuity received under a qualified annuity plan or from a qualified trust exempt from U. How to amend taxes S. How to amend taxes income tax if you meet both of the following conditions. How to amend taxes You receive the annuity only because: You performed personal services outside the United States while you were a nonresident alien, or You performed personal services inside the United States while you were a nonresident alien and you met the three conditions, described earlier, under Employees of foreign persons, organizations, or offices . How to amend taxes At the time the first amount is paid as an annuity under the plan (or by the trust), 90% or more of the employees for whom contributions or benefits are provided under the annuity plan (or under the plan of which the trust is a part) are U. How to amend taxes S. How to amend taxes citizens or residents. How to amend taxes   If the annuity qualifies under condition (1) but not condition (2) above, you do not have to include the amount in income if: You are a resident of a country that gives a substantially equal exclusion to U. How to amend taxes S. How to amend taxes citizens and residents, or You are a resident of a beneficiary developing country under Title V of the Trade Act of 1974. How to amend taxes   If you are not sure whether the annuity is from a qualified annuity plan or qualified trust, ask the person who made the payment. How to amend taxes Income affected by treaties. How to amend taxes   Income of any kind that is exempt from U. How to amend taxes S. How to amend taxes tax under a treaty to which the United States is a party is excluded from your gross income. How to amend taxes Income on which the tax is only limited by treaty, however, is included in gross income. How to amend taxes See chapter 9. How to amend taxes Gambling Winnings From Dog or Horse Racing You can exclude from your gross income winnings from legal wagers initiated outside the United States in a parimutuel pool with respect to a live horse or dog race in the United States. How to amend taxes Gain From the Sale of Your Main Home If you sold your main home, you may be able to exclude up to $250,000 of the gain on the sale of your home. How to amend taxes If you are married and file a joint return, you may be able to exclude up to $500,000. How to amend taxes For information on the requirements for this exclusion, see Publication 523. How to amend taxes This exclusion does not apply to nonresident aliens who are subject to the expatriation tax rules discussed in chapter 4. How to amend taxes Scholarships and Fellowship Grants If you are a candidate for a degree, you may be able to exclude from your income part or all of the amounts you receive as a qualified scholarship. How to amend taxes The rules discussed here apply to both resident and nonresident aliens. How to amend taxes If a nonresident alien receives a grant that is not from U. How to amend taxes S. How to amend taxes sources, it is not subject to U. How to amend taxes S. How to amend taxes tax. How to amend taxes See Scholarships, Grants, Prizes, and Awards in chapter 2 to determine whether your grant is from U. How to amend taxes S. How to amend taxes sources. How to amend taxes A scholarship or fellowship is excludable from income only if: You are a candidate for a degree at an eligible educational institution, and You use the scholarship or fellowship to pay qualified education expenses. How to amend taxes Candidate for a degree. How to amend taxes   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 accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. How to amend taxes Eligible educational institution. How to amend taxes   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. How to amend taxes Qualified education expenses. How to amend taxes   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. How to amend taxes These items must be required of all students in your course of instruction. How to amend taxes However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses. How to amend taxes Expenses that do not qualify. How to amend taxes   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. How to amend taxes This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. How to amend taxes Scholarship or fellowship amounts used to pay these costs are taxable. How to amend taxes Amounts used to pay expenses that do not qualify. How to amend taxes   A scholarship amount used to pay any expense that does not qualify is taxable, even if the expense is a fee that must be paid to the institution as a condition of enrollment or attendance. How to amend taxes Payment for services. How to amend taxes   You cannot exclude from income the portion of any scholarship, fellowship, or tuition reduction that represents payment for past, present, or future teaching, research, or other services. How to amend taxes This is true even if all candidates for a degree are required to perform the services as a condition for receiving the degree. How to amend taxes Example. How to amend taxes On January 7, Maria Gomez is notified of a scholarship of $2,500 for the spring semester. How to amend taxes As a condition for receiving the scholarship, Maria must serve as a part-time teaching assistant. How to amend taxes Of the $2,500 scholarship, $1,000 represents payment for her services. How to amend taxes Assuming that Maria meets all other conditions, she can exclude no more than $1,500 from income as a qualified scholarship. How to amend taxes Prev  Up  Next   Home   More Online Publications