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Irs Amendment

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Irs Amendment

Irs amendment 7. Irs amendment   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Irs amendment Custodian account for your child. Irs amendment Penalty for failure to supply SSN. Irs amendment Reporting backup withholding. Irs amendment Savings account with parent as trustee. Irs amendment Interest not reported on Form 1099-INT. Irs amendment Nominees. Irs amendment Incorrect amount. Irs amendment Information reporting requirement. Irs amendment Taxable InterestInterest subject to penalty for early withdrawal. Irs amendment Money borrowed to invest in certificate of deposit. Irs amendment U. Irs amendment S. Irs amendment Savings Bonds Education Savings Bond Program U. Irs amendment S. Irs amendment Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Irs amendment How To Report Interest IncomeSchedule B (Form 1040A or 1040). Irs amendment Reporting tax-exempt interest. Irs amendment U. Irs amendment S. Irs amendment savings bond interest previously reported. Irs amendment Reminder Foreign-source income. Irs amendment  If you are a U. Irs amendment S. Irs amendment citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. Irs amendment S. Irs amendment law. Irs amendment This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Irs amendment Introduction This chapter discusses the following topics. Irs amendment Different types of interest income. Irs amendment What interest is taxable and what interest is nontaxable. Irs amendment When to report interest income. Irs amendment How to report interest income on your tax return. Irs amendment In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Irs amendment Exceptions to this rule are discussed later in this chapter. Irs amendment You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. Irs amendment See Money borrowed to invest in certificate of deposit , later, and chapter 28. Irs amendment Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. Irs amendment S. Irs amendment Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Irs amendment S. Irs amendment Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. Irs amendment Recordkeeping. Irs amendment You should keep a list showing sources and interest amounts received during the year. Irs amendment Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. Irs amendment Tax on unearned income of certain children. Irs amendment    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Irs amendment If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Irs amendment If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Irs amendment   Some parents can choose to include the child's interest and dividends on the parent's return. Irs amendment If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Irs amendment   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Irs amendment Beneficiary of an estate or trust. Irs amendment   Interest you receive as a beneficiary of an estate or trust is generally taxable income. Irs amendment You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Irs amendment , from the fiduciary. Irs amendment Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Irs amendment Social security number (SSN). Irs amendment   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Irs amendment This includes payers of interest. Irs amendment If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Irs amendment SSN for joint account. Irs amendment   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Irs amendment (For information on who owns the funds in a joint account, see Joint accounts , later. Irs amendment ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Irs amendment This is because only one name and SSN can be shown on Form 1099. Irs amendment   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Irs amendment For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Irs amendment Custodian account for your child. Irs amendment   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Irs amendment For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. Irs amendment Penalty for failure to supply SSN. Irs amendment   If you do not give your SSN to the payer of interest, you may have to pay a penalty. Irs amendment See Failure to supply SSN under Penalties in chapter 1. Irs amendment Backup withholding also may apply. Irs amendment Backup withholding. Irs amendment   Your interest income is generally not subject to regular withholding. Irs amendment However, it may be subject to backup withholding to ensure that income tax is collected on the income. Irs amendment Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Irs amendment   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Irs amendment For more information, see Backup Withholding in chapter 4. Irs amendment Reporting backup withholding. Irs amendment   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. Irs amendment The Form 1099-INT will show any backup withholding as “Federal income tax withheld. Irs amendment ” Joint accounts. Irs amendment   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. Irs amendment Income from property given to a child. Irs amendment   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Irs amendment   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Irs amendment Savings account with parent as trustee. Irs amendment   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Irs amendment The savings account legally belongs to the child. Irs amendment The parents are not legally permitted to use any of the funds to support the child. Irs amendment Form 1099-INT. Irs amendment   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Irs amendment This form shows you the interest you received during the year. Irs amendment Keep this form for your records. Irs amendment You do not have to attach it to your tax return. Irs amendment   Report on your tax return the total interest income you receive for the tax year. Irs amendment Interest not reported on Form 1099-INT. Irs amendment   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Irs amendment For example, you may receive distributive shares of interest from partnerships or S corporations. Irs amendment This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. Irs amendment , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Irs amendment Nominees. Irs amendment   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Irs amendment   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. Irs amendment Incorrect amount. Irs amendment   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Irs amendment The new Form 1099-INT you receive will be marked “Corrected. Irs amendment ” Form 1099-OID. Irs amendment   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Irs amendment For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Irs amendment Exempt-interest dividends. Irs amendment   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Irs amendment (However, see Information reporting requirement , next. Irs amendment ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Irs amendment You do not reduce your basis for distributions that are exempt-interest dividends. Irs amendment Information reporting requirement. Irs amendment   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Irs amendment This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Irs amendment Note. Irs amendment Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Irs amendment See Alternative Minimum Tax (AMT) in chapter 30 for more information. Irs amendment Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. Irs amendment Interest on VA dividends. Irs amendment   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Irs amendment This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. Irs amendment Individual retirement arrangements (IRAs). Irs amendment   Interest on a Roth IRA generally is not taxable. Irs amendment Interest on a traditional IRA is tax deferred. Irs amendment You generally do not include it in your income until you make withdrawals from the IRA. Irs amendment See chapter 17. Irs amendment Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Irs amendment The following are some sources of taxable interest. Irs amendment Dividends that are actually interest. Irs amendment   Certain distributions commonly called dividends are actually interest. Irs amendment You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Irs amendment  The “dividends” will be shown as interest income on Form 1099-INT. Irs amendment Money market funds. Irs amendment   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. Irs amendment Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Irs amendment Certificates of deposit and other deferred interest accounts. Irs amendment   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Irs amendment You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Irs amendment The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Irs amendment If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Irs amendment Interest subject to penalty for early withdrawal. Irs amendment   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Irs amendment You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Irs amendment See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. Irs amendment Money borrowed to invest in certificate of deposit. Irs amendment   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Irs amendment You must report the total interest you earn on the certificate in your income. Irs amendment If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Irs amendment See Interest Expenses in chapter 3 of Publication 550. Irs amendment Example. Irs amendment You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Irs amendment The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Irs amendment The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Irs amendment The bank also gives you a statement showing that you paid $310 interest for 2013. Irs amendment You must include the $575 in your income. Irs amendment If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. Irs amendment Gift for opening account. Irs amendment   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Irs amendment   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Irs amendment For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Irs amendment The value is determined by the cost to the financial institution. Irs amendment Example. Irs amendment You open a savings account at your local bank and deposit $800. Irs amendment The account earns $20 interest. Irs amendment You also receive a $15 calculator. Irs amendment If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Irs amendment You must report $35 interest income on your tax return. Irs amendment Interest on insurance dividends. Irs amendment   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Irs amendment However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Irs amendment Prepaid insurance premiums. Irs amendment   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Irs amendment U. Irs amendment S. Irs amendment obligations. Irs amendment   Interest on U. Irs amendment S. Irs amendment obligations, such as U. Irs amendment S. Irs amendment Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Irs amendment Interest on tax refunds. Irs amendment   Interest you receive on tax refunds is taxable income. Irs amendment Interest on condemnation award. Irs amendment   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Irs amendment Installment sale payments. Irs amendment   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Irs amendment That interest is taxable when you receive it. Irs amendment If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Irs amendment See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. Irs amendment Interest on annuity contract. Irs amendment   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Irs amendment Usurious interest. Irs amendment   Usurious interest is interest charged at an illegal rate. Irs amendment This is taxable as interest unless state law automatically changes it to a payment on the principal. Irs amendment Interest income on frozen deposits. Irs amendment   Exclude from your gross income interest on frozen deposits. Irs amendment A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Irs amendment   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Irs amendment If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. Irs amendment   The interest you exclude is treated as credited to your account in the following year. Irs amendment You must include it in income in the year you can withdraw it. Irs amendment Example. Irs amendment $100 of interest was credited on your frozen deposit during the year. Irs amendment You withdrew $80 but could not withdraw any more as of the end of the year. Irs amendment You must include $80 in your income and exclude $20 from your income for the year. Irs amendment You must include the $20 in your income for the year you can withdraw it. Irs amendment Bonds traded flat. Irs amendment   If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Irs amendment The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Irs amendment When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Irs amendment Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. Irs amendment See Bonds Sold Between Interest Dates , later, for more information. Irs amendment Below-market loans. Irs amendment   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Irs amendment See Below-Market Loans in chapter 1 of Publication 550 for more information. Irs amendment U. Irs amendment S. Irs amendment Savings Bonds This section provides tax information on U. Irs amendment S. Irs amendment savings bonds. Irs amendment It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Irs amendment For other information on U. Irs amendment S. Irs amendment savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. Irs amendment O. Irs amendment Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. Irs amendment O. Irs amendment Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. Irs amendment O. Irs amendment Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. Irs amendment treasurydirect. Irs amendment gov/indiv/indiv. Irs amendment htm. Irs amendment Accrual method taxpayers. Irs amendment   If you use an accrual method of accounting, you must report interest on U. Irs amendment S. Irs amendment savings bonds each year as it accrues. Irs amendment You cannot postpone reporting interest until you receive it or until the bonds mature. Irs amendment Accrual methods of accounting are explained in chapter 1 under Accounting Methods . Irs amendment Cash method taxpayers. Irs amendment   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Irs amendment S. Irs amendment savings bonds when you receive it. Irs amendment The cash method of accounting is explained in chapter 1 under Accounting Methods. Irs amendment But see Reporting options for cash method taxpayers , later. Irs amendment Series HH bonds. Irs amendment    These bonds were issued at face value. Irs amendment Interest is paid twice a year by direct deposit to your bank account. Irs amendment If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Irs amendment   Series HH bonds were first offered in 1980 and last offered in August 2004. Irs amendment Before 1980, series H bonds were issued. Irs amendment Series H bonds are treated the same as series HH bonds. Irs amendment If you are a cash method taxpayer, you must report the interest when you receive it. Irs amendment   Series H bonds have a maturity period of 30 years. Irs amendment Series HH bonds mature in 20 years. Irs amendment The last series H bonds matured in 2009. Irs amendment Series EE and series I bonds. Irs amendment   Interest on these bonds is payable when you redeem the bonds. Irs amendment The difference between the purchase price and the redemption value is taxable interest. Irs amendment Series EE bonds. Irs amendment   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Irs amendment   Before July 1980, series E bonds were issued. Irs amendment The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Irs amendment Paper series EE and series E bonds are issued at a discount. Irs amendment The face value is payable to you at maturity. Irs amendment Electronic series EE bonds are issued at their face value. Irs amendment The face value plus accrued interest is payable to you at maturity. Irs amendment As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Irs amendment   Owners of paper series EE bonds can convert them to electronic bonds. Irs amendment These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Irs amendment Series I bonds. Irs amendment   Series I bonds were first offered in 1998. Irs amendment These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Irs amendment The face value plus all accrued interest is payable to you at maturity. Irs amendment Reporting options for cash method taxpayers. Irs amendment   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Irs amendment Method 1. Irs amendment Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. Irs amendment (However, see Savings bonds traded , later. Irs amendment )  Note. Irs amendment Series EE bonds issued in 1983 matured in 2013. Irs amendment If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Irs amendment The last series E bonds were issued in 1980 and matured in 2010. Irs amendment If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Irs amendment Method 2. Irs amendment Choose to report the increase in redemption value as interest each year. Irs amendment You must use the same method for all series EE, series E, and series I bonds you own. Irs amendment If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Irs amendment    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Irs amendment To learn how, see Education Savings Bond Program, later. Irs amendment Change from method 1. Irs amendment   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Irs amendment In the year of change you must report all interest accrued to date and not previously reported for all your bonds. Irs amendment   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Irs amendment Change from method 2. Irs amendment   To change from method 2 to method 1, you must request permission from the IRS. Irs amendment Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Irs amendment You have typed or printed the following number at the top: “131. Irs amendment ” It includes your name and social security number under “131. Irs amendment ” It includes the year of change (both the beginning and ending dates). Irs amendment It identifies the savings bonds for which you are requesting this change. Irs amendment It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Irs amendment   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Irs amendment   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Irs amendment On the statement, type or print “Filed pursuant to section 301. Irs amendment 9100-2. Irs amendment ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Irs amendment    By the date you file the original statement with your return, you must also send a signed copy to the address below. Irs amendment   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Irs amendment O. Irs amendment Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Irs amendment   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW  Washington, DC 20224   Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115, Application for Change in Accounting Method. Irs amendment In that case, follow the form instructions for an automatic change. Irs amendment No user fee is required. Irs amendment Co-owners. Irs amendment   If a U. Irs amendment S. Irs amendment savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Irs amendment One co-owner's funds used. Irs amendment    If you used your funds to buy the bond, you must pay the tax on the interest. Irs amendment This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Irs amendment Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Irs amendment The co-owner who redeemed the bond is a “nominee. Irs amendment ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. Irs amendment Both co-owners' funds used. Irs amendment   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Irs amendment Community property. Irs amendment   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Irs amendment If you file separate returns, each of you generally must report one-half of the bond interest. Irs amendment For more information about community property, see Publication 555. Irs amendment Table 7-1. Irs amendment   These rules are also shown in Table 7-1. Irs amendment Ownership transferred. Irs amendment   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Irs amendment But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Irs amendment   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Irs amendment Purchased jointly. Irs amendment   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Irs amendment The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Irs amendment This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Irs amendment   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Irs amendment But the new co-owner will report only his or her share of the interest earned after the transfer. Irs amendment   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Irs amendment    Table 7-1. Irs amendment Who Pays the Tax on U. Irs amendment S. Irs amendment Savings Bond Interest IF . Irs amendment . Irs amendment . Irs amendment THEN the interest must be reported by . Irs amendment . Irs amendment . Irs amendment you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Irs amendment you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Irs amendment you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Irs amendment you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Irs amendment If you file separate returns, both you and your spouse generally report one-half of the interest. Irs amendment Example 1. Irs amendment You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Irs amendment The bond was issued to you and your spouse as co-owners. Irs amendment You both postpone reporting interest on the bond. Irs amendment You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Irs amendment At that time neither you nor your spouse has to report the interest earned to the date of reissue. Irs amendment Example 2. Irs amendment You bought a $1,000 series EE savings bond entirely with your own funds. Irs amendment The bond was issued to you and your spouse as co-owners. Irs amendment You both postpone reporting interest on the bond. Irs amendment You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Irs amendment You must report half the interest earned to the date of reissue. Irs amendment Transfer to a trust. Irs amendment   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Irs amendment However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Irs amendment You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Irs amendment   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Irs amendment See Savings bonds traded , later. Irs amendment Decedents. Irs amendment   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Irs amendment This is explained in chapter 1 of Publication 550. Irs amendment Savings bonds traded. Irs amendment   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Irs amendment (You cannot trade series I bonds for series HH bonds. Irs amendment After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Irs amendment ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Irs amendment When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Irs amendment Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Irs amendment Example. Irs amendment You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Irs amendment You reported the $223 as taxable income on your tax return. Irs amendment At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Irs amendment You hold the series HH bonds until maturity, when you receive $2,500. Irs amendment You must report $300 as interest income in the year of maturity. Irs amendment This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Irs amendment (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Irs amendment ) Choice to report interest in year of trade. Irs amendment   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. Irs amendment If you made this choice, it is treated as a change from method 1. Irs amendment See Change from method 1 under Series EE and series I bonds, earlier. Irs amendment Form 1099-INT for U. Irs amendment S. Irs amendment savings bonds interest. Irs amendment   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Irs amendment Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Irs amendment However, your Form 1099-INT may show more interest than you have to include on your income tax return. Irs amendment For example, this may happen if any of the following are true. Irs amendment You chose to report the increase in the redemption value of the bond each year. Irs amendment The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Irs amendment You received the bond from a decedent. Irs amendment The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Irs amendment Ownership of the bond was transferred. Irs amendment The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Irs amendment You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Irs amendment The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Irs amendment (See Co-owners , earlier in this chapter, for more information about the reporting requirements. Irs amendment ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Irs amendment The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Irs amendment (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Irs amendment , for the year of distribution. Irs amendment )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. Irs amendment Publication 550 includes examples showing how to report these amounts. Irs amendment    Interest on U. Irs amendment S. Irs amendment savings bonds is exempt from state and local taxes. Irs amendment The Form 1099-INT you receive will indicate the amount that is for U. Irs amendment S. Irs amendment savings bond interest in box 3. Irs amendment Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Irs amendment S. Irs amendment savings bonds during the year if you pay qualified higher educational expenses during the same year. Irs amendment This exclusion is known as the Education Savings Bond Program. Irs amendment You do not qualify for this exclusion if your filing status is married filing separately. Irs amendment Form 8815. Irs amendment   Use Form 8815 to figure your exclusion. Irs amendment Attach the form to your Form 1040 or Form 1040A. Irs amendment Qualified U. Irs amendment S. Irs amendment savings bonds. Irs amendment   A qualified U. Irs amendment S. Irs amendment savings bond is a series EE bond issued after 1989 or a series I bond. Irs amendment The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Irs amendment You must be at least 24 years old before the bond's issue date. Irs amendment For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Irs amendment    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Irs amendment Beneficiary. Irs amendment   You can designate any individual (including a child) as a beneficiary of the bond. Irs amendment Verification by IRS. Irs amendment   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. Irs amendment Qualified expenses. Irs amendment   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Irs amendment   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Irs amendment   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Irs amendment Eligible educational institutions. Irs amendment   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the U. Irs amendment S. Irs amendment Department of Education. Irs amendment Reduction for certain benefits. Irs amendment   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Irs amendment Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). Irs amendment Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Irs amendment Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Irs amendment Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Irs amendment Any expense used in figuring the American Opportunity and lifetime learning credits. Irs amendment Amount excludable. Irs amendment   If the total proceeds (interest and principal) from the qualified U. Irs amendment S. Irs amendment savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Irs amendment If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Irs amendment   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Irs amendment The numerator of the fraction is the qualified higher educational expenses you paid during the year. Irs amendment The denominator of the fraction is the total proceeds you received during the year. Irs amendment Example. Irs amendment In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. Irs amendment S. Irs amendment savings bond they bought in April 1997. Irs amendment They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. Irs amendment In 2013, they paid $4,000 of their daughter's college tuition. Irs amendment They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. Irs amendment They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. Irs amendment They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. Irs amendment Modified adjusted gross income limit. Irs amendment   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. Irs amendment You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. Irs amendment   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. Irs amendment   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. Irs amendment If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. Irs amendment   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. Irs amendment Recordkeeping. Irs amendment If you claim the interest exclusion, you must keep a written record of the qualified U. Irs amendment S. Irs amendment savings bonds you redeem. Irs amendment Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. Irs amendment You can use Form 8818 to record this information. Irs amendment You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. Irs amendment U. Irs amendment S. Irs amendment Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. Irs amendment S. Irs amendment Government. Irs amendment Taxation of interest. Irs amendment   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. Irs amendment You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. Irs amendment   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. Irs amendment Treasury bills. Irs amendment   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. Irs amendment They are generally issued at a discount in the amount of $100 and multiples of $100. Irs amendment The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. Irs amendment Generally, you report this interest income when the bill is paid at maturity. Irs amendment If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. Irs amendment Treasury notes and bonds. Irs amendment   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. Irs amendment Maturity periods for Treasury bonds are longer than 10 years. Irs amendment Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. Irs amendment Generally, you report this interest for the year paid. Irs amendment For more information, see U. Irs amendment S. Irs amendment Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. Irs amendment For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. Irs amendment O. Irs amendment Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Irs amendment treasurydirect. Irs amendment gov/indiv/indiv. Irs amendment htm. Irs amendment For information on series EE, series I, and series HH savings bonds, see U. Irs amendment S. Irs amendment Savings Bonds , earlier. Irs amendment Treasury inflation-protected securities (TIPS). Irs amendment   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. Irs amendment For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. Irs amendment Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. Irs amendment You must report that part of the sales price as interest income for the year of sale. Irs amendment If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. Irs amendment When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. Irs amendment See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. Irs amendment Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. Irs amendment But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. Irs amendment For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. Irs amendment Annuity. Irs amendment   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. Irs amendment See chapter 10 for information on pension and annuity income from nonqualified plans. Irs amendment State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. Irs amendment Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. Irs amendment Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. Irs amendment For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. Irs amendment Information reporting requirement. Irs amendment   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. Irs amendment This is an information reporting requirement only. Irs amendment It does not change tax-exempt interest to taxable interest. Irs amendment Original Issue Discount (OID) Original issue discount (OID) is a form of interest. Irs amendment You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. Irs amendment A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. Irs amendment OID is the difference between the stated redemption price at maturity and the issue price. Irs amendment All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Irs amendment Zero coupon bonds are one example of these instruments. Irs amendment The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). Irs amendment See Discount on Short-Term Obligations in chapter 1 of Publication 550. Irs amendment De minimis OID. Irs amendment   You can treat the discount as zero if it is less than one-fourth of 1% (. Irs amendment 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Irs amendment This small discount is known as “de minimis” OID. Irs amendment Example 1. Irs amendment You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Irs amendment One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Irs amendment Because the $20 discount is less than $25, the OID is treated as zero. Irs amendment (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. Irs amendment ) Example 2. Irs amendment The facts are the same as in Example 1, except that the bond was issued at $950. Irs amendment The OID is $50. Irs amendment Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. Irs amendment Debt instrument bought after original issue. Irs amendment   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. Irs amendment If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. Irs amendment See Market Discount Bonds in chapter 1 of Publication 550. Irs amendment Exceptions to reporting OID. Irs amendment   The OID rules discussed in this chapter do not apply to the following debt instruments. Irs amendment Tax-exempt obligations. Irs amendment (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). Irs amendment U. Irs amendment S. Irs amendment savings bonds. Irs amendment Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). Irs amendment Obligations issued by an individual before March 2, 1984. Irs amendment Loans between individuals if all the following are true. Irs amendment The lender is not in the business of lending money. Irs amendment The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. Irs amendment Avoiding any federal tax is not one of the principal purposes of the loan. Irs amendment Form 1099-OID. Irs amendment   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. Irs amendment Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. Irs amendment It also will show, in box 2, the stated interest you must include in your income. Irs amendment A copy of Form 1099-OID will be sent to the IRS. Irs amendment Do not file your copy with your return. Irs amendment Keep it for your records. Irs amendment   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. Irs amendment But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. Irs amendment Form 1099-OID not received. Irs amendment   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. Irs amendment gov that list total OID on certain debt instruments and have information that will help you figure OID. Irs amendment For the latest OID tables, go to www. Irs amendment irs. Irs amendment gov and enter “OID tables” in the Search box. Irs amendment If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. Irs amendment Nominee. Irs amendment   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. Irs amendment Refiguring OID shown on Form 1099-OID. Irs amendment   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. Irs amendment You bought the debt instrument after its original issue and paid a premium or an acquisition premium. Irs amendment The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). Irs amendment For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. Irs amendment Refiguring periodic interest shown on Form 1099-OID. Irs amendment   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. Irs amendment Certificates of deposit (CDs). Irs amendment   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. Irs amendment   This also applies to similar deposit arrangements with banks, building and loan associations, etc. Irs amendment , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. Irs amendment Bearer CDs. Irs amendment   CDs issued after 1982 generally must be in registered form. Irs amendment Bearer CDs are CDs not in registered form. Irs amendment They are not issued in the depositor's name and are transferable from one individual to another. Irs amendment   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. Irs amendment More information. Irs amendment   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. Irs amendment When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. Irs amendment Cash method. Irs amendment   Most individual taxpayers use the cash method. Irs amendment If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. Irs amendment However, there are special rules for reporting the discount on certain debt instruments. Irs amendment See U. Irs amendment S. Irs amendment Savings Bonds and Original Issue Discount (OID) , earlier. Irs amendment Example. Irs amendment On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. Irs amendment You are not in the business of lending money. Irs amendment The note stated that principal and interest would be due on August 31, 2013. Irs amendment In 2013, you received $2,508. Irs amendment 80 ($2,000 principal and $508. Irs amendment 80 interest). Irs amendment If you use the cash method, you must include in income on your 2013 return the $508. Irs amendment 80 interest you received in that year. Irs amendment Constructive receipt. Irs amendment   You constructively receive income when it is credited to your account or made available to you. Irs amendment You do not need to have physical possession of it. Irs amendment For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. Irs amendment This is true even if they are not yet entered in your passbook. Irs amendment   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. Irs amendment Accrual method. Irs amendment   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Irs amendment Interest is earned over the term of the debt instrument. Irs amendment Example. Irs amendment If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. Irs amendment You would report the interest as follows: 2011, $80; 2012, $249. Irs amendment 60; and 2013, $179. Irs amendment 20. Irs amendment Coupon bonds. Irs amendment   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. Irs amendment It does not matter when you mail the coupon for payment. Irs amendment How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. Irs amendment You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Irs amendment Instead, you must use Form 1040A or Form 1040. Irs amendment Form 1040A. Irs amendment   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. Irs amendment Your taxable interest income is more than $1,500. Irs amendment You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Irs amendment You received interest from a seller-financed mortgage, and the buyer used the property as a home. Irs amendment You received a Form 1099-INT for U. Irs amendment S. Irs amendment savings bond interest that includes amounts you reported before 2013. Irs amendment You received, as a nominee, interest that actually belongs to someone else. Irs amendment You received a Form 1099-INT for interest on frozen deposits. Irs amendment You are reporting OID in an amount less than the amount shown on Form 1099-OID. Irs amendment You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Irs amendment You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). Irs amendment List each payer's name and the amount of interest income received from each payer on line 1. Irs amendment If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Irs amendment   You cannot use Form 1040A if you must use Form 1040, as described next. Irs amendment Form 1040. Irs amendment   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. Irs amendment Schedule B (Form 1040A or 1040). Irs amendment   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. Irs amendment Your taxable interest income is more than $1,500. Irs amendment You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Irs amendment You received interest from a seller-financed mortgage, and the buyer used the property as a home. Irs amendment You received a Form 1099-INT for U. Irs amendment S. Irs amendment savings bond interest that includes amounts you reported before 2013. Irs amendment You received, as a nominee, interest that actually belongs to someone else. Irs amendment You received a Form 1099-INT for interest on frozen deposits. Irs amendment You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Irs amendment You are reporting OID in an amount less than the amount shown on Form 1099-OID. Irs amendment Statement (2) in the preceding list under Form 1040 is true. Irs amendment In Part I, line 1, list each payer's name and the amount received from each. Irs amendment If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Irs amendment Reporting tax-exempt interest. Irs amendment   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. Irs amendment Add these amounts to any other tax-exempt interest you received. Irs amendment Report the total on line 8b of Form 1040A or 1040. Irs amendment   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. Irs amendment Do not add tax-exempt interest in the total on Form 1040EZ, line 2. Irs amendment   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. Irs amendment These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Irs amendment Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Irs amendment    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. Irs amendment Form 1099-INT. Irs amendment   Your taxable interest income, except for interest from U. Irs amendment S. Irs amendment savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Irs amendment Add this amount to any other taxable interest income you received. Irs amendment You must report all of your taxable interest income even if you do not receive a Form 1099-INT. Irs amendment Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. Irs amendment Your identifying number may be truncated on any paper Form 1099-INT you receive. Irs amendment   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. Irs amendment See Penalty on early withdrawal of savings in chapter 1 of Publication 550. Irs amendment   Box 3 of Form 1099-INT shows the interest income you received from U. Irs amendment S. Irs amendment savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Irs amendment Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. Irs amendment If part of the amount shown in box 3 was previously included in your interest income, see U. Irs amendment S. Irs amendment savings bond interest previously reported , later. Irs amendment   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Irs amendment Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). Irs amendment   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Irs amendment See chapter 28 for more information about investment expenses. Irs amendment   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. Irs amendment You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). Irs amendment To take the credit, you may have to file Form 1116, Foreign Tax Credit. Irs amendment For more information, see Publication 514, Foreign Tax Credit for Individuals. Irs amendment U. Irs amendment S. Irs amendment savings bond interest previously reported. Irs amendment   If you received a Form 1099-INT for U. Irs amendment S. Irs amendment savings bond interest, the form may show interest you do not have to report. Irs amendment See Form 1099-INT for U. Irs amendment S. Irs amendment savings bonds interest , earlier, under U. Irs amendment S. Irs amendment Savings Bonds. Irs amendment   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Irs amendment Then follow these steps. Irs amendment Several lines above line 2, enter a subtotal of all interest listed on line 1. Irs amendment Below the subtotal enter “U. Irs amendment S. Irs amendment Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. Irs amendment Subtract these amounts from the subtotal and enter the result on line 2. Irs amendment More information. Irs amendment   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. 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IRS Commissioner Addresses Nation's Taxpayers on 2014 Filing Season; YouTube Video Released

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IRS YouTube Video:
Message to Taxpayers: English| Spanish| ASL

IR-2014-12, Feb. 10, 2014

WASHINGTON – The Internal Revenue Service today released a YouTube message from Commissioner John Koskinen to the nation's taxpayers providing tips and help for the 2014 filing season.

In the YouTube video, now available at IRS.gov and the IRS YouTube channel, Koskinen also discusses how the IRS and its employees will approach the 2014 tax season.

“I can assure you we are all dedicated to doing whatever we can to help you file your taxes this filing season,” Koskinen said in the video, which runs just under three minutes.

“We want to provide you with the assistance you need to get your taxes filed accurately and on time,” Koskinen added. “And we will work hard to issue refunds quickly while increasing our efforts to stop tax fraud and identity thieves.”

Koskinen also cautioned taxpayers that phone lines will be busy this year. “Given our very limited resources, our phone lines are going to be extremely busy this year – and there will frequently be extensive wait times,” Koskinen said. “We are working to limit these waiting times as much as possible, and I apologize that we can’t do more in that regard this year.”

As an alternative, he encouraged taxpayers to consider the following options:

  • Visit IRS.gov to find a wide range of information, including the Where’s My Refund? tool to check on tax refund status.
  • Download the newly redesigned IRS smartphone app IRS2Go to check on tax refund status and get the latest tax news and information, available in English and Spanish for Apple and Android devices.
  • Visit the IRS YouTube channel to get information from over a hundred short instructional IRS videos. IRS YouTube channels have been viewed more than 6 million times.

The IRS also offers subscription to daily tax tips during the filing season as well as other useful resources year-round through a variety of social media platforms such as Twitter, @IRSnews, @IRSenEspanol and @IRStaxpros, Facebook and Tumblr. For more IRS social media links, go to IRS Social Media.

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Page Last Reviewed or Updated: 10-Feb-2014

The Irs Amendment

Irs amendment Publication 15-B - Main Content Table of Contents 1. Irs amendment Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. Irs amendment Fringe Benefit Exclusion RulesAccident and Health Benefits Achievement Awards Adoption Assistance Athletic Facilities De Minimis (Minimal) Benefits Dependent Care Assistance Educational Assistance Employee Discounts Employee Stock Options Employer-Provided Cell Phones Group-Term Life Insurance Coverage Health Savings Accounts Lodging on Your Business Premises Meals Moving Expense Reimbursements No-Additional-Cost Services Retirement Planning Services Transportation (Commuting) Benefits Tuition Reduction Working Condition Benefits 3. Irs amendment Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. Irs amendment Rules for Withholding, Depositing, and ReportingTransfer of property. Irs amendment Amount of deposit. Irs amendment Limitation. Irs amendment Conformity rules. Irs amendment Election not to withhold income tax. Irs amendment How To Get Tax Help 1. Irs amendment Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. Irs amendment For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work. Irs amendment Performance of services. Irs amendment   A person who performs services for you does not have to be your employee. Irs amendment A person may perform services for you as an independent contractor, partner, or director. Irs amendment Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services. Irs amendment Provider of benefit. Irs amendment   You are the provider of a fringe benefit if it is provided for services performed for you. Irs amendment You are considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. Irs amendment For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you are the provider of this fringe benefit even though the customer is actually providing the day care. Irs amendment Recipient of benefit. Irs amendment   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. Irs amendment That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. Irs amendment For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. Irs amendment Are Fringe Benefits Taxable? Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Irs amendment Section 2 discusses the exclusions that apply to certain fringe benefits. Irs amendment Any benefit not excluded under the rules discussed in section 2 is taxable. Irs amendment Including taxable benefits in pay. Irs amendment   You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. Irs amendment Any amount the law excludes from pay. Irs amendment Any amount the recipient paid for the benefit. Irs amendment The rules used to determine the value of a fringe benefit are discussed in section 3. Irs amendment   If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. Irs amendment However, you can use special rules to withhold, deposit, and report the employment taxes. Irs amendment These rules are discussed in section 4. Irs amendment   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. Irs amendment However, you may have to report the benefit on one of the following information returns. Irs amendment If the recipient receives the benefit as: Use: An independent contractor Form 1099-MISC, Miscellaneous Income A partner Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Irs amendment For more information, see the instructions for the forms listed above. Irs amendment Cafeteria Plans A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. Irs amendment If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. Irs amendment Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. Irs amendment However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Irs amendment Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. Irs amendment Qualified benefits. Irs amendment   A cafeteria plan can include the following benefits discussed in section 2. Irs amendment Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). Irs amendment Adoption assistance. Irs amendment Dependent care assistance. Irs amendment Group-term life insurance coverage (including costs that cannot be excluded from wages). Irs amendment Health savings accounts (HSAs). Irs amendment Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. Irs amendment Benefits not allowed. Irs amendment   A cafeteria plan cannot include the following benefits discussed in section 2. Irs amendment Archer MSAs. Irs amendment See Accident and Health Benefits in section 2. Irs amendment Athletic facilities. Irs amendment De minimis (minimal) benefits. Irs amendment Educational assistance. Irs amendment Employee discounts. Irs amendment Employer-provided cell phones. Irs amendment Lodging on your business premises. Irs amendment Meals. Irs amendment Moving expense reimbursements. Irs amendment No-additional-cost services. Irs amendment Transportation (commuting) benefits. Irs amendment Tuition reduction. Irs amendment Working condition benefits. Irs amendment It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). Irs amendment $2,500 limit on a health flexible spending arrangement (FSA). Irs amendment   For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. Irs amendment For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. Irs amendment   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). Irs amendment While cafeteria plans generally must be amended on a prospective basis, an amendment that is adopted on or before December 31, 2014, may be made effective retroactively, provided that in operation the cafeteria plan meets the limit for plan years beginning after December 31, 2012. Irs amendment A cafeteria plan that does not limit health FSA contributions to the dollar limit is not a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income. Irs amendment   For more information, see Notice 2012-40, 2012-26 I. Irs amendment R. Irs amendment B. Irs amendment 1046, available at www. Irs amendment irs. Irs amendment gov/irb/2012-26_IRB/ar09. Irs amendment html. Irs amendment Employee. Irs amendment   For these plans, treat the following individuals as employees. Irs amendment A current common-law employee. Irs amendment See section 2 in Publication 15 (Circular E) for more information. Irs amendment A full-time life insurance agent who is a current statutory employee. Irs amendment A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Irs amendment Exception for S corporation shareholders. Irs amendment   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Irs amendment A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Irs amendment Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Irs amendment Plans that favor highly compensated employees. Irs amendment   If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. Irs amendment A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. Irs amendment   A highly compensated employee for this purpose is any of the following employees. Irs amendment An officer. Irs amendment A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. Irs amendment An employee who is highly compensated based on the facts and circumstances. Irs amendment A spouse or dependent of a person described in (1), (2), or (3). Irs amendment Plans that favor key employees. Irs amendment   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. Irs amendment A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. Irs amendment However, a plan you maintain under a collective bargaining agreement does not favor key employees. Irs amendment   A key employee during 2014 is generally an employee who is either of the following. Irs amendment An officer having annual pay of more than $170,000. Irs amendment An employee who for 2014 is either of the following. Irs amendment A 5% owner of your business. Irs amendment A 1% owner of your business whose annual pay was more than $150,000. Irs amendment Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Irs amendment Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. Irs amendment Eligible employer. Irs amendment   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. Irs amendment If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. Irs amendment If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year. Irs amendment Eligibility and participation requirements. Irs amendment   These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. Irs amendment You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement, or Are nonresident aliens working outside the United States whose income did not come from a U. Irs amendment S. Irs amendment source. Irs amendment Contribution requirements. Irs amendment   You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. Irs amendment If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee. Irs amendment More information. Irs amendment   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. Irs amendment 2. Irs amendment Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. Irs amendment These rules exclude all or part of the value of certain benefits from the recipient's pay. Irs amendment The excluded benefits are not subject to federal income tax withholding. Irs amendment Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2. Irs amendment This section discusses the exclusion rules for the following fringe benefits. Irs amendment Accident and health benefits. Irs amendment Achievement awards. Irs amendment Adoption assistance. Irs amendment Athletic facilities. Irs amendment De minimis (minimal) benefits. Irs amendment Dependent care assistance. Irs amendment Educational assistance. Irs amendment Employee discounts. Irs amendment Employee stock options. Irs amendment Employer-provided cell phones. Irs amendment Group-term life insurance coverage. Irs amendment Health savings accounts (HSAs). Irs amendment Lodging on your business premises. Irs amendment Meals. Irs amendment Moving expense reimbursements. Irs amendment No-additional-cost services. Irs amendment Retirement planning services. Irs amendment Transportation (commuting) benefits. Irs amendment Tuition reduction. Irs amendment Working condition benefits. Irs amendment See Table 2-1, later, for an overview of the employment tax treatment of these benefits. Irs amendment Table 2-1. Irs amendment Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. Irs amendment ) Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) Federal Unemployment (FUTA) Accident and health benefits Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement. Irs amendment Exempt, except for certain payments to S corporation employees who are 2% shareholders. Irs amendment Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). Irs amendment Adoption assistance Exempt1,3 Taxable Taxable Athletic facilities Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer. Irs amendment De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). Irs amendment Educational assistance Exempt up to $5,250 of benefits each year. Irs amendment (See Educational Assistance , later in this section. Irs amendment ) Employee discounts Exempt3 up to certain limits. Irs amendment (See Employee Discounts , later in this section. Irs amendment ) Employee stock options See Employee Stock Options , later in this section. Irs amendment Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. Irs amendment Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. Irs amendment (Special rules apply to former employees. Irs amendment ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. Irs amendment (See Health Savings Accounts , later in this section. Irs amendment ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. Irs amendment Meals Exempt if furnished on your business premises for your convenience. Irs amendment Exempt if de minimis. Irs amendment Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. Irs amendment No-additional-cost services Exempt3 Exempt3 Exempt3 Retirement planning services Exempt5 Exempt5 Exempt5 Transportation (commuting) benefits Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement6 ($20). Irs amendment (See Transportation (Commuting) Benefits , later in this section. Irs amendment ) Exempt if de minimis. Irs amendment Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Irs amendment Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. Irs amendment 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. Irs amendment 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. Irs amendment 4 Exemption does not apply to certain key employees under a plan that favors those employees. Irs amendment 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. Irs amendment 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. Irs amendment 7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Irs amendment Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Irs amendment Also, show it in box 12 with code “C. Irs amendment ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Irs amendment Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. Irs amendment Contributions to the cost of accident or health insurance including qualified long-term care insurance. Irs amendment Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Irs amendment Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). Irs amendment This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. Irs amendment Payments or reimbursements of medical expenses. Irs amendment Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). Irs amendment The payments must be figured without regard to any period of absence from work. Irs amendment Accident or health plan. Irs amendment   This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. Irs amendment The plan may be insured or noninsured and does not need to be in writing. Irs amendment Employee. Irs amendment   For this exclusion, treat the following individuals as employees. Irs amendment A current common-law employee. Irs amendment A full-time life insurance agent who is a current statutory employee. Irs amendment A retired employee. Irs amendment A former employee you maintain coverage for based on the employment relationship. Irs amendment A widow or widower of an individual who died while an employee. Irs amendment A widow or widower of a retired employee. Irs amendment For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Irs amendment Special rule for certain government plans. Irs amendment   For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. Irs amendment See section 105(j) for details. Irs amendment Exception for S corporation shareholders. Irs amendment   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Irs amendment A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Irs amendment Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Irs amendment Exclusion from wages. Irs amendment   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. Irs amendment Exception for certain long-term care benefits. Irs amendment   You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. Irs amendment This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. Irs amendment However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Irs amendment S corporation shareholders. Irs amendment   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. Irs amendment However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Irs amendment Exception for highly compensated employees. Irs amendment   If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. Irs amendment However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Irs amendment   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. Irs amendment   A highly compensated employee for this exception is any of the following individuals. Irs amendment One of the five highest paid officers. Irs amendment An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. Irs amendment An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). Irs amendment   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. Irs amendment COBRA premiums. Irs amendment   The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). Irs amendment The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary. Irs amendment Achievement Awards This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. Irs amendment The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. Irs amendment The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. Irs amendment Employee. Irs amendment   For this exclusion, treat the following individuals as employees. Irs amendment A current employee. Irs amendment A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. Irs amendment A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Irs amendment Exception for S corporation shareholders. Irs amendment   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Irs amendment A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Irs amendment Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Irs amendment Exclusion from wages. Irs amendment   You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. Irs amendment The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). Irs amendment See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. Irs amendment    To determine for 2014 whether an achievement award is a “qualified plan award” under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2013 as a highly compensated employee. Irs amendment   If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts. Irs amendment The part of the cost that is more than your allowable deduction (up to the value of the awards). Irs amendment The amount by which the value of the awards exceeds your allowable deduction. Irs amendment Exclude the remaining value of the awards from the employee's wages. Irs amendment Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. Irs amendment It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. Irs amendment To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. Irs amendment It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). Irs amendment A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Irs amendment You give reasonable notice of the plan to eligible employees. Irs amendment Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. Irs amendment For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Irs amendment The employee was a 5% owner at any time during the year or the preceding year. Irs amendment The employee received more than $115,000 in pay for the preceding year. Irs amendment You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Irs amendment You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. Irs amendment However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Irs amendment For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. Irs amendment You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Irs amendment Use code “T” to identify this amount. Irs amendment Exception for S corporation shareholders. Irs amendment   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Irs amendment A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Irs amendment Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, including using the benefit as a reduction in distributions to the 2% shareholder. Irs amendment Athletic Facilities You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. Irs amendment For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25. Irs amendment On-premises facility. Irs amendment   The athletic facility must be located on premises you own or lease. Irs amendment It does not have to be located on your business premises. Irs amendment However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. Irs amendment Employee. Irs amendment   For this exclusion, treat the following individuals as employees. Irs amendment A current employee. Irs amendment A former employee who retired or left on disability. Irs amendment A widow or widower of an individual who died while an employee. Irs amendment A widow or widower of a former employee who retired or left on disability. Irs amendment A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Irs amendment A partner who performs services for a partnership. Irs amendment De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. Irs amendment A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Irs amendment Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. Irs amendment Examples of de minimis benefits include the following. Irs amendment Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. Irs amendment See Employer-Provided Cell Phones , later in this section, for details. Irs amendment Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. Irs amendment Holiday gifts, other than cash, with a low fair market value. Irs amendment Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000. Irs amendment Meals. Irs amendment See Meals , later in this section, for details. Irs amendment Occasional parties or picnics for employees and their guests. Irs amendment Occasional tickets for theater or sporting events. Irs amendment Transportation fare. Irs amendment See Transportation (Commuting) Benefits , later in this section, for details. Irs amendment Employee. Irs amendment   For this exclusion, treat any recipient of a de minimis benefit as an employee. Irs amendment Dependent Care Assistance This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. Irs amendment The services must be for a qualifying person's care and must be provided to allow the employee to work. Irs amendment These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. Irs amendment For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. Irs amendment Employee. Irs amendment   For this exclusion, treat the following individuals as employees. Irs amendment A current employee. Irs amendment A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Irs amendment Yourself (if you are a sole proprietor). Irs amendment A partner who performs services for a partnership. Irs amendment Exclusion from wages. Irs amendment   You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income. Irs amendment   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. Irs amendment This limit is reduced to $2,500 for married employees filing separate returns. Irs amendment   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. Irs amendment Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. Irs amendment For more information on the earned income limit, see Publication 503. Irs amendment Exception for highly compensated employees. Irs amendment   You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. Irs amendment   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Irs amendment The employee was a 5% owner at any time during the year or the preceding year. Irs amendment The employee received more than $115,000 in pay for the preceding year. Irs amendment You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Irs amendment Form W-2. Irs amendment   Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. Irs amendment Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. Irs amendment Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. Irs amendment Example. Irs amendment   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. Irs amendment In addition, it provides occasional on-site dependent care to its employees at no cost. Irs amendment Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. Irs amendment In addition, Emily used the on-site dependent care several times. Irs amendment The fair market value of the on-site care was $700. Irs amendment Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). Irs amendment Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount. Irs amendment Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. Irs amendment The exclusion also applies to graduate level courses. Irs amendment Educational assistance means amounts you pay or incur for your employees' education expenses. Irs amendment These expenses generally include the cost of books, equipment, fees, supplies, and tuition. Irs amendment However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education: Has a reasonable relationship to your business, or Is required as part of a degree program. Irs amendment Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Irs amendment Nor do they include the cost of lodging, meals, or transportation. Irs amendment Educational assistance program. Irs amendment   An educational assistance program is a separate written plan that provides educational assistance only to your employees. Irs amendment The program qualifies only if all of the following tests are met. Irs amendment The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. Irs amendment To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining. Irs amendment The program does not provide more than 5% of its benefits during the year for shareholders or owners. Irs amendment A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Irs amendment The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance. Irs amendment You give reasonable notice of the program to eligible employees. Irs amendment Your program can cover former employees if their employment is the reason for the coverage. Irs amendment   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Irs amendment The employee was a 5% owner at any time during the year or the preceding year. Irs amendment The employee received more than $115,000 in pay for the preceding year. Irs amendment You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Irs amendment Employee. Irs amendment   For this exclusion, treat the following individuals as employees. Irs amendment A current employee. Irs amendment A former employee who retired, left on disability, or was laid off. Irs amendment A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Irs amendment Yourself (if you are a sole proprietor). Irs amendment A partner who performs services for a partnership. Irs amendment Exclusion from wages. Irs amendment   You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year. Irs amendment Assistance over $5,250. Irs amendment   If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Irs amendment Working condition benefits may be excluded from wages. Irs amendment Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. Irs amendment See Working Condition Benefits , later, in this section. Irs amendment Employee Discounts This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. Irs amendment However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). Irs amendment Employee. Irs amendment   For this exclusion, treat the following individuals as employees. Irs amendment A current employee. Irs amendment A former employee who retired or left on disability. Irs amendment A widow or widower of an individual who died while an employee. Irs amendment A widow or widower of an employee who retired or left on disability. Irs amendment A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Irs amendment A partner who performs services for a partnership. Irs amendment Exclusion from wages. Irs amendment   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. Irs amendment For a discount on services, 20% of the price you charge nonemployee customers for the service. Irs amendment For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. Irs amendment   Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. Irs amendment To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. Irs amendment Exception for highly compensated employees. Irs amendment   You cannot exclude from the wages of a highly compensated employee any part of the value of a discount that is not available on the same terms to one of the following groups. Irs amendment All of your employees. Irs amendment A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. Irs amendment   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Irs amendment The employee was a 5% owner at any time during the year or the preceding year. Irs amendment The employee received more than $115,000 in pay for the preceding year. Irs amendment You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Irs amendment Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. Irs amendment Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting from the exercise, after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. Irs amendment The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such exercise. Irs amendment Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition of stock acquired by the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any disposition of the stock. Irs amendment The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. Irs amendment However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. Irs amendment An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code “V. Irs amendment ” See Regulations section 1. Irs amendment 83-7. Irs amendment An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. Irs amendment The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. Irs amendment See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. Irs amendment You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. Irs amendment irs. Irs amendment gov/pub/irs-irbs/irb02-19. Irs amendment pdf. Irs amendment See Revenue Ruling 2004-60, 2004-24 I. Irs amendment R. Irs amendment B. Irs amendment 1051, available at www. Irs amendment irs. Irs amendment gov/irb/2004-24_IRB/ar13. Irs amendment html. Irs amendment For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. Irs amendment Employer-Provided Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Irs amendment Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. Irs amendment For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section. Irs amendment Noncompensatory business purposes. Irs amendment   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Irs amendment Examples of substantial business reasons include the employer's: Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. Irs amendment Cell phones provided to promote goodwill, boost morale, or attract prospective employees. Irs amendment   You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. Irs amendment Additional information. Irs amendment   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. Irs amendment R. Irs amendment B. Irs amendment 407, available at  www. Irs amendment irs. Irs amendment gov/irb/2011-38_IRB/ar07. Irs amendment html. Irs amendment Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. Irs amendment It provides a general death benefit that is not included in income. Irs amendment You provide it to a group of employees. Irs amendment See The 10-employee rule , later. Irs amendment It provides an amount of insurance to each employee based on a formula that prevents individual selection. Irs amendment This formula must use factors such as the employee's age, years of service, pay, or position. Irs amendment You provide it under a policy you directly or indirectly carry. Irs amendment Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Irs amendment Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. Irs amendment Group-term life insurance does not include the following insurance. Irs amendment Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. Irs amendment Life insurance on the life of your employee's spouse or dependent. Irs amendment However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. Irs amendment See De Minimis (Minimal) Benefits , earlier in this section. Irs amendment Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. Irs amendment See Regulations section 1. Irs amendment 79-1 for details. Irs amendment Employee. Irs amendment   For this exclusion, treat the following individuals as employees. Irs amendment A current common-law employee. Irs amendment A full-time life insurance agent who is a current statutory employee. Irs amendment An individual who was formerly your employee under (1) or (2). Irs amendment A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction and control. Irs amendment Exception for S corporation shareholders. Irs amendment   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Irs amendment A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Irs amendment Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Irs amendment The 10-employee rule. Irs amendment   Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. Irs amendment   For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. Irs amendment For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. Irs amendment However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. Irs amendment A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. Irs amendment Exceptions. Irs amendment   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. Irs amendment   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. Irs amendment If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical. Irs amendment You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts. Irs amendment You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. Irs amendment See Regulations section 1. Irs amendment 79-1 for details. Irs amendment   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. Irs amendment You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you. Irs amendment The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. Irs amendment Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. Irs amendment   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. Irs amendment They were 65 or older. Irs amendment They customarily work 20 hours or less a week or 5 months or less in a calendar year. Irs amendment They have not been employed for the waiting period given in the policy. Irs amendment This waiting period cannot be more than 6 months. Irs amendment Exclusion from wages. Irs amendment   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. Irs amendment You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. Irs amendment In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. Irs amendment Coverage over the limit. Irs amendment   You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Irs amendment Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Irs amendment Also, show it in box 12 with code “C. Irs amendment ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Irs amendment   Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. Irs amendment For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. Irs amendment You must prorate the cost from the table if less than a full month of coverage is involved. Irs amendment Table 2-2. Irs amendment Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . Irs amendment 05 25 through 29 . Irs amendment 06 30 through 34 . Irs amendment 08 35 through 39 . Irs amendment 09 40 through 44 . Irs amendment 10 45 through 49 . Irs amendment 15 50 through 54 . Irs amendment 23 55 through 59 . Irs amendment 43 60 through 64 . Irs amendment 66 65 through 69 1. Irs amendment 27 70 and older 2. Irs amendment 06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost. Irs amendment Example. Irs amendment Tom's employer provides him with group-term life insurance coverage of $200,000. Irs amendment Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Irs amendment Tom's employer must include $170 in his wages. Irs amendment The $200,000 of insurance coverage is reduced by $50,000. Irs amendment The yearly cost of $150,000 of coverage is $270 ($. Irs amendment 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. Irs amendment The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. Irs amendment The employer also enters $170 in box 12 with code “C. Irs amendment ” Coverage for dependents. Irs amendment   Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount is not more than $2,000. Irs amendment If the face amount is greater than $2,000, the entire cost of the dependent coverage must be included in income unless the amount over $2,000 is purchased with employee contributions on an after-tax basis. Irs amendment The cost of the insurance is determined by using Table 2-2. Irs amendment Former employees. Irs amendment   When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. Irs amendment You are not required to collect those taxes. Irs amendment Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. Irs amendment Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. Irs amendment ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. Irs amendment Exception for key employees. Irs amendment   Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. Irs amendment This exception generally does not apply to church plans. Irs amendment When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Irs amendment Include the cost in boxes 1, 3, and 5 of Form W-2. Irs amendment However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee. Irs amendment   For this purpose, the cost of the insurance is the greater of the following amounts. Irs amendment The premiums you pay for the employee's insurance. Irs amendment See Regulations section 1. Irs amendment 79-4T(Q&A 6) for more information. Irs amendment The cost you figure using Table 2-2. Irs amendment   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. Irs amendment See section 416(i) of the Internal Revenue Code for more information. Irs amendment An officer having annual pay of more than $170,000. Irs amendment An individual who for 2014 was either of the following. Irs amendment A 5% owner of your business. Irs amendment A 1% owner of your business whose annual pay was more than $150,000. Irs amendment   A former employee who was a key employee upon retirement or separation from service is also a key employee. Irs amendment   Your plan does not favor key employees as to participation if at least one of the following is true. Irs amendment It benefits at least 70% of your employees. Irs amendment At least 85% of the participating employees are not key employees. Irs amendment It benefits employees who qualify under a set of rules you set up that do not favor key employees. Irs amendment   Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those plans. Irs amendment   When applying this test, do not consider employees who: Have not completed 3 years of service, Are part-time or seasonal, Are nonresident aliens who receive no U. Irs amendment S. Irs amendment source earned income from you, or Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives. Irs amendment   Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. Irs amendment Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. Irs amendment S corporation shareholders. Irs amendment   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. Irs amendment When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Irs amendment Include the cost in boxes 1, 3, and 5 of Form W-2. Irs amendment However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder. Irs amendment Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Irs amendment Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. Irs amendment Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Irs amendment The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. Irs amendment For more information about HSAs, visit the Department of Treasury's website at www. Irs amendment treasury. Irs amendment gov and enter “HSA” in the search box. Irs amendment Eligibility. Irs amendment   A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. Irs amendment For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage and $12,700 for family coverage. Irs amendment   There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution. Irs amendment Exceptions. Irs amendment   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. Irs amendment Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. Irs amendment However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. Irs amendment For more information, see Other employee health plans in Publication 969. Irs amendment Employer contributions. Irs amendment   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. Irs amendment For 2014, you can contribute up to $3,300 for self-only coverage or $6,550 for family coverage to a qualified individual's HSA. Irs amendment   The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. Irs amendment For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. Irs amendment No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. Irs amendment Nondiscrimination rules. Irs amendment    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. Irs amendment Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. Irs amendment   For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54. Irs amendment 4980G-4. Irs amendment Exception. Irs amendment   The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. Irs amendment A highly compensated employee for 2014 is an employee who meets either of the following tests. Irs amendment The employee was a 5% owner at any time during the year or the preceding year. Irs amendment The employee received more than $115,000 in pay for the preceding year. Irs amendment You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Irs amendment Partnerships and S corporations. Irs amendment   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Irs amendment Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances. Irs amendment Cafeteria plans. Irs amendment   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. Irs amendment However, cafeteria plan nondiscrimination rules still apply. Irs amendment For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Irs amendment Contributions that favor lower-paid employees are not prohibited. Irs amendment Reporting requirements. Irs amendment   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. Irs amendment ” The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Irs amendment Lodging on Your Business Premises You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests. Irs amendment It is furnished on your business premises. Irs amendment It is furnished for your convenience. Irs amendment The employee must accept it as a condition of employment. Irs amendment Different tests may apply to lodging furnished by educational institutions. Irs amendment See section 119(d) of the Internal Revenue Code for details. Irs amendment The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. Irs amendment On your business premises. Irs amendment   For this exclusion, your business premises is generally your employee's place of work. Irs amendment For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. Irs amendment For your convenience. Irs amendment   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. Irs amendment You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. Irs amendment This is true even if a law or an employment contract provides that the lodging is furnished as pay. Irs amendment However, a written statement that the lodging is furnished for your convenience is not sufficient. Irs amendment Condition of employment. Irs amendment   Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Irs amendment Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. Irs amendment   It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment. Irs amendment Example. Irs amendment A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. Irs amendment If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her employment. Irs amendment S corporation shareholders. Irs amendment   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Irs amendment A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Irs amendment Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Irs amendment Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. Irs amendment De Minimis Meals You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. Irs amendment The exclusion applies, for example, to the following items. Irs amendment Coffee, doughnuts, or soft drinks. Irs amendment Occasional meals or meal money provided to enable an employee to work overtime. Irs amendment However, the exclusion does not apply to meal money figured on the basis of hours worked. Irs amendment Occasional parties or picnics for employees and their guests. Irs amendment This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. Irs amendment For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later. Irs amendment If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. Irs amendment The 50% limit on deductions for the cost of meals does not apply. Irs amendment The deduction limit on meals is discussed in chapter 2 of Publication 535. Irs amendment Employee. Irs amendment   For this exclusion, treat any recipient of a de minimis meal as