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Irsfreetax 1. Irsfreetax   Filing Information Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Filing RequirementsWhen To File and Pay Foreign Currency Does My Return Have To Be On Paper? Where To File Nonresident Alien Spouse Treated as a ResidentSocial Security Number (SSN) How To Make the Choice Suspending the Choice Ending the Choice Estimated Tax Other Forms You May Have To File Topics - This chapter discusses: Whether you have to file a return, When to file your return and pay any tax due, How to treat foreign currency, How to file electronically, Where to file your return, When you can treat your nonresident alien spouse as a resident, and When you may have to make estimated tax payments. Irsfreetax Useful Items - You may want to see: Publication 3 Armed Forces' Tax Guide 501 Exemptions, Standard Deduction, and Filing Information 505 Tax Withholding and Estimated Tax 519 U. Irsfreetax S. Irsfreetax Tax Guide for Aliens 970 Tax Benefits for Education Form (and Instructions) 1040-ES Estimated Tax for Individuals 1040X Amended U. Irsfreetax S. Irsfreetax Individual Income Tax Return 2350 Application for Extension of Time To File U. Irsfreetax S. Irsfreetax Income Tax Return 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 4868 Application for Automatic Extension of Time To File U. Irsfreetax S. Irsfreetax Individual Income Tax Return 8822 Change of Address See chapter 7 for information about getting these publications and forms. Irsfreetax Filing Requirements If you are a U. Irsfreetax S. Irsfreetax citizen or resident alien, the rules for filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are in the United States or abroad. Irsfreetax Your income, filing status, and age generally determine whether you must file an income tax return. Irsfreetax Generally, you must file a return for 2013 if your gross income from worldwide sources is at least the amount shown for your filing status in the following table. Irsfreetax Filing Status*   Amount Single $10,000 65 or older $11,500 Head of household $12,850 65 or older $14,350 Qualifying widow(er) $16,100 65 or older $17,300 Married filing jointly $20,000 Not living with spouse at end of year $3,900 One spouse 65 or older $21,200 Both spouses 65 or older $22,400 Married filing separately $3,900 *If you are the dependent of another taxpayer, see the instructions for Form 1040 for more information on whether you must file a return. Irsfreetax Gross income. Irsfreetax   This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax. Irsfreetax   For purposes of determining whether you must file a return, gross income includes any income that you can exclude as foreign earned income or as a foreign housing amount. Irsfreetax If you are self-employed, your gross income includes the amount on Part I, line 7 of Schedule C (Form 1040), Profit or Loss From Business, or line 1 of Schedule C-EZ (Form 1040), Net Profit From Business. Irsfreetax Self-employed individuals. Irsfreetax   If your net earnings from self-employment are $400 or more, you must file a return even if your gross income is below the amount listed for your filing status in the table shown earlier. Irsfreetax Net earnings from self-employment are defined in Publication 334, Tax Guide for Small Business. Irsfreetax 65 or older. Irsfreetax   You are considered to be age 65 on the day before your 65th birthday. Irsfreetax For example, if your 65th birthday is on January 1, 2014, you are considered 65 for 2013. Irsfreetax Residents of U. Irsfreetax S. Irsfreetax possessions. Irsfreetax   If you are (or were) a bona fide resident of a U. Irsfreetax S. Irsfreetax possession, you may be required to file Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U. Irsfreetax S. Irsfreetax Possession. Irsfreetax See the instructions for the form for more information. Irsfreetax When To File and Pay If you file on a calendar year basis, the due date for filing your return is April 15 of the following year. Irsfreetax If you file on a fiscal year basis (a year ending on the last day of any month except December), the due date is 3 months and 15 days after the close of your fiscal year. Irsfreetax In general, the tax shown on your return should be paid by the due date of the return, without regard to any extension of time for filing the return. Irsfreetax When the due date for doing any act for tax purposes—filing a return, paying taxes, etc. Irsfreetax — falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. Irsfreetax A tax return delivered by the U. Irsfreetax S. Irsfreetax mail or a designated delivery service that is postmarked or dated by the delivery service on or before the due date is considered to have been filed on or before that date. Irsfreetax See your Form 1040 or Form 1040A instructions for a list of designated delivery services. Irsfreetax Foreign wire transfers. Irsfreetax   If you have a U. Irsfreetax S. Irsfreetax bank account, you can use: EFTPS (Electronic Federal Tax Payment System), or Federal Tax Application (same-day wire transfer). Irsfreetax If you do not have a U. Irsfreetax S. Irsfreetax bank account, ask if your financial institution has a U. Irsfreetax S. Irsfreetax affiliate that can help you make same-day wire transfers. Irsfreetax   For more information, visit www. Irsfreetax eftps. Irsfreetax gov. Irsfreetax Extensions You can get an extension of time to file your return. Irsfreetax In some circumstances, you also can get an extension of time to file and pay any tax due. Irsfreetax However, if you pay the tax due after the regular due date, interest will be charged from the regular due date until the date the tax is paid. Irsfreetax This publication discusses four extensions: an automatic 2-month extension, an automatic 6-month extension, an additional extension for taxpayers out of the country, and an extension of time to meet tests. Irsfreetax If you served in a combat zone or qualified hazardous duty area, see Publication 3 for a discussion of extensions of deadlines. Irsfreetax Automatic 2-month extension. Irsfreetax   You are allowed an automatic 2-month extension to file your return and pay federal income tax if you are a U. Irsfreetax S. Irsfreetax citizen or resident alien, and on the regular due date of your return: You are living outside the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or You are in military or naval service on duty outside the United States and Puerto Rico. Irsfreetax   If you use a calendar year, the regular due date of your return is April 15. Irsfreetax Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return. Irsfreetax Married taxpayers. Irsfreetax   If you file a joint return, either you or your spouse can qualify for the automatic extension. Irsfreetax If you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies for it. Irsfreetax How to get the extension. Irsfreetax   To use this automatic 2-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension. Irsfreetax Automatic 6-month extension. Irsfreetax   If you are not able to file your return by the due date, you generally can get an automatic 6-month extension of time to file (but not of time to pay). Irsfreetax To get this automatic extension, you must file a paper Form 4868 or use IRS e-file (electronic filing). Irsfreetax For more information about filing electronically, see E-file options , later. Irsfreetax   The form must show your properly estimated tax liability based on the information available to you. Irsfreetax    You may not be eligible. Irsfreetax You cannot use the automatic 6-month extension of time to file if: You want the IRS to figure your tax, or You are under a court order to file by the regular due date. Irsfreetax E-file options. Irsfreetax    You can use e-file to get an extension of time to file. Irsfreetax You can either file Form 4868 electronically or you can pay part or all of your estimate of tax due using a credit or debit card. Irsfreetax   First, complete Form 4868 to use as a worksheet. Irsfreetax If you think you may owe tax when you file your return, use Part II of the form to estimate your balance due. Irsfreetax    Then, do one of the following. Irsfreetax E-file Form 4868. Irsfreetax You can use a tax software package with your personal computer or a tax professional to file Form 4868 electronically. Irsfreetax You will need to provide certain information from your tax return for 2012. Irsfreetax If you wish to make a payment by electronic funds withdrawal, see the instructions for Form 4868. Irsfreetax If you e-file Form 4868, do not also send a paper Form 4868. Irsfreetax E-file and pay by credit or debit card. Irsfreetax You can get an extension by paying part or all of your estimate of tax due by using a credit or debit card. Irsfreetax You can do this by phone or over the Internet. Irsfreetax If you do this, you do not file Form 4868. Irsfreetax For more information, see the instructions for your tax return. Irsfreetax When to file. Irsfreetax   Generally, you must request the 6-month extension by the regular due date of your return. Irsfreetax Previous 2-month extension. Irsfreetax   If you cannot file your return within the automatic 2-month extension period, you generally can get an additional 4 months to file your return, for a total of 6 months. Irsfreetax The 2-month period and the 6-month period start at the same time. Irsfreetax You have to request the additional 4 months by the new due date allowed by the 2-month extension. Irsfreetax   The additional 4 months of time to file (unlike the original 2-month extension) is not an extension of time to pay. Irsfreetax You must make an accurate estimate of your tax based on the information available to you. Irsfreetax If you find you cannot pay the full amount due with Form 4868, you can still get the extension. Irsfreetax You will owe interest on the unpaid amount from the original due date of the return. Irsfreetax   You also may be charged a penalty for paying the tax late unless you have reasonable cause for not paying your tax when due. Irsfreetax Penalties for paying the tax late are assessed from the original due date of your return, unless you qualify for the automatic 2-month extension. Irsfreetax In that situation, penalties for paying late are assessed from the extended due date of the payment (June 15 for calendar year taxpayers). Irsfreetax Additional extension of time for taxpayers out of the country. Irsfreetax   In addition to the 6-month extension, taxpayers who are out of the country can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). Irsfreetax   To request this extension, you must send the Internal Revenue Service a letter explaining the reasons why you need the additional 2 months. Irsfreetax Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0045   You will not receive any notification from the Internal Revenue Service unless your request is denied. Irsfreetax   The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350, discussed next. Irsfreetax Extension of time to meet tests. Irsfreetax   You generally cannot get an extension of more than 6 months. Irsfreetax However, if you are outside the United States and meet certain requirements, you may be able to get a longer extension. Irsfreetax   You can get an extension of more than 6 months to file your tax return if you need the time to meet either the bona fide residence test or the physical presence test to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction. Irsfreetax The tests, the exclusions, and the deduction are explained in chapter 4. Irsfreetax   You should request an extension if all three of the following apply. Irsfreetax You are a U. Irsfreetax S. Irsfreetax citizen or resident alien. Irsfreetax You expect to meet either the bona fide residence test or the physical presence test, but not until after your tax return is due. Irsfreetax Your tax home is in a foreign country (or countries) throughout your period of bona fide residence or physical presence, whichever applies. Irsfreetax   If you are granted an extension, it generally will be to 30 days beyond the date on which you can reasonably expect to qualify for an exclusion or deduction under either the bona fide residence test or the physical presence test. Irsfreetax However, if you have moving expenses that are for services performed in 2 years, you may be granted an extension until after the end of the second year. Irsfreetax How to get an extension. Irsfreetax   To obtain an extension, file Form 2350 either by giving it to a local IRS representative or other IRS employee or by mailing it to the: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0045   You must file Form 2350 by the due date for filing your return. Irsfreetax Generally, if both your tax home and your abode are outside the United States and Puerto Rico on the regular due date of your return and you file on a calendar year basis, the due date for filing your return is June 15. Irsfreetax What if tests are not met. Irsfreetax   If you obtain an extension and unforeseen events make it impossible for you to meet either the bona fide residence test or the physical presence test, you should file your income tax return as soon as possible because you must pay interest on any tax due after the regular due date of the return (even though an extension was granted). Irsfreetax    You should make any request for an extension early, so that if it is denied you still can file your return on time. Irsfreetax Otherwise, if you file late and additional tax is due, you may be subject to a penalty. Irsfreetax Return filed before test is met. Irsfreetax   If you file a return before you meet the bona fide residence test or the physical presence test, you must include all income from both U. Irsfreetax S. Irsfreetax and foreign sources and pay the tax on that income. Irsfreetax If you later meet either of the tests, you can claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction on Form 1040X. Irsfreetax Foreign Currency You must express the amounts you report on your U. Irsfreetax S. Irsfreetax tax return in U. Irsfreetax S. Irsfreetax dollars. Irsfreetax If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. Irsfreetax S. Irsfreetax dollars. Irsfreetax How you do this depends on your functional currency. Irsfreetax Your functional currency generally is the U. Irsfreetax S. Irsfreetax dollar unless you are required to use the currency of a foreign country. Irsfreetax You must make all federal income tax determinations in your functional currency. Irsfreetax The U. Irsfreetax S. Irsfreetax dollar is the functional currency for all taxpayers except some qualified business units (QBUs). Irsfreetax A QBU is a separate and clearly identified unit of a trade or business that maintains separate books and records. Irsfreetax Even if you have a QBU, your functional currency is the dollar if any of the following apply. Irsfreetax You conduct the business in U. Irsfreetax S. Irsfreetax dollars. Irsfreetax The principal place of business is located in the United States. Irsfreetax You choose to or are required to use the U. Irsfreetax S. Irsfreetax dollar as your functional currency. Irsfreetax The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. Irsfreetax Make all income tax determinations in your functional currency. Irsfreetax If your functional currency is the U. Irsfreetax S. Irsfreetax dollar, you must immediately translate into U. Irsfreetax S. Irsfreetax dollars all items of income, expense, etc. Irsfreetax (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Irsfreetax Use the exchange rate prevailing when you receive, pay, or accrue the item. Irsfreetax If there is more than one exchange rate, use the one that most properly reflects your income. Irsfreetax You can generally get exchange rates from banks and U. Irsfreetax S. Irsfreetax Embassies. Irsfreetax If your functional currency is not the U. Irsfreetax S. Irsfreetax dollar, make all income tax determinations in your functional currency. Irsfreetax At the end of the year, translate the results, such as income or loss, into U. Irsfreetax S. Irsfreetax dollars to report on your income tax return. Irsfreetax Blocked Income You generally must report your foreign income in terms of U. Irsfreetax S. Irsfreetax dollars and, with one exception (see Fulbright Grant, later), you must pay taxes due on it in U. Irsfreetax S. Irsfreetax dollars. Irsfreetax If, because of restrictions in a foreign country, your income is not readily convertible into U. Irsfreetax S. Irsfreetax dollars or into other money or property that is readily convertible into U. Irsfreetax S. Irsfreetax dollars, your income is “blocked” or “deferrable” income. Irsfreetax You can report this income in one of two ways: Report the income and pay your federal income tax with U. Irsfreetax S. Irsfreetax dollars that you have in the United States or in some other country, or Postpone the reporting of the income until it becomes unblocked. Irsfreetax If you choose to postpone the reporting of the income, you must file an information return with your tax return. Irsfreetax For this information return, you should use another Form 1040 labeled “Report of Deferrable Foreign Income, pursuant to Rev. Irsfreetax Rul. Irsfreetax 74-351. Irsfreetax ” You must declare on the information return that you will include the deferrable income in your taxable income for the year that it becomes unblocked. Irsfreetax You also must state that you waive any right to claim that the deferrable income was includible in your income for any earlier year. Irsfreetax You must report your income on your information return using the foreign currency in which you received that income. Irsfreetax If you have blocked income from more than one foreign country, include a separate information return for each country. Irsfreetax Income becomes unblocked and reportable for tax purposes when it becomes convertible, or when it is converted, into U. Irsfreetax S. Irsfreetax dollars or into other money or property that is convertible into U. Irsfreetax S. Irsfreetax currency. Irsfreetax Also, if you use blocked income for your personal expenses or dispose of it by gift, bequest, or devise, you must treat it as unblocked and reportable. Irsfreetax If you have received blocked income on which you have not paid tax, you should check to see whether that income is still blocked. Irsfreetax If it is not, you should take immediate steps to pay tax on it, file a declaration or amended declaration of estimated tax, and include the income on your tax return for the year in which the income became unblocked. Irsfreetax If you choose to postpone reporting blocked income and in a later tax year you wish to begin including it in gross income although it is still blocked, you must obtain the permission of the IRS to do so. Irsfreetax To apply for permission, file Form 3115, Application for Change in Accounting Method. Irsfreetax You also must request permission from the IRS on Form 3115 if you have not chosen to defer the reporting of blocked income in the past, but now wish to begin reporting blocked income under the deferred method. Irsfreetax See the instructions for Form 3115 for information on changing your accounting method. Irsfreetax Fulbright Grant All income must be reported in U. Irsfreetax S. Irsfreetax dollars. Irsfreetax In most cases, the tax also must be paid in U. Irsfreetax S. Irsfreetax dollars. Irsfreetax If, however, at least 70% of your Fulbright grant has been paid in nonconvertible foreign currency (blocked income), you can use the currency of the host country to pay the part of the U. Irsfreetax S. Irsfreetax tax that is based on the blocked income. Irsfreetax Paying U. Irsfreetax S. Irsfreetax tax in foreign currency. Irsfreetax   To qualify for this method of payment, you must prepare a statement that shows the following information. Irsfreetax You were a Fulbright grantee and were paid in nonconvertible foreign currency. Irsfreetax The total grant you received during the year and the amount you received in nonconvertible foreign currency. Irsfreetax At least 70% of the grant was paid in nonconvertible foreign currency. Irsfreetax The statement must be certified by the U. Irsfreetax S. Irsfreetax educational foundation or commission paying the grant or other person having control of grant payments to you. Irsfreetax   You should prepare at least two copies of this statement. Irsfreetax Attach one copy to your Form 1040 and keep the other copy for identification purposes when you make a tax deposit of nonconvertible foreign currency. Irsfreetax Figuring actual tax. Irsfreetax   When you prepare your income tax return, you may owe tax or the entire liability may have been satisfied with your estimated tax payments. Irsfreetax If you owe tax, figure the part due to (and payable in) the nonconvertible foreign currency by using the following formula. Irsfreetax   Adjusted gross income that is blocked income × Total U. Irsfreetax S. Irsfreetax tax = Tax on blocked income     Total adjusted  gross income     You must attach all of the following to the return. Irsfreetax A copy of the certified statement discussed earlier. Irsfreetax A detailed statement showing the allocation of tax attributable to amounts received in foreign currency and the rates of exchange used in determining your tax liability in U. Irsfreetax S. Irsfreetax dollars. Irsfreetax The original deposit receipt for any balance of tax due that you paid in nonconvertible foreign currency. Irsfreetax Figuring estimated tax on nonconvertible foreign currency. Irsfreetax   If you are liable for estimated tax (discussed later), figure the amount you can pay to the IRS in nonconvertible foreign currency using the following formula. Irsfreetax   Adjusted gross income that is blocked income × Total estimated U. Irsfreetax S. Irsfreetax tax = Estimated tax on blocked income     Total adjusted  gross income     If you must pay your host country income tax on your grant, subtract any estimated foreign tax credit that applies to your grant from the estimated tax on the blocked income. Irsfreetax Deposit of foreign currency with disbursing officer. Irsfreetax   Once you have determined the amount of the actual tax or estimated tax that you can pay in nonconvertible foreign currency, deposit that amount with the disbursing officer of the Department of State in the foreign country in which the foundation or commission paying the grant is located. Irsfreetax Estimated tax installments. Irsfreetax   You can either deposit the full estimated tax amount before the first installment due date or make four equal payments before the installment due dates. Irsfreetax See Estimated Tax , later. Irsfreetax Deposit receipt. Irsfreetax   Upon accepting the foreign currency, the disbursing officer will give you a receipt in duplicate. Irsfreetax The original of this receipt (showing the amount of foreign currency deposited and its equivalent in U. Irsfreetax S. Irsfreetax dollars) should be attached to your Form 1040 or payment voucher from Form 1040-ES. Irsfreetax Keep the copy for your records. Irsfreetax Does My Return Have To Be On Paper? IRS e-file (electronic filing) is the fastest, easiest, and most convenient way to file your income tax return electronically. Irsfreetax IRS e-file offers accurate, safe, and fast alternatives to filing on paper. Irsfreetax IRS computers quickly and automatically check for errors or other missing information. Irsfreetax Even returns with a foreign address can be e-filed! How to e-file. Irsfreetax   There are three ways you can e-file. Irsfreetax Use your personal computer. Irsfreetax Use a volunteer. Irsfreetax Many programs offering free tax help can e-file your return. Irsfreetax Use a tax professional. Irsfreetax Most tax professionals can e-file your return. Irsfreetax These methods are explained in detail in the instructions for your tax return. Irsfreetax Where To File If any of the following situations apply to you, do not file your return with the service center listed for your home state. Irsfreetax You claim the foreign earned income exclusion. Irsfreetax You claim the foreign housing exclusion or deduction. Irsfreetax You live in a foreign country. Irsfreetax Instead, use one of the following special addresses. Irsfreetax If you are not enclosing a check or money order, file your return with the: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215 USA If you are enclosing a check or money order, file your return with: Internal Revenue Service Center P. Irsfreetax O. Irsfreetax Box 1303 Charlotte, NC 28201-1303 USA If you do not know where your legal residence is and you do not have a principal place of business in the United States, you can file with the appropriate address listed above. Irsfreetax However, you should not file with the addresses listed above if you are a bona fide resident of the U. Irsfreetax S. Irsfreetax Virgin Islands, Guam, or the Commonwealth of the Northern Mariana Islands during your entire tax year. Irsfreetax Resident of U. Irsfreetax S. Irsfreetax Virgin Islands (USVI). Irsfreetax   If you are a bona fide resident of the USVI during your entire tax year, you generally are not required to file a U. Irsfreetax S. Irsfreetax return. Irsfreetax However, you must file a return with the USVI. Irsfreetax    Send your return to the:     Virgin Islands Bureau of Internal Revenue 6115 Estate Smith Bay Suite 225 St. Irsfreetax Thomas, Virgin Islands 00802 Non-USVI resident with USVI income. Irsfreetax   If you are a U. Irsfreetax S. Irsfreetax citizen or resident alien and you have income from sources in the USVI or income effectively connected with the conduct of a trade or business in the USVI, and you are not a bona fide resident of the USVI during your entire tax year, you must file identical tax returns with the United States and the USVI. Irsfreetax File the original return with the United States and file a signed copy of the U. Irsfreetax S. Irsfreetax return (including all attachments, forms, and schedules) with the Virgin Islands Bureau of Internal Revenue. Irsfreetax   You must complete Form 8689, Allocation of Individual Income Tax to the U. Irsfreetax S. Irsfreetax Virgin Islands, and attach a copy to both your U. Irsfreetax S. Irsfreetax return and your USVI return. Irsfreetax You should file your U. Irsfreetax S. Irsfreetax return with the address listed under Where To File. Irsfreetax   See Publication 570, Tax Guide for Individuals With Income From U. Irsfreetax S. Irsfreetax Possessions, for information about filing Virgin Islands returns. Irsfreetax Resident of Guam. Irsfreetax   If you are a bona fide resident of Guam during your entire tax year, you should file a return with Guam. Irsfreetax    Send your return to the:     Department of Revenue and Taxation Government of Guam P. Irsfreetax O. Irsfreetax Box 23607 GMF, GU 96921   However, if you have income from sources within Guam and you are a U. Irsfreetax S. Irsfreetax citizen or resident alien, but not a bona fide resident of Guam during the entire tax year, you should file a return with the United States. Irsfreetax Send your return to the address listed under Where To File. Irsfreetax   See Publication 570 for information about filing Guam returns. Irsfreetax Resident of the Commonwealth of the Northern Mariana Islands. Irsfreetax   If you are a bona fide resident of the Commonwealth of the Northern Mariana Islands (CNMI) during your entire tax year, you should file a return with the Northern Mariana Islands. Irsfreetax    Send your return to the:      Division of Revenue and Taxation Commonwealth of the Northern Mariana Islands P. Irsfreetax O. Irsfreetax Box 5234, CHRB Saipan, MP 96950   However, if you have income from sources within the CNMI and you are a U. Irsfreetax S. Irsfreetax citizen or resident alien, but not a bona fide resident of the CNMI during the entire tax year, you should file a return with the United States. Irsfreetax Send your return to the address listed under Where To File. Irsfreetax   See Publication 570 for information about filing Northern Mariana Islands returns. Irsfreetax Nonresident Alien Spouse Treated as a Resident If, at the end of your tax year, you are married and one spouse is a U. Irsfreetax S. Irsfreetax citizen or a resident alien and the other is a nonresident alien, you can choose to treat the nonresident as a U. Irsfreetax S. Irsfreetax resident. Irsfreetax This includes situations in which one of you is a nonresident alien at the beginning of the tax year and a resident alien at the end of the year and the other is a nonresident alien at the end of the year. Irsfreetax If you make this choice, the following two rules apply. Irsfreetax You and your spouse are treated, for income tax purposes, as residents for all tax years that the choice is in effect. Irsfreetax You must file a joint income tax return for the year you make the choice. Irsfreetax This means that neither of you can claim under any tax treaty not to be a U. Irsfreetax S. Irsfreetax resident for a tax year for which the choice is in effect. Irsfreetax You can file joint or separate returns in years after the year in which you make the choice. Irsfreetax Example 1. Irsfreetax Pat Smith, a U. Irsfreetax S. Irsfreetax citizen, is married to Norman, a nonresident alien. Irsfreetax Pat and Norman make the choice to treat Norman as a resident alien by attaching a statement to their joint return. Irsfreetax Pat and Norman must report their worldwide income for the year they make the choice and for all later years unless the choice is ended or suspended. Irsfreetax Although Pat and Norman must file a joint return for the year they make the choice, they can file either joint or separate returns for later years. Irsfreetax Example 2. Irsfreetax When Bob and Sharon Williams got married, both were nonresident aliens. Irsfreetax In June of last year, Bob became a resident alien and remained a resident for the rest of the year. Irsfreetax Bob and Sharon both choose to be treated as resident aliens by attaching a statement to their joint return for last year. Irsfreetax Bob and Sharon must report their worldwide income for last year and all later years unless the choice is ended or suspended. Irsfreetax Bob and Sharon must file a joint return for last year, but they can file either joint or separate returns for later years. Irsfreetax If you do not choose to treat your nonresident alien spouse as a U. Irsfreetax S. Irsfreetax resident, you may be able to use head of household filing status. Irsfreetax To use this status, you must pay more than half the cost of maintaining a household for certain dependents or relatives other than your nonresident alien spouse. Irsfreetax For more information, see Publication 501. Irsfreetax Social Security Number (SSN) If you choose to treat your nonresident alien spouse as a U. Irsfreetax S. Irsfreetax resident, your spouse must have either an SSN or an individual taxpayer identification number (ITIN). Irsfreetax To get an SSN for a nonresident alien spouse, apply at an office of the U. Irsfreetax S. Irsfreetax Social Security Administration (SSA) or U. Irsfreetax S. Irsfreetax consulate. Irsfreetax You must complete Form SS-5, Application for a Social Security Card, available at www. Irsfreetax socialsecurity. Irsfreetax gov or by calling 1-800-772-1213. Irsfreetax You must also provide original or certified copies of documents to verify that spouse's age, identity, and citizenship. Irsfreetax If the nonresident alien spouse is not eligible to get an SSN, he or she can file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS to apply for an ITIN. Irsfreetax How To Make the Choice Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. Irsfreetax It should contain the following: A declaration that one spouse was a nonresident alien and the other spouse a U. Irsfreetax S. Irsfreetax citizen or resident alien on the last day of your tax year and that you choose to be treated as U. Irsfreetax S. Irsfreetax residents for the entire tax year, and The name, address, and social security number (or individual taxpayer identification number) of each spouse. Irsfreetax (If one spouse died, include the name and address of the person making the choice for the deceased spouse. Irsfreetax ) You generally make this choice when you file your joint return. Irsfreetax However, you also can make the choice by filing a joint amended return on Form 1040X. Irsfreetax Attach Form 1040, 1040A, or 1040EZ and print “Amended” across the top of the amended return. Irsfreetax If you make the choice with an amended return, you and your spouse also must amend any returns that you may have filed after the year for which you made the choice. Irsfreetax You generally must file the amended joint return within 3 years from the date you filed your original U. Irsfreetax S. Irsfreetax income tax return or 2 years from the date you paid your income tax for that year, whichever is later. Irsfreetax Table 1–1. Irsfreetax Ending the Choice To Treat Nonresident Alien Spouse as a Resident Revocation   Either spouse can revoke the choice for any tax year. Irsfreetax   • The revocation must be made by the due date for filing the tax return for that tax year. Irsfreetax   • The spouse who revokes the choice must attach a signed statement declaring that the choice is being revoked. Irsfreetax The statement revoking the choice must include the following:     • The name, address, and social security number (or taxpayer identification number) of each spouse. Irsfreetax     • The name and address of any person who is revoking the choice for a deceased spouse. Irsfreetax     • A list of any states, foreign countries, and possessions that have community property laws in which either spouse is domiciled or where real property is located from which either spouse receives income. Irsfreetax   • If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the Internal Revenue Service Center where the last joint return was filed. Irsfreetax Death   The death of either spouse ends the choice, beginning with the first tax year following the year in which the spouse died. Irsfreetax   • If the surviving spouse is a U. Irsfreetax S. Irsfreetax citizen or resident alien and is entitled to the joint tax rates as a surviving spouse, the choice will not end until the close of the last year for which these joint rates may be used. Irsfreetax   • If both spouses die in the same tax year, the choice ends on the first day after the close of the tax year in which the spouses died. Irsfreetax Divorce or  Legal separation   A divorce or legal separation ends the choice as of the beginning of the tax year in which the legal separation occurs. Irsfreetax Inadequate records   The Internal Revenue Service can end the choice for any tax year that either spouse has failed to keep adequate books, records, and other information necessary to determine the correct income tax liability, or to provide adequate access to those records. Irsfreetax Suspending the Choice The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a U. Irsfreetax S. Irsfreetax citizen or resident alien at any time during the later tax year. Irsfreetax Example. Irsfreetax Dick Brown was a resident alien on December 31, 2010, and married to Judy, a nonresident alien. Irsfreetax They chose to treat Judy as a resident alien and filed a joint 2010 income tax return. Irsfreetax On January 10, 2012, Dick became a nonresident alien. Irsfreetax Judy had remained a nonresident alien. Irsfreetax Because Dick was a resident alien during part of 2012, Dick and Judy can file joint or separate returns for that year. Irsfreetax Neither Dick nor Judy was a resident alien at any time during 2013 and their choice is suspended for that year. Irsfreetax For 2013, both are treated as nonresident aliens. Irsfreetax If Dick becomes a resident alien again in 2014, their choice is no longer suspended and both are treated as resident aliens. Irsfreetax Ending the Choice Once made, the choice to be treated as a resident applies to all later years unless suspended (as explained earlier) or ended in one of the ways shown in Table 1-1. Irsfreetax If the choice is ended for any of the reasons listed in Table 1-1, neither spouse can make a choice in any later tax year. Irsfreetax Estimated Tax The requirements for determining who must pay estimated tax are the same for a U. Irsfreetax S. Irsfreetax citizen or resident abroad as for a taxpayer in the United States. Irsfreetax For current instructions on making estimated tax payments, see Form 1040-ES. Irsfreetax If you had a tax liability for 2013, you may have to pay estimated tax for 2014. Irsfreetax Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax for 2014 after subtracting your withholding and credits and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 tax return, or 100% of the tax shown on your 2013 tax return. Irsfreetax (The return must cover all 12 months. Irsfreetax ) If less than two-thirds of your gross income for 2013 and 2014 is from farming or fishing and your adjusted gross income for 2013 is more than $150,000 ($75,000 if you are married and file separately), substitute 110% for 100% in (2). Irsfreetax See Publication 505 for more information. Irsfreetax The first installment of estimated tax is due on April 15, 2014. Irsfreetax Foreign earned income exclusion. Irsfreetax   When figuring your estimated gross income, subtract amounts you expect to exclude under the foreign earned income exclusion and the foreign housing exclusion. Irsfreetax In addition, you can reduce your income by your estimated foreign housing deduction. Irsfreetax However, you must estimate tax on your nonexcluded income using the tax rates that will apply had you not excluded the income. Irsfreetax If the actual amount of the exclusion or deduction is less than you estimate, you may have to pay a penalty for underpayment of estimated tax. Irsfreetax   For more information about figuring your estimated tax, see Publication 505. Irsfreetax Other Forms You May Have To File FinCEN Form 114 (replaces Form TD F 90-22. Irsfreetax 1). Irsfreetax   Beginning October 1, 2013, Form 114, Report of Foreign Bank and Financial Accounts (FBAR), must be filed instead of Form TD F 90-22. Irsfreetax 1. Irsfreetax Form 114 is filed electronically with the Financial Crimes Enforcement Network (FinCEN). Irsfreetax See the filing instructions at www. Irsfreetax bsaefiling. Irsfreetax fincen. Irsfreetax treas. Irsfreetax gov/main. Irsfreetax html. Irsfreetax   You must file Form 114 if you had any financial interest in, or signature or other authority over a bank, securities, or other financial account in a foreign country. Irsfreetax You do not need to file the report if the assets are with a U. Irsfreetax S. Irsfreetax military banking facility operated by a financial institution or if the combined assets in the account(s) are $10,000 or less during the entire year. Irsfreetax   More information about the filing of Form 114 can be found in the instructions for the form. Irsfreetax FinCEN Form 105. Irsfreetax   You must file Form 105, Report of International Transportation of Currency or Monetary Instruments, if you physically transport, mail, ship, or cause to be physically transported, mailed, or shipped into or out of the United States, currency or other monetary instruments totaling more than $10,000 at one time. Irsfreetax Certain recipients of currency or monetary instruments also must file Form 105. Irsfreetax   More information about the filing of Form 105 can be found in the instructions on the back of the form. Irsfreetax Form 8938. Irsfreetax   You must file Form 8938 to report the ownership of specified foreign financial assets if the total value of those assets exceeds an applicable threshold amount (the “reporting threshold ”). Irsfreetax The reporting threshold varies depending on whether you live in the United States, are married, or file a joint income tax return with your spouse. Irsfreetax Specified foreign financial assets include any financial account maintained by a foreign financial institution and, to the extent held for investment, any stock, securities, or any other interest in a foreign entity and any financial instrument or contract with an issuer or counterparty that is not a U. Irsfreetax S. Irsfreetax person. Irsfreetax   You may have to pay penalties if you are required to file Form 8938 and fail to do so, or if you have an understatement of tax due to any transaction involving an undisclosed foreign financial asset. Irsfreetax   More information about the filing of Form 8938 can be found in the separate instructions for Form 8938. Irsfreetax Prev  Up  Next   Home   More Online Publications
 
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The Irsfreetax

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