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State Tax Form 2014

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State Tax Form 2014

State tax form 2014 2. State tax form 2014   Simplified Employee Pensions (SEPs) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Setting Up a SEPWhen not to use Form 5305-SEP. State tax form 2014 How Much Can I Contribute?Contribution Limits Deducting ContributionsDeduction Limit for Contributions for Participants Deduction Limit for Self-Employed Individuals Carryover of Excess SEP Contributions When To Deduct Contributions Where To Deduct Contributions Salary Reduction Simplified Employee Pensions (SARSEPs)SARSEP ADP test. State tax form 2014 Deferral percentage. State tax form 2014 Employee compensation. State tax form 2014 Compensation of self-employed individuals. State tax form 2014 Choice not to treat deferrals as compensation. State tax form 2014 Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. State tax form 2014 Reporting and Disclosure Requirements Topics - This chapter discusses: Setting up a SEP How much can I contribute Deducting contributions Salary reduction simplified employee pensions (SARSEPs) Distributions (withdrawals) Additional taxes Reporting and disclosure requirements Useful Items - You may want to see: Publication 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4285 SEP Checklist 4286 SARSEP Checklist 4333 SEP Retirement Plans for Small Businesses 4336 SARSEP for Small Businesses 4407 SARSEP—Key Issues and Assistance Forms (and Instructions) W-2 Wage and Tax Statement 1040 U. State tax form 2014 S. State tax form 2014 Individual Income Tax Return 5305-SEP Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 5305A-SEP Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan. State tax form 2014 Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. State tax form 2014 A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. State tax form 2014 SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). State tax form 2014 A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later). State tax form 2014 Eligible employee. State tax form 2014   An eligible employee is an individual who meets all the following requirements. State tax form 2014 Has reached age 21. State tax form 2014 Has worked for you in at least 3 of the last 5 years. State tax form 2014 Has received at least $550 in compensation from you in 2013. State tax form 2014 This amount remains the same in 2014. State tax form 2014    You can use less restrictive participation requirements than those listed, but not more restrictive ones. State tax form 2014 Excludable employees. State tax form 2014   The following employees can be excluded from coverage under a SEP. State tax form 2014 Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. State tax form 2014 Nonresident alien employees who have received no U. State tax form 2014 S. State tax form 2014 source wages, salaries, or other personal services compensation from you. State tax form 2014 For more information about nonresident aliens, see Publication 519, U. State tax form 2014 S. State tax form 2014 Tax Guide for Aliens. State tax form 2014 Setting Up a SEP There are three basic steps in setting up a SEP. State tax form 2014 You must execute a formal written agreement to provide benefits to all eligible employees. State tax form 2014 You must give each eligible employee certain information about the SEP. State tax form 2014 A SEP-IRA must be set up by or for each eligible employee. State tax form 2014 Many financial institutions will help you set up a SEP. State tax form 2014 Formal written agreement. State tax form 2014   You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. State tax form 2014 You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. State tax form 2014 However, see When not to use Form 5305-SEP, below. State tax form 2014   If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. State tax form 2014 Keep the original form. State tax form 2014 Do not file it with the IRS. State tax form 2014 Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. State tax form 2014 See the Form 5305-SEP instructions for details. State tax form 2014 If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. State tax form 2014 When not to use Form 5305-SEP. State tax form 2014   You cannot use Form 5305-SEP if any of the following apply. State tax form 2014 You currently maintain any other qualified retirement plan other than another SEP. State tax form 2014 You have any eligible employees for whom IRAs have not been set up. State tax form 2014 You use the services of leased employees, who are not your common-law employees (as described in chapter 1). State tax form 2014 You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP. State tax form 2014 An affiliated service group described in section 414(m). State tax form 2014 A controlled group of corporations described in section 414(b). State tax form 2014 Trades or businesses under common control described in section 414(c). State tax form 2014 You do not pay the cost of the SEP contributions. State tax form 2014 Information you must give to employees. State tax form 2014   You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. State tax form 2014 An IRS model SEP is not considered adopted until you give each employee this information. State tax form 2014 Setting up the employee's SEP-IRA. State tax form 2014   A SEP-IRA must be set up by or for each eligible employee. State tax form 2014 SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. State tax form 2014 You send SEP contributions to the financial institution where the SEP-IRA is maintained. State tax form 2014 Deadline for setting up a SEP. State tax form 2014   You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year. State tax form 2014 Credit for startup costs. State tax form 2014   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. State tax form 2014 For more information, see Credit for startup costs under Reminders, earlier. State tax form 2014 How Much Can I Contribute? The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. State tax form 2014 If you are self-employed, you can contribute to your own SEP-IRA. State tax form 2014 Contributions must be in the form of money (cash, check, or money order). State tax form 2014 You cannot contribute property. State tax form 2014 However, participants may be able to transfer or roll over certain property from one retirement plan to another. State tax form 2014 See Publication 590 for more information about rollovers. State tax form 2014 You do not have to make contributions every year. State tax form 2014 But if you make contributions, they must be based on a written allocation formula and must not discriminate in favor of highly compensated employees (defined in chapter 1). State tax form 2014 When you contribute, you must contribute to the SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made, including employees who die or terminate employment before the contributions are made. State tax form 2014 Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. State tax form 2014 A SEP-IRA cannot be a Roth IRA. State tax form 2014 Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. State tax form 2014 Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. State tax form 2014 If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. State tax form 2014 Participants age 70½ or over must take required minimum distributions. State tax form 2014 Time limit for making contributions. State tax form 2014   To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. State tax form 2014 Contribution Limits Contributions you make for 2013 to a common-law employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000. State tax form 2014 Compensation generally does not include your contributions to the SEP. State tax form 2014 The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. State tax form 2014 Example. State tax form 2014 Your employee, Mary Plant, earned $21,000 for 2013. State tax form 2014 The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). State tax form 2014 Contributions for yourself. State tax form 2014   The annual limits on your contributions to a common-law employee's SEP-IRA also apply to contributions you make to your own SEP-IRA. State tax form 2014 However, special rules apply when figuring your maximum deductible contribution. State tax form 2014 See Deduction Limit for Self-Employed Individuals , later. State tax form 2014 Annual compensation limit. State tax form 2014   You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. State tax form 2014 However, $51,000 is the maximum contribution for an eligible employee. State tax form 2014 These limits are $260,000 and $52,000, respectively, in 2014. State tax form 2014 Example. State tax form 2014 Your employee, Susan Green, earned $210,000 for 2013. State tax form 2014 Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. State tax form 2014 More than one plan. State tax form 2014   If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $51,000 or 100% of the participant's compensation. State tax form 2014 When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. State tax form 2014 Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans you maintain. State tax form 2014 Tax treatment of excess contributions. State tax form 2014   Excess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2013 that exceed the lesser of the following amounts. State tax form 2014 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). State tax form 2014 $51,000. State tax form 2014 Excess contributions are included in the employee's income for the year and are treated as contributions by the employee to his or her SEP-IRA. State tax form 2014 For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. State tax form 2014 Reporting on Form W-2. State tax form 2014   Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). State tax form 2014 Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. State tax form 2014 If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. State tax form 2014 Deduction Limit for Contributions for Participants The most you can deduct for your contributions to you or your employee's SEP-IRA is the lesser of the following amounts. State tax form 2014 Your contributions (including any excess contributions carryover). State tax form 2014 25% of the compensation (limited to $255,000 per participant) paid to the participants during 2013 from the business that has the plan, not to exceed $51,000 per participant. State tax form 2014 In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. State tax form 2014 Deduction Limit for Self-Employed Individuals If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. State tax form 2014 When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions. State tax form 2014 The deduction for the deductible part of your self-employment tax. State tax form 2014 The deduction for contributions to your own SEP-IRA. State tax form 2014 The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. State tax form 2014 For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. State tax form 2014 To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 5. State tax form 2014 Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. State tax form 2014 Carryover of Excess SEP Contributions If you made SEP contributions that are more than the deduction limit (nondeductible contributions), you can carry over and deduct the difference in later years. State tax form 2014 However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. State tax form 2014 If you also contributed to a defined benefit plan or defined contribution plan, see Carryover of Excess Contributions under Employer Deduction in chapter 4 for the carryover limit. State tax form 2014 Excise tax. State tax form 2014   If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. State tax form 2014 For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. State tax form 2014 When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. State tax form 2014 If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. State tax form 2014 If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year. State tax form 2014 Example. State tax form 2014 You are a fiscal year taxpayer whose tax year ends June 30. State tax form 2014 You maintain a SEP on a calendar year basis. State tax form 2014 You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. State tax form 2014 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. State tax form 2014 For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U. State tax form 2014 S. State tax form 2014 Return of Partnership Income; and corporations deduct them on Form 1120, U. State tax form 2014 S. State tax form 2014 Corporation Income Tax Return, or Form 1120S, U. State tax form 2014 S. State tax form 2014 Income Tax Return for an S Corporation. State tax form 2014 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. State tax form 2014 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. State tax form 2014 , you receive from the partnership. State tax form 2014 ) Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees. State tax form 2014 Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. State tax form 2014 (See the Caution, next. State tax form 2014 ) Under a SARSEP, your employees can choose to have you contribute part of their pay to their SEP-IRAs rather than receive it in cash. State tax form 2014 This contribution is called an “elective deferral” because employees choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them. State tax form 2014 You are not allowed to set up a SARSEP after 1996. State tax form 2014 However, participants (including employees hired after 1996) in a SARSEP set up before 1997 can continue to have you contribute part of their pay to the plan. State tax form 2014 If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. State tax form 2014 Who can have a SARSEP?   A SARSEP set up before 1997 is available to you and your eligible employees only if all the following requirements are met. State tax form 2014 At least 50% of your employees eligible to participate choose to make elective deferrals. State tax form 2014 You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. State tax form 2014 The elective deferrals of your highly compensated employees meet the SARSEP ADP test. State tax form 2014 SARSEP ADP test. State tax form 2014   Under the SARSEP ADP test, the amount deferred each year by each eligible highly compensated employee as a percentage of pay (the deferral percentage) cannot be more than 125% of the average deferral percentage (ADP) of all non-highly compensated employees eligible to participate. State tax form 2014 A highly compensated employee is defined in chapter 1. State tax form 2014 Deferral percentage. State tax form 2014   The deferral percentage for an employee for a year is figured as follows. State tax form 2014   The elective employer contributions (excluding certain catch-up contributions)  paid to the SEP for the employee for the year     The employee's compensation (limited to $255,000 in 2013)   The instructions for Form 5305A-SEP have a worksheet you can use to determine whether the elective deferrals of your highly compensated employees meet the SARSEP ADP test. State tax form 2014 Employee compensation. State tax form 2014   For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. State tax form 2014 Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. State tax form 2014 See Compensation in chapter 1. State tax form 2014 Elective deferrals under the SARSEP are included in figuring your employees' deferral percentage even though they are not included in the income of your employees for income tax purposes. State tax form 2014 Compensation of self-employed individuals. State tax form 2014   If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. State tax form 2014   Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. State tax form 2014 Choice not to treat deferrals as compensation. State tax form 2014   You can choose not to treat elective deferrals (and other amounts deferred in certain employee benefit plans) for a year as compensation under your SARSEP. State tax form 2014 Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. State tax form 2014 25% of the participant's compensation (limited to $255,000 of the participant's compensation). State tax form 2014 $17,500. State tax form 2014 The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. State tax form 2014 Cash or deferred arrangement (section 401(k) plan). State tax form 2014 Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). State tax form 2014 SIMPLE IRA plan. State tax form 2014 In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. State tax form 2014 Catch-up contributions. State tax form 2014   A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. State tax form 2014 The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. State tax form 2014 Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the elective deferral limit (the lesser of 25% of compensation or $17,500), the SARSEP ADP test limit discussed earlier, or the plan limit (if any). State tax form 2014 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. State tax form 2014 The catch-up contribution limit. State tax form 2014 The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. State tax form 2014   Catch-up contributions are not subject to the elective deferral limit (the lesser of 25% of compensation or $17,500 in 2013 and in 2014). State tax form 2014 Overall limit on SEP contributions. State tax form 2014   If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elective contributions to that SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). State tax form 2014 The same rule applies to contributions you make to your own SEP-IRA. State tax form 2014 See Contribution Limits , earlier. State tax form 2014 Figuring the elective deferral. State tax form 2014   For figuring the 25% limit on elective deferrals, compensation does not include SEP contributions, including elective deferrals or other amounts deferred in certain employee benefit plans. State tax form 2014 Tax Treatment of Deferrals Elective deferrals that are not more than the limits discussed earlier under Limit on Elective Deferrals are excluded from your employees' wages subject to federal income tax in the year of deferral. State tax form 2014 However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. State tax form 2014 Excess deferrals. State tax form 2014   For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. State tax form 2014 For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. State tax form 2014 The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. State tax form 2014 See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. State tax form 2014 Excess SEP contributions. State tax form 2014   Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. State tax form 2014 You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. State tax form 2014 If you do not notify them within this time period, you must pay a 10% tax on the excess. State tax form 2014 For an explanation of the notification requirements, see Rev. State tax form 2014 Proc. State tax form 2014 91-44, 1991-2 C. State tax form 2014 B. State tax form 2014 733. State tax form 2014 If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. State tax form 2014 Reporting on Form W-2. State tax form 2014   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. State tax form 2014 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. State tax form 2014 You must also include them in box 12. State tax form 2014 Mark the “Retirement plan” checkbox in box 13. State tax form 2014 For more information, see the Form W-2 instructions. State tax form 2014 Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. State tax form 2014 Also, you cannot make your contributions on the condition that any part of them must be kept in the account after you have made your contributions to the employee's accounts. State tax form 2014 Distributions are subject to IRA rules. State tax form 2014 Generally, you or your employee must begin to receive distributions from a SEP-IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. State tax form 2014 For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. State tax form 2014 Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for all the following actions. State tax form 2014 Making excess contributions. State tax form 2014 Making early withdrawals. State tax form 2014 Not making required withdrawals. State tax form 2014 For information about these taxes, see chapter 1 in Publication 590. State tax form 2014 Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. State tax form 2014 Prohibited transaction. State tax form 2014   If an employee improperly uses his or her SEP-IRA, such as by borrowing money from it, the employee has engaged in a prohibited transaction. State tax form 2014 In that case, the SEP-IRA will no longer qualify as an IRA. State tax form 2014 For a list of prohibited transactions, see Prohibited Transactions in chapter 4. State tax form 2014 Effects on employee. State tax form 2014   If a SEP-IRA is disqualified because of a prohibited transaction, the assets in the account will be treated as having been distributed to the employee on the first day of the year in which the transaction occurred. State tax form 2014 The employee must include in income the fair market value of the assets (on the first day of the year) that is more than any cost basis in the account. State tax form 2014 Also, the employee may have to pay the additional tax for making early withdrawals. State tax form 2014 Reporting and Disclosure Requirements If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up. State tax form 2014 See Setting Up a SEP , earlier. State tax form 2014 Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. State tax form 2014 You must also give them notice of any excess contributions. State tax form 2014 For details about other information you must give them, see the instructions for Form 5305-SEP or Form 5305A-SEP (for a salary reduction SEP). State tax form 2014 Even if you did not use Form 5305-SEP or Form 5305A-SEP to set up your SEP, you must give your employees information similar to that described above. State tax form 2014 For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. State tax form 2014 Prev  Up  Next   Home   More Online Publications
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The State Tax Form 2014

State tax form 2014 9. State tax form 2014   Education Exception to Additional Tax on Early IRA Distributions Table of Contents Introduction Who Is Eligible Figuring the Amount Not Subject to the 10% Tax Reporting Early Distributions Introduction Generally, if you take a distribution from your IRA before you reach age 59½, you must pay a 10% additional tax on the early distribution. State tax form 2014 This applies to any IRA you own, whether it is a traditional IRA (including a SEP-IRA), a Roth IRA, or a SIMPLE IRA. State tax form 2014 The additional tax on an early distribution from a SIMPLE IRA may be as high as 25%. State tax form 2014 See Publication 560, Retirement Plans for Small Business, for information on SEP-IRAs, and Publication 590, for information about all other IRAs. State tax form 2014 However, you can take distributions from your IRAs for qualified higher education expenses without having to pay the 10% additional tax. State tax form 2014 You may owe income tax on at least part of the amount distributed, but you may not have to pay the 10% additional tax. State tax form 2014 Generally, if the taxable part of the distribution is less than or equal to the adjusted qualified education expenses (AQEE), none of the distribution is subject to the additional tax. State tax form 2014 If the taxable part of the distribution is more than the AQEE, only the excess is subject to the additional tax. State tax form 2014 Who Is Eligible You can take a distribution from your IRA before you reach age 59½ and not have to pay the 10% additional tax if, for the year of the distribution, you pay qualified education expenses for: yourself, your spouse, or your or your spouse's child, foster child, adopted child, or descendant of any of them. State tax form 2014 Qualified education expenses. State tax form 2014   For purposes of the 10% additional tax, these expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. State tax form 2014 They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. State tax form 2014   In addition, if the student is at least a half-time student, room and board are qualified education expenses. State tax form 2014   The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. State tax form 2014 The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. State tax form 2014 The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. State tax form 2014 You will need to contact the eligible educational institution for qualified room and board costs. State tax form 2014 Eligible educational institution. State tax form 2014   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. State tax form 2014 S. State tax form 2014 Department of Education. State tax form 2014 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. State tax form 2014 The educational institution should be able to tell you if it is an eligible educational institution. State tax form 2014   Certain educational institutions located outside the United States also participate in the U. State tax form 2014 S. State tax form 2014 Department of Education's Federal Student Aid (FSA) programs. State tax form 2014 Half-time student. State tax form 2014   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing as determined under the standards of the school where the student is enrolled. State tax form 2014 Figuring the Amount Not Subject to the 10% Tax To determine the amount of your distribution that is not subject to the 10% additional tax, first figure your adjusted qualified education expenses. State tax form 2014 You do this by reducing your total qualified education expenses by any tax-free educational assistance, which includes: Expenses used to figure the tax-free portion of distributions from a Coverdell education savings account (ESA) (see Distributions in chapter 7, Coverdell Education Savings Account), The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. State tax form 2014 Do not reduce the qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance given to either the student or the individual making the withdrawal, or A withdrawal from personal savings (including savings from a qualified tuition program (QTP)). State tax form 2014 If your IRA distribution is equal to or less than your adjusted qualified education expenses, you are not subject to the 10% additional tax. State tax form 2014 Example 1. State tax form 2014 In 2013, Erin (age 32) took a year off from teaching to attend graduate school full-time. State tax form 2014 She paid $5,800 of qualified education expenses from the following sources. State tax form 2014   Employer-provided educational assistance  (tax free) $5,000     Early distribution from IRA (includes $500 taxable earnings) 3,200           Before Erin can determine if she must pay the 10% additional tax on her IRA distribution, she must reduce her total qualified education expenses. State tax form 2014   Total qualified education expenses $5,800     Minus: Tax-free educational assistance −5,000     Equals: Adjusted qualified  education expenses (AQEE) $ 800   Because Erin's AQEE ($800) are more than the taxable portion of her IRA distribution ($500), she does not have to pay the 10% additional tax on any part of this distribution. State tax form 2014 However, she must include the $500 taxable earnings in her gross income subject to income tax. State tax form 2014 Example 2. State tax form 2014 Assume the same facts as in Example 1 , except that Erin deducted some of the contributions to her IRA, so the taxable part of her early distribution is higher by $1,000. State tax form 2014 This must be included in her income subject to income tax. State tax form 2014 The taxable part of Erin's IRA distribution ($1,000) is larger than her $800 AQEE. State tax form 2014 Therefore, she must pay the 10% additional tax on $200, the taxable part of her distribution ($1,000) that is more than her qualified education expenses ($800). State tax form 2014 She does not have to pay the 10% additional tax on the remaining $800 of her taxable distribution. State tax form 2014 Reporting Early Distributions By January 31, 2014, the payer of your IRA distribution should send you Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. State tax form 2014 The information on this form will help you determine how much of your distribution is taxable for income tax purposes and how much is subject to the 10% additional tax. State tax form 2014 If you received an early distribution from your IRA, you must report the taxable earnings on Form 1040, line 15b (Form 1040NR, line 16b). State tax form 2014 Then, if you qualify for an exception for qualified higher education expenses, you must file Form 5329 to show how much, if any, of your early distribution is subject to the 10% additional tax. State tax form 2014 See the Instructions for Form 5329, Part I, for help in completing the form and entering the results on Form 1040 or 1040NR. State tax form 2014 There are many other situations in which Form 5329 is required. State tax form 2014 If, during 2013, you had other distributions from IRAs or qualified retirement plans, or have made excess contributions to certain tax-favored accounts, see the instructions for line 58 (Form 1040) or line 56 (Form 1040NR) to determine if you must file Form 5329. State tax form 2014 Prev  Up  Next   Home   More Online Publications