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State Tax Forms 2012

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State Tax Forms 2012

State tax forms 2012 Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. State tax forms 2012 S. State tax forms 2012 Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. State tax forms 2012 S. State tax forms 2012 Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. State tax forms 2012 S. State tax forms 2012 Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. State tax forms 2012 Employee business expenses. State tax forms 2012 Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. State tax forms 2012 You can change your choice for each year's taxes. State tax forms 2012 To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. State tax forms 2012 S. State tax forms 2012 tax return. State tax forms 2012 However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. State tax forms 2012 See How To Figure the Credit , later. State tax forms 2012 To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. State tax forms 2012 Figure your tax both ways—claiming the credit and claiming the deduction. State tax forms 2012 Then fill out your return the way that benefits you more. State tax forms 2012 See Why Choose the Credit, later. State tax forms 2012 Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. State tax forms 2012 If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. State tax forms 2012 You cannot deduct any of them. State tax forms 2012 Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. State tax forms 2012 You cannot take a credit for any of them. State tax forms 2012 See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. State tax forms 2012 There are exceptions to this general rule, which are described next. State tax forms 2012 Exceptions for foreign taxes not allowed as a credit. State tax forms 2012   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. State tax forms 2012 Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. State tax forms 2012 S. State tax forms 2012 tax purposes. State tax forms 2012 For more information, see Internal Revenue Code section 901(m). State tax forms 2012 The IRS intends to issue guidance that will explain this provision in greater detail. State tax forms 2012   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. State tax forms 2012 Foreign taxes that are not income taxes. State tax forms 2012   In most cases, only foreign income taxes qualify for the foreign tax credit. State tax forms 2012 Other taxes, such as foreign real and personal property taxes, do not qualify. State tax forms 2012 But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. State tax forms 2012   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. State tax forms 2012 However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). State tax forms 2012 Carrybacks and carryovers. State tax forms 2012   There is a limit on the credit you can claim in a tax year. State tax forms 2012 If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. State tax forms 2012 If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. State tax forms 2012 That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. State tax forms 2012   For more information on the limit, see How To Figure the Credit , later. State tax forms 2012 For more information on carrybacks and carryovers, see Carryback and Carryover , later. State tax forms 2012 Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. State tax forms 2012 You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. State tax forms 2012 Example. State tax forms 2012 You paid foreign taxes for the last 13 years and chose to deduct them on your U. State tax forms 2012 S. State tax forms 2012 income tax returns. State tax forms 2012 You were timely in both filing your returns and paying your U. State tax forms 2012 S. State tax forms 2012 tax liability. State tax forms 2012 In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. State tax forms 2012 Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). State tax forms 2012 Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. State tax forms 2012 Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. State tax forms 2012 If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. State tax forms 2012 Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. State tax forms 2012 Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. State tax forms 2012 However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. State tax forms 2012 You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. State tax forms 2012 See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. State tax forms 2012 Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. State tax forms 2012 In most cases, if the foreign tax rate is higher than the U. State tax forms 2012 S. State tax forms 2012 rate, there will be no U. State tax forms 2012 S. State tax forms 2012 tax on the foreign income. State tax forms 2012 If the foreign tax rate is lower than the U. State tax forms 2012 S. State tax forms 2012 rate, U. State tax forms 2012 S. State tax forms 2012 tax on the foreign income will be limited to the difference between the rates. State tax forms 2012 The foreign tax credit can only reduce U. State tax forms 2012 S. State tax forms 2012 taxes on foreign source income; it cannot reduce U. State tax forms 2012 S. State tax forms 2012 taxes on U. State tax forms 2012 S. State tax forms 2012 source income. State tax forms 2012 Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. State tax forms 2012 This is because: A credit reduces your actual U. State tax forms 2012 S. State tax forms 2012 income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. State tax forms 2012 You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. State tax forms 2012 (See Limit on credit under How To Figure the Credit, later. State tax forms 2012 ) Example 1. State tax forms 2012 For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. State tax forms 2012 None of the dividends are qualified dividends. State tax forms 2012 You file a joint return and can claim two $3,900 exemptions. State tax forms 2012 You had to pay $2,000 in foreign income taxes on the dividend income. State tax forms 2012 If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. State tax forms 2012 Your taxable income then is $57,500 and your tax is $7,736. State tax forms 2012 If you take the credit instead, your itemized deductions are only $13,000. State tax forms 2012 Your taxable income then is $59,500 and your tax before the credit is $8,036. State tax forms 2012 After the credit, however, your tax is only $6,036. State tax forms 2012 Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. State tax forms 2012 Example 2. State tax forms 2012 In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. State tax forms 2012 You report on your U. State tax forms 2012 S. State tax forms 2012 return this income as well as $56,000 of U. State tax forms 2012 S. State tax forms 2012 source wages and an allowable $49,000 partnership loss from a U. State tax forms 2012 S. State tax forms 2012 partnership. State tax forms 2012 Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. State tax forms 2012 You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. State tax forms 2012 If you deduct the foreign tax on your U. State tax forms 2012 S. State tax forms 2012 return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. State tax forms 2012 If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. State tax forms 2012 You can take a credit of only $113 because of limits discussed later. State tax forms 2012 Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. State tax forms 2012 If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). State tax forms 2012 When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. State tax forms 2012 Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. State tax forms 2012 “Tax year” refers to the tax year for which your U. State tax forms 2012 S. State tax forms 2012 return is filed, not the tax year for which your foreign return is filed. State tax forms 2012 Accrual method of accounting. State tax forms 2012   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. State tax forms 2012 You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. State tax forms 2012   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. State tax forms 2012 Generally, this occurs on the last day of the tax year for which your foreign return is filed. State tax forms 2012 Contesting your foreign tax liability. State tax forms 2012   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. State tax forms 2012 However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. State tax forms 2012 Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. State tax forms 2012 If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . State tax forms 2012 You may have to post a bond. State tax forms 2012   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. State tax forms 2012   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. State tax forms 2012 Cash method of accounting. State tax forms 2012   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. State tax forms 2012 You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. State tax forms 2012 Choosing to take credit in the year taxes accrue. State tax forms 2012   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. State tax forms 2012 You make the choice by checking the box in Part II of Form 1116. State tax forms 2012 Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. State tax forms 2012   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. State tax forms 2012 You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. State tax forms 2012   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. State tax forms 2012 Credit based on taxes paid in earlier year. State tax forms 2012   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. State tax forms 2012 Example. State tax forms 2012 Last year you took the credit based on taxes paid. State tax forms 2012 This year you chose to take the credit based on taxes accrued. State tax forms 2012 During the year you paid foreign income taxes owed for last year. State tax forms 2012 You also accrued foreign income taxes for this year that you did not pay by the end of the year. State tax forms 2012 You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. State tax forms 2012 Foreign Currency and Exchange Rates U. State tax forms 2012 S. State tax forms 2012 income tax is imposed on income expressed in U. State tax forms 2012 S. State tax forms 2012 dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. State tax forms 2012 Therefore, fluctuations in the value of the foreign currency relative to the U. State tax forms 2012 S. State tax forms 2012 dollar may affect the foreign tax credit. State tax forms 2012 Translating foreign currency into U. State tax forms 2012 S. State tax forms 2012 dollars. State tax forms 2012   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. State tax forms 2012 S. State tax forms 2012 dollars. State tax forms 2012 How and when you do this depends on your functional currency. State tax forms 2012 In most cases, your functional currency is the U. State tax forms 2012 S. State tax forms 2012 dollar unless you are required to use the currency of a foreign country. State tax forms 2012   You must make all federal income tax determinations in your functional currency. State tax forms 2012 The U. State tax forms 2012 S. State tax forms 2012 dollar is the functional currency for all taxpayers except some qualified business units. State tax forms 2012 A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. State tax forms 2012 Unless you are self-employed, your functional currency is the U. State tax forms 2012 S. State tax forms 2012 dollar. State tax forms 2012   Even if you are self-employed and have a qualified business unit, your functional currency is the U. State tax forms 2012 S. State tax forms 2012 dollar if any of the following apply. State tax forms 2012 You conduct the business primarily in dollars. State tax forms 2012 The principal place of business is located in the United States. State tax forms 2012 You choose to or are required to use the dollar as your functional currency. State tax forms 2012 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. State tax forms 2012   If your functional currency is the U. State tax forms 2012 S. State tax forms 2012 dollar, you must immediately translate into dollars all items of income, expense, etc. State tax forms 2012 , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. State tax forms 2012 If there is more than one exchange rate, use the one that most properly reflects your income. State tax forms 2012 In most cases, you can get exchange rates from banks and U. State tax forms 2012 S. State tax forms 2012 Embassies. State tax forms 2012   If your functional currency is not the U. State tax forms 2012 S. State tax forms 2012 dollar, make all income tax determinations in your functional currency. State tax forms 2012 At the end of the year, translate the results, such as income or loss, into U. State tax forms 2012 S. State tax forms 2012 dollars to report on your income tax return. State tax forms 2012    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. State tax forms 2012   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. State tax forms 2012 If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. State tax forms 2012 If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. State tax forms 2012   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). State tax forms 2012 Exception. State tax forms 2012   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. State tax forms 2012 This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. State tax forms 2012 The foreign taxes are paid on or after the first day of the tax year to which they relate. State tax forms 2012 The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. State tax forms 2012 The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). State tax forms 2012 (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. State tax forms 2012 )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. State tax forms 2012 Election to use exchange rate on date paid. State tax forms 2012   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. State tax forms 2012 If any of the accrued taxes are unpaid, you must translate them into U. State tax forms 2012 S. State tax forms 2012 dollars using the exchange rate on the last day of the U. State tax forms 2012 S. State tax forms 2012 tax year to which those taxes relate. State tax forms 2012 You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. State tax forms 2012 S. State tax forms 2012 dollar functional currency. State tax forms 2012 Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. State tax forms 2012 The election is available for tax years beginning after 2004. State tax forms 2012 It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. State tax forms 2012 Make the election by attaching a statement to the applicable tax return. State tax forms 2012 The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. State tax forms 2012 S. State tax forms 2012 dollar functional currency. State tax forms 2012 Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. State tax forms 2012 S. State tax forms 2012 foreign tax credit claimed. State tax forms 2012 The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. State tax forms 2012 If a foreign tax redetermination occurs, a redetermination of your U. State tax forms 2012 S. State tax forms 2012 tax liability is required if any of the following conditions apply. State tax forms 2012 The accrued taxes when paid differ from the amounts claimed as a credit. State tax forms 2012 The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. State tax forms 2012 If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. State tax forms 2012 You will not be allowed a credit for the unpaid taxes until you pay them. State tax forms 2012 When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. State tax forms 2012 S. State tax forms 2012 dollars using the exchange rate as of the date they were paid. State tax forms 2012 The foreign tax credit is allowed for the year to which the foreign tax relates. State tax forms 2012 See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. State tax forms 2012 The foreign taxes you paid are refunded in whole or in part. State tax forms 2012 For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. State tax forms 2012 However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. State tax forms 2012 S. State tax forms 2012 tax year. State tax forms 2012 In this case, you must adjust your U. State tax forms 2012 S. State tax forms 2012 tax in the tax year in which the accrued foreign taxes are paid. State tax forms 2012 Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. State tax forms 2012 S. State tax forms 2012 tax liability for each tax year affected by the redetermination. State tax forms 2012 In most cases, you must file Form 1040X, Amended U. State tax forms 2012 S. State tax forms 2012 Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. State tax forms 2012 S. State tax forms 2012 tax liability for the year or years affected. State tax forms 2012 See Contents of statement , later. State tax forms 2012 You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. State tax forms 2012 There are other exceptions to this requirement. State tax forms 2012 They are discussed later under Due date of notification to IRS . State tax forms 2012 Contents of statement. State tax forms 2012   The statement must include all of the following. State tax forms 2012 Your name, address, and taxpayer identification number. State tax forms 2012 The tax year or years that are affected by the foreign tax redetermination. State tax forms 2012 The date or dates the foreign taxes were accrued, if applicable. State tax forms 2012 The date or dates the foreign taxes were paid. State tax forms 2012 The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. State tax forms 2012 Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. State tax forms 2012   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. State tax forms 2012   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). State tax forms 2012 Due date of notification to IRS. State tax forms 2012   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. State tax forms 2012 There is no limit on the time the IRS has to redetermine and assess the correct U. State tax forms 2012 S. State tax forms 2012 tax due. State tax forms 2012 If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. State tax forms 2012 S. State tax forms 2012 taxes. State tax forms 2012 See Time Limit on Refund Claims , later. State tax forms 2012   Exceptions to this due date are explained in the next two paragraphs. State tax forms 2012 Multiple redeterminations of U. State tax forms 2012 S. State tax forms 2012 tax liability for same tax year. State tax forms 2012   Where more than one foreign tax redetermination requires a redetermination of U. State tax forms 2012 S. State tax forms 2012 tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. State tax forms 2012 If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. State tax forms 2012 However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. State tax forms 2012 S. State tax forms 2012 tax liability is required may occur after the due date for providing that notification. State tax forms 2012 In this situation, you may have to file more than one Form 1040X for that tax year. State tax forms 2012 Additional U. State tax forms 2012 S. State tax forms 2012 tax due eliminated by foreign tax credit carryback or carryover. State tax forms 2012   If a foreign tax redetermination requires a redetermination of U. State tax forms 2012 S. State tax forms 2012 tax liability that would otherwise result in an additional amount of U. State tax forms 2012 S. State tax forms 2012 tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. State tax forms 2012 Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. State tax forms 2012 You must file the statement by the due date (with extensions) of that return. State tax forms 2012 The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. State tax forms 2012 S. State tax forms 2012 tax liability is required). State tax forms 2012 Failure-to-notify penalty. State tax forms 2012   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. State tax forms 2012   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. State tax forms 2012 S. State tax forms 2012 tax. State tax forms 2012 This penalty cannot be more than 25% of the tax due. State tax forms 2012 Foreign tax refund. State tax forms 2012   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. State tax forms 2012 S. State tax forms 2012 tax for the time before the date of the refund. State tax forms 2012   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. State tax forms 2012 The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. State tax forms 2012 Interest also is owed from the time you receive a refund until you pay the additional tax due. State tax forms 2012 Foreign tax imposed on foreign refund. State tax forms 2012   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. State tax forms 2012 However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. State tax forms 2012 Example. State tax forms 2012 You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. State tax forms 2012 When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. State tax forms 2012 Time Limit on Refund Claims You have 10 years to file a claim for refund of U. State tax forms 2012 S. State tax forms 2012 tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. State tax forms 2012 The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. State tax forms 2012 You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. State tax forms 2012 The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). State tax forms 2012 The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. State tax forms 2012 See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. State tax forms 2012 Who Can Take the Credit? U. State tax forms 2012 S. State tax forms 2012 citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. State tax forms 2012 S. State tax forms 2012 tax on foreign source income may be able to take a foreign tax credit. State tax forms 2012 U. State tax forms 2012 S. State tax forms 2012 Citizens If you are a U. State tax forms 2012 S. State tax forms 2012 citizen, you are taxed by the United States on your worldwide income wherever you live. State tax forms 2012 You are normally entitled to take a credit for foreign taxes you pay or accrue. State tax forms 2012 Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. State tax forms 2012 S. State tax forms 2012 citizens. State tax forms 2012 If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. State tax forms 2012 Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. State tax forms 2012 For information on alien status, see Publication 519. State tax forms 2012 Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. State tax forms 2012 However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. State tax forms 2012 S. State tax forms 2012 possession on income from foreign sources that is effectively connected with a trade or business in the United States. State tax forms 2012 But if you must pay tax to a foreign country or U. State tax forms 2012 S. State tax forms 2012 possession on income from U. State tax forms 2012 S. State tax forms 2012 sources only because you are a citizen or a resident of that country or U. State tax forms 2012 S. State tax forms 2012 possession, do not use that tax in figuring the amount of your credit. State tax forms 2012 For information on alien status and effectively connected income, see Publication 519. State tax forms 2012 What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. State tax forms 2012 The tax must be imposed on you. State tax forms 2012 You must have paid or accrued the tax. State tax forms 2012 The tax must be the legal and actual foreign tax liability. State tax forms 2012 The tax must be an income tax (or a tax in lieu of an income tax). State tax forms 2012 Certain foreign taxes do not qualify for the credit even if the four tests are met. State tax forms 2012 See Foreign Taxes for Which You Cannot Take a Credit, later. State tax forms 2012 Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. State tax forms 2012 S. State tax forms 2012 possession. State tax forms 2012 For example, a tax that is deducted from your wages is considered to be imposed on you. State tax forms 2012 You cannot shift the right to claim the credit by contract or other means. State tax forms 2012 Foreign country. State tax forms 2012   A foreign country includes any foreign state and its political subdivisions. State tax forms 2012 Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. State tax forms 2012 U. State tax forms 2012 S. State tax forms 2012 possessions. State tax forms 2012   For foreign tax credit purposes, all qualified taxes paid to U. State tax forms 2012 S. State tax forms 2012 possessions are considered foreign taxes. State tax forms 2012 For this purpose, U. State tax forms 2012 S. State tax forms 2012 possessions include Puerto Rico and American Samoa. State tax forms 2012   When the term “foreign country” is used in this publication, it includes U. State tax forms 2012 S. State tax forms 2012 possessions unless otherwise stated. State tax forms 2012 You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. State tax forms 2012 S. State tax forms 2012 possession. State tax forms 2012 However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. State tax forms 2012 Joint return. State tax forms 2012   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. State tax forms 2012 Combined income. State tax forms 2012   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. State tax forms 2012 901-2(f)(3)(iii). State tax forms 2012 Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. State tax forms 2012   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. State tax forms 2012 However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. State tax forms 2012 For more details, see paragraphs (f) and (h) of Regulations section 1. State tax forms 2012 901-2. State tax forms 2012 For similar rules applicable to prior tax years, see Regulations section 1. State tax forms 2012 901-2 (revised as of April 1, 2011). State tax forms 2012 Example. State tax forms 2012 You and your spouse reside in Country X, which imposes income tax on your combined incomes. State tax forms 2012 Both of you use the “u” as your functional currency. State tax forms 2012 Country X apportions tax based on income. State tax forms 2012 You had income of 30,000u and your spouse had income of 20,000u. State tax forms 2012 Your filing status on your U. State tax forms 2012 S. State tax forms 2012 income tax return is married filing separately. State tax forms 2012 You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. State tax forms 2012 S income tax return. State tax forms 2012 Your spouse can claim only 40% (20,000u/50,000u). State tax forms 2012 Partner or S corporation shareholder. State tax forms 2012   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. State tax forms 2012 These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. State tax forms 2012 However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. State tax forms 2012 Beneficiary. State tax forms 2012   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. State tax forms 2012 This amount will be shown on the Schedule K-1 you receive from the estate or trust. State tax forms 2012 However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. State tax forms 2012 Mutual fund shareholder. State tax forms 2012   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. State tax forms 2012 You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. State tax forms 2012 If you do not receive this information, you will need to contact the fund. State tax forms 2012 Controlled foreign corporation shareholder. State tax forms 2012   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. State tax forms 2012 If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. State tax forms 2012 Controlled foreign corporation. State tax forms 2012   A controlled foreign corporation is a foreign corporation in which U. State tax forms 2012 S. State tax forms 2012 shareholders own more than 50% of the voting power or value of the stock. State tax forms 2012 You are considered a U. State tax forms 2012 S. State tax forms 2012 shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. State tax forms 2012 See Internal Revenue Code sections 951(b) and 958(b) for more information. State tax forms 2012 Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. State tax forms 2012 Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. State tax forms 2012 Foreign tax refund. State tax forms 2012   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. State tax forms 2012   For example, the United States has tax treaties with many countries allowing U. State tax forms 2012 S. State tax forms 2012 citizens and residents reductions in the rates of tax of those foreign countries. State tax forms 2012 However, some treaty countries require U. State tax forms 2012 S. State tax forms 2012 citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. State tax forms 2012 The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. State tax forms 2012 Subsidy received. State tax forms 2012   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. State tax forms 2012 This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. State tax forms 2012 A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. State tax forms 2012   The term “subsidy” includes any type of benefit. State tax forms 2012 Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. State tax forms 2012 Shareholder receiving refund for corporate tax in integrated system. State tax forms 2012   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. State tax forms 2012 You may be able to claim a refund of these taxes from the foreign government. State tax forms 2012 You must include the refund (including any amount withheld) in your income in the year received. State tax forms 2012 Any tax withheld from the refund is a qualified foreign tax. State tax forms 2012 Example. State tax forms 2012 You are a shareholder of a French corporation. State tax forms 2012 You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. State tax forms 2012 The French government imposes a 15% withholding tax ($15) on the refund you received. State tax forms 2012 You receive a check for $85. State tax forms 2012 You include $100 in your income. State tax forms 2012 The $15 of tax withheld is a qualified foreign tax. State tax forms 2012 Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. State tax forms 2012 Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. State tax forms 2012 Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. State tax forms 2012 See Taxes in Lieu of Income Taxes , later. State tax forms 2012 Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. State tax forms 2012 A foreign levy is an income tax only if it meets both of the following requirements. State tax forms 2012 It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. State tax forms 2012 The predominant character of the tax is that of an income tax in the U. State tax forms 2012 S. State tax forms 2012 sense. State tax forms 2012 A foreign levy may meet these requirements even if the foreign tax law differs from U. State tax forms 2012 S. State tax forms 2012 tax law. State tax forms 2012 The foreign law may include in income items that U. State tax forms 2012 S. State tax forms 2012 law does not include, or it may allow certain exclusions or deductions that U. State tax forms 2012 S. State tax forms 2012 law does not allow. State tax forms 2012 Specific economic benefit. State tax forms 2012   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. State tax forms 2012   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. State tax forms 2012   However, see the exception discussed later under Pension, unemployment, and disability fund payments . State tax forms 2012 Economic benefits. State tax forms 2012   Economic benefits include the following. State tax forms 2012 Goods. State tax forms 2012 Services. State tax forms 2012 Fees or other payments. State tax forms 2012 Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. State tax forms 2012 Discharges of contractual obligations. State tax forms 2012   In most cases, the right or privilege merely to engage in business is not an economic benefit. State tax forms 2012 Dual-capacity taxpayers. State tax forms 2012   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. State tax forms 2012 ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. State tax forms 2012    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. State tax forms 2012   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. State tax forms 2012    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. State tax forms 2012 For more information about these agreements, see Publication 54. State tax forms 2012 Soak-up taxes. State tax forms 2012   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. State tax forms 2012 A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. State tax forms 2012 This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. State tax forms 2012 Penalties and interest. State tax forms 2012   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. State tax forms 2012 Taxes not based on income. State tax forms 2012   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. State tax forms 2012 Taxes based on assets, such as property taxes, do not qualify for the credit. State tax forms 2012 Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. State tax forms 2012 A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. State tax forms 2012 A tax in lieu of an income tax does not have to be based on realized net income. State tax forms 2012 A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. State tax forms 2012 In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. State tax forms 2012 However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. State tax forms 2012 The soak-up tax. State tax forms 2012 The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. State tax forms 2012 Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. State tax forms 2012 These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. State tax forms 2012 S. State tax forms 2012 persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. State tax forms 2012 Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. State tax forms 2012 S. State tax forms 2012 gross income. State tax forms 2012 Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. State tax forms 2012 S. State tax forms 2012 income under the foreign earned income exclusion or the foreign housing exclusion. State tax forms 2012 See Publication 54 for more information on the foreign earned income and housing exclusions. State tax forms 2012 Wages completely excluded. State tax forms 2012   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. State tax forms 2012 Wages partly excluded. State tax forms 2012   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. State tax forms 2012 You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. State tax forms 2012   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. State tax forms 2012 Deductible expenses do not include the foreign housing deduction. State tax forms 2012   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). State tax forms 2012 If the foreign law taxes foreign earned income and some other income (for example, earned income from U. State tax forms 2012 S. State tax forms 2012 sources or a type of income not subject to U. State tax forms 2012 S. State tax forms 2012 tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. State tax forms 2012 Example. State tax forms 2012 You are a U. State tax forms 2012 S. State tax forms 2012 citizen and a cash basis taxpayer, employed by Company X and living in Country A. State tax forms 2012 Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. State tax forms 2012 To find that part, do the following. State tax forms 2012 First, find the amount of business expenses allocable to excluded wages and therefore not deductible. State tax forms 2012 To do this, multiply the otherwise deductible expenses by a fraction. State tax forms 2012 That fraction is the excluded wages over your foreign earned income. State tax forms 2012   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. State tax forms 2012 To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). State tax forms 2012 The result is $81,984. State tax forms 2012 Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). State tax forms 2012 Finally, multiply the foreign tax you paid by the resulting fraction. State tax forms 2012   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. State tax forms 2012 Taxes on Income From Puerto Rico Exempt From U. State tax forms 2012 S. State tax forms 2012 Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. State tax forms 2012 For information on figuring the reduction, see Publication 570. State tax forms 2012 Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. State tax forms 2012 For more information on this exclusion, see Publication 570. State tax forms 2012 Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. State tax forms 2012 However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. State tax forms 2012 Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. State tax forms 2012 However, you can claim an itemized deduction for these taxes. State tax forms 2012 See Choosing To Take Credit or Deduction , earlier. State tax forms 2012 Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. State tax forms 2012 The following countries meet this description for 2013. State tax forms 2012 Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. State tax forms 2012 Cuba. State tax forms 2012 Iran. State tax forms 2012 Libya (but see Note later). State tax forms 2012 North Korea. State tax forms 2012 Sudan. State tax forms 2012 Syria. State tax forms 2012 Waiver of denial of the credit. State tax forms 2012   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. State tax forms 2012 S. State tax forms 2012 companies in the sanctioned country. State tax forms 2012 The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. State tax forms 2012 Note. State tax forms 2012 Effective December 10, 2004, the President granted a waiver to Libya. State tax forms 2012 Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. State tax forms 2012 Limit on credit. State tax forms 2012   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. State tax forms 2012 You must fill out a separate Form 1116 for this income. State tax forms 2012 This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. State tax forms 2012 Example. State tax forms 2012 You lived and worked in Iran until August, when you were transferred to Italy. State tax forms 2012 You paid taxes to each country on the income earned in that country. State tax forms 2012 You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. State tax forms 2012 Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. State tax forms 2012 You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. State tax forms 2012 Figuring the credit when a sanction ends. State tax forms 2012    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. State tax forms 2012 For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. State tax forms 2012 Example. State tax forms 2012 The sanctions against Country X ended on July 31. State tax forms 2012 On August 19, you receive a distribution from a mutual fund of Country X income. State tax forms 2012 The fund paid Country X income tax for you on the distribution. State tax forms 2012 Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. State tax forms 2012 Amounts for the nonsanctioned period. State tax forms 2012   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. State tax forms 2012 Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. State tax forms 2012   Number of nonsanctioned days in year  Number of days in year Example. State tax forms 2012 You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. State tax forms 2012 Sanctions against Country X ended on July 11, 2013. State tax forms 2012 You are unable to determine how much of the income or tax is for the nonsanctioned period. State tax forms 2012 Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. State tax forms 2012 You would compute the income for the nonsanctioned period as follows. State tax forms 2012 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. State tax forms 2012 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. State tax forms 2012 Further information. State tax forms 2012   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. State tax forms 2012 This Cumulative Bulletin can be found in many libraries and IRS offices. State tax forms 2012 Table 1. State tax forms 2012 Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. State tax forms 2012 Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. State tax forms 2012 The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). State tax forms 2012 The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. State tax forms 2012 If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. State tax forms 2012 When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. State tax forms 2012 Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. State tax forms 2012 Withholding tax. State tax forms 2012   For this purpose, withholding tax includes any tax determined on a gross basis. State tax forms 2012 It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. State tax forms 2012 Ex-dividend date. State tax forms 2012   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. State tax forms 2012 Example 1. State tax forms 2012 You bought common stock from a foreign corporation on November 3. State tax forms 2012 You sold the stock on November 19. State tax forms 2012 You received a dividend on this stock because you owned it on the ex-dividend date of November 5. State tax forms 2012 To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). State tax forms 2012 Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. State tax forms 2012 Example 2. State tax forms 2012 The facts are the same as in Example 1 except that you sold the stock on November 14. State tax forms 2012 You held the stock for only 11 days. State tax forms 2012 You are not entitled to the credit. State tax forms 2012 Exception. State tax forms 2012   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. State tax forms 2012 See section 901(k)(4) of the Internal Revenue Code for more information. State tax forms 2012 Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. State tax forms 2012 When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. State tax forms 2012 Withholding tax. State tax forms 2012   For this purpose, withholding tax includes any tax determined on a gross basis. State tax forms 2012 It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. State tax forms 2012 Exception for dealers. State tax forms 2012   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. State tax forms 2012 See section 901(I)(2) of the Internal Revenue Code for more information. State tax forms 2012 Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. State tax forms 2012 A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. State tax forms 2012 S. State tax forms 2012 tax purposes but not for foreign tax purposes. State tax forms 2012 For more information, see Internal Revenue Code section 901(m). State tax forms 2012 The IRS intends to issue guidance that will explain this provision in greater detail. State tax forms 2012 Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. State tax forms 2012 Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. State tax forms 2012 For details, see Regulations section 1. State tax forms 2012 901-3. State tax forms 2012 Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. State tax forms 2012 See the instructions for line 12 in the Form 1116 instructions to figure this reduction. State tax forms 2012 In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. State tax forms 2012 List of boycotting countries. State tax forms 2012   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. State tax forms 2012 As of November 2013, the following countries are listed. State tax forms 2012 Iraq. State tax forms 2012 Kuwait. State tax forms 2012 Lebanon. State tax forms 2012 Libya. State tax forms 2012 Qatar. State tax forms 2012 Saudi Arabia. State tax forms 2012 Syria. State tax forms 2012 United Arab Emirates. State tax forms 2012 Yemen. State tax forms 2012    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. State tax forms 2012   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. State tax forms 2012 The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. State tax forms 2012 Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. State tax forms 2012 Public inspection. State tax forms 2012   A determination and any related background file is open to public inspection. State tax forms 2012 However, your identity and certain other information will remain confidential. State tax forms 2012 Reporting requirements. State tax forms 2012   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. State tax forms 2012 A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. State tax forms 2012 A partnership in which you are a partner. State tax forms 2012 A trust you are treated as owning. State tax forms 2012 Form 5713 required. State tax forms 2012   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. State tax forms 2012 See the Instructions for Form 5713 for information on when and where to file the form. State tax forms 2012 Penalty for failure to file. State tax forms 2012   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. State tax forms 2012 Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. State tax forms 2012 The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. State tax forms 2012 S. State tax forms 2012 tax liability (Form 1040, line 44) divided by your worldwide taxable income. State tax forms 2012 You may be entitled to carry over to other years taxes reduced under this rule. State tax forms 2012 See Internal Revenue Code section 907(f). State tax forms 2012 Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. State tax forms 2012 Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. State tax forms 2012 Taxes of U. State tax forms 2012 S. State tax forms 2012 Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. State tax forms 2012 If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. State tax forms 2012 See Penalty for not filing Form 5471 or Form 8865 , later. State tax forms 2012 U. State tax forms 2012 S. State tax forms 2012 persons controlling foreign corporations. State tax forms 2012   If you are a U. State tax forms 2012 S. State tax forms 2012 citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. State tax forms 2012 S. State tax forms 2012 Persons With Respect To Certain Foreign Corporations. State tax forms 2012 Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. State tax forms 2012 U. State tax forms 2012 S. State tax forms 2012 persons controlling foreign partnerships. State tax forms 2012   If you are a U. State tax forms 2012 S. State tax forms 2012 citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file
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The State Tax Forms 2012

State tax forms 2012 Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. State tax forms 2012 S. State tax forms 2012 Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. State tax forms 2012 Full-time student. State tax forms 2012 Adjusted gross income. State tax forms 2012 More information. State tax forms 2012 Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). State tax forms 2012 Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. State tax forms 2012 Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. State tax forms 2012 You are a member of a religious order who has taken a vow of poverty. State tax forms 2012 You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. State tax forms 2012 See Exemption From Self-Employment (SE) Tax , later. State tax forms 2012 You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. State tax forms 2012 For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. State tax forms 2012 Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. State tax forms 2012 See Ministerial Services , later. State tax forms 2012 Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. State tax forms 2012 However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. State tax forms 2012 For the specific services covered, see Ministerial Services , later. State tax forms 2012 Ministers defined. State tax forms 2012   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. State tax forms 2012 Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. State tax forms 2012   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. State tax forms 2012 Employment status for other tax purposes. State tax forms 2012   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. State tax forms 2012 For income tax or retirement plan purposes, your income earned as an employee will be considered wages. State tax forms 2012 Common-law employee. State tax forms 2012   Under common-law rules, you are considered either an employee or a self-employed person. State tax forms 2012 Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. State tax forms 2012 For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. State tax forms 2012   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. State tax forms 2012 However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. State tax forms 2012 Example. State tax forms 2012 A church hires and pays you a salary to perform ministerial services subject to its control. State tax forms 2012 Under the common-law rules, you are an employee of the church while performing those services. State tax forms 2012 Form SS-8. State tax forms 2012   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. State tax forms 2012 Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. State tax forms 2012 See Ministerial Services , later. State tax forms 2012 However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. State tax forms 2012 Vow of poverty. State tax forms 2012   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. State tax forms 2012 You do not need to request a separate exemption. State tax forms 2012 For income tax purposes, the earnings are tax free to you. State tax forms 2012 Your earnings are considered the income of the religious order. State tax forms 2012 Services covered under FICA at the election of the order. State tax forms 2012   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. State tax forms 2012 Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. State tax forms 2012   The order or subdivision elects coverage by filing Form SS-16. State tax forms 2012 The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. State tax forms 2012 If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. State tax forms 2012 You do not pay any of the FICA tax. State tax forms 2012 Services performed outside the order. State tax forms 2012   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. State tax forms 2012   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. State tax forms 2012 You may, however, be able to take a charitable deduction for the amount you turn over to the order. State tax forms 2012 See Publication 526, Charitable Contributions. State tax forms 2012 Rulings. State tax forms 2012   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. State tax forms 2012 To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. State tax forms 2012 R. State tax forms 2012 B. State tax forms 2012 1, available at www. State tax forms 2012 irs. State tax forms 2012 gov/irb/2014-1_IRB/ar05. State tax forms 2012 html. State tax forms 2012 Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. State tax forms 2012 However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. State tax forms 2012 Practitioners. State tax forms 2012   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. State tax forms 2012 State law specifically exempts Christian Science practitioners from licensing requirements. State tax forms 2012   Some Christian Science practitioners also are Christian Science teachers or lecturers. State tax forms 2012 Income from teaching or lecturing is considered the same as income from their work as practitioners. State tax forms 2012 Readers. State tax forms 2012   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. State tax forms 2012 Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. State tax forms 2012 Some exceptions are discussed next. State tax forms 2012 Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. State tax forms 2012 If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. State tax forms 2012 Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. State tax forms 2012 28 during the tax year. State tax forms 2012 However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. State tax forms 2012 Churches and church organizations make this election by filing two copies of Form 8274. State tax forms 2012 For more information about making this election, see Form 8274. State tax forms 2012 Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. State tax forms 2012 This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. State tax forms 2012 Make this choice by filing Form 4029. State tax forms 2012 See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. State tax forms 2012 U. State tax forms 2012 S. State tax forms 2012 Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. State tax forms 2012 Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. State tax forms 2012 S. State tax forms 2012 social security system. State tax forms 2012 To determine your alien status, see Publication 519, U. State tax forms 2012 S. State tax forms 2012 Tax Guide for Aliens. State tax forms 2012 Residents of Puerto Rico, the U. State tax forms 2012 S. State tax forms 2012 Virgin Islands, Guam, the CNMI, and American Samoa. State tax forms 2012   If you are a resident of one of these U. State tax forms 2012 S. State tax forms 2012 possessions but not a U. State tax forms 2012 S. State tax forms 2012 citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. State tax forms 2012 For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. State tax forms 2012 Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. State tax forms 2012 Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. State tax forms 2012 Even if you have an exemption, only the income you receive for performing ministerial services is exempt. State tax forms 2012 The exemption does not apply to any other income. State tax forms 2012 The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. State tax forms 2012 Ministers Most services you perform as a minister, priest, rabbi, etc. State tax forms 2012 , are ministerial services. State tax forms 2012 These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. State tax forms 2012 You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. State tax forms 2012 A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. State tax forms 2012 Services for nonreligious organizations. State tax forms 2012   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. State tax forms 2012 Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. State tax forms 2012   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. State tax forms 2012 Services that are not part of your ministry. State tax forms 2012   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. State tax forms 2012 The following are not ministerial services. State tax forms 2012 Services you perform for nonreligious organizations other than the services stated above. State tax forms 2012 Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. State tax forms 2012 These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. State tax forms 2012 (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. State tax forms 2012 ) Services you perform in a government-owned and operated hospital. State tax forms 2012 (These services are considered performed by a government employee, not by a minister as part of the ministry. State tax forms 2012 ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. State tax forms 2012 Books or articles. State tax forms 2012   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. State tax forms 2012   This rule also applies to members of religious orders and to Christian Science practitioners and readers. State tax forms 2012 Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. State tax forms 2012 The services are considered ministerial because you perform them as an agent of the order. State tax forms 2012 For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. State tax forms 2012 However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. State tax forms 2012 Effect of employee status. State tax forms 2012   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. State tax forms 2012 In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. State tax forms 2012 This result is true even if you have taken a vow of poverty. State tax forms 2012 Example. State tax forms 2012 Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. State tax forms 2012 They renounce all claims to their earnings. State tax forms 2012 The earnings belong to the order. State tax forms 2012 Pat is a licensed attorney. State tax forms 2012 The superiors of the order instructed her to get a job with a law firm. State tax forms 2012 Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. State tax forms 2012 Chris is a secretary. State tax forms 2012 The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. State tax forms 2012 Chris took the job and gave all his earnings to the order. State tax forms 2012 Pat's services are not duties required by the order. State tax forms 2012 Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. State tax forms 2012 Chris' services are duties required by the order. State tax forms 2012 He is acting as an agent of the order and not as an employee of a third party. State tax forms 2012 He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. State tax forms 2012 Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. State tax forms 2012 Amounts you receive for performing these services are generally subject to SE tax. State tax forms 2012 You may request an exemption from SE tax, discussed next, which applies only to those services. State tax forms 2012 Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. State tax forms 2012 Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. State tax forms 2012 They do not have to request the exemption. State tax forms 2012 Who cannot be exempt. State tax forms 2012   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. State tax forms 2012 These elections are irrevocable. State tax forms 2012 You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. State tax forms 2012 You elected before 1968 to be covered under social security for your ministerial services. State tax forms 2012 Requesting exemption. State tax forms 2012    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. State tax forms 2012 More detailed explanations follow. State tax forms 2012 If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. State tax forms 2012 It does not apply to any other self-employment income. State tax forms 2012 Table 2. State tax forms 2012 The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. State tax forms 2012 You file Form 4361, described below under Requesting Exemption—Form 4361 . State tax forms 2012 You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. State tax forms 2012 You file for other than economic reasons. State tax forms 2012 You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). State tax forms 2012 This requirement does not apply to Christian Science practitioners or readers. State tax forms 2012 You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. State tax forms 2012 You establish that the organization is a church or a convention or association of churches. State tax forms 2012 You did not make an election discussed earlier under Who cannot be exempt . State tax forms 2012 You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. State tax forms 2012 Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. State tax forms 2012 The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. State tax forms 2012 If it is approved, keep the approved copy of Form 4361 in your permanent records. State tax forms 2012 When to file. State tax forms 2012   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. State tax forms 2012 You have net earnings from self-employment of at least $400. State tax forms 2012 Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. State tax forms 2012 The 2 years do not have to be consecutive tax years. State tax forms 2012    The approval process can take some time, so you should file Form 4361 as soon as possible. State tax forms 2012 Example 1. State tax forms 2012 Rev. State tax forms 2012 Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. State tax forms 2012 He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. State tax forms 2012 However, if Rev. State tax forms 2012 Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. State tax forms 2012 Example 2. State tax forms 2012 Rev. State tax forms 2012 Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. State tax forms 2012 She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. State tax forms 2012 However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. State tax forms 2012 Example 3. State tax forms 2012 In 2011, Rev. State tax forms 2012 David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. State tax forms 2012 In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. State tax forms 2012 Therefore, he had no net self-employment earnings as a minister in 2012. State tax forms 2012 Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. State tax forms 2012 In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. State tax forms 2012 Rev. State tax forms 2012 Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. State tax forms 2012 Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. State tax forms 2012 Death of individual. State tax forms 2012   The right to file an application for exemption ends with an individual's death. State tax forms 2012 A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. State tax forms 2012 Effective date of exemption. State tax forms 2012   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. State tax forms 2012 Once the exemption is approved, it is irrevocable. State tax forms 2012 Example. State tax forms 2012 Rev. State tax forms 2012 Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. State tax forms 2012 She files an application for exemption on February 20, 2014. State tax forms 2012 If an exemption is granted, it is effective for 2010 and the following years. State tax forms 2012 Refunds of SE tax. State tax forms 2012   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. State tax forms 2012 Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. State tax forms 2012 A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. State tax forms 2012   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. State tax forms 2012 Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. State tax forms 2012 Exception. State tax forms 2012   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. State tax forms 2012 However, if you pay your benefits back, you may be considered for exemption. State tax forms 2012 Contact your local Social Security Administration office to find out the amount you must pay back. State tax forms 2012 Eligibility requirements. State tax forms 2012   To claim this exemption from SE tax, all the following requirements must be met. State tax forms 2012 You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . State tax forms 2012 As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. State tax forms 2012 You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. State tax forms 2012 The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. State tax forms 2012 Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. State tax forms 2012 The sect or division must complete part of the form. State tax forms 2012 The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. State tax forms 2012 If it is approved, keep the approved copy of Form 4029 in your permanent records. State tax forms 2012 When to file. State tax forms 2012   You can file Form 4029 at any time. State tax forms 2012   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. State tax forms 2012 See Effective date of exemption next for information on when the newly approved exemption would become effective. State tax forms 2012    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. State tax forms 2012 Effective date of exemption. State tax forms 2012   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. State tax forms 2012 (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. State tax forms 2012 )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. State tax forms 2012 You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. State tax forms 2012 The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. State tax forms 2012 Refunds of SE tax paid. State tax forms 2012    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. State tax forms 2012 For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. State tax forms 2012 Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. State tax forms 2012 Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. State tax forms 2012 A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. State tax forms 2012 If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. State tax forms 2012 Information for employers. State tax forms 2012   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. State tax forms 2012   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. State tax forms 2012 Form W-2. State tax forms 2012   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. State tax forms 2012 ” Do not make any entries in boxes 3, 4, 5, or 6. State tax forms 2012 Forms 941, 943, and 944. State tax forms 2012   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. State tax forms 2012 Instead, follow the instructions given below. State tax forms 2012 Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. State tax forms 2012 Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. State tax forms 2012 Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. State tax forms 2012 Effective date. State tax forms 2012   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. State tax forms 2012 The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. State tax forms 2012 Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. State tax forms 2012 Regular method. State tax forms 2012 Nonfarm optional method. State tax forms 2012 You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. State tax forms 2012 Blank worksheets are in the back of this publication, after the Comprehensive Example. State tax forms 2012 Regular Method Most people use the regular method. State tax forms 2012 Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. State tax forms 2012 Then, subtract your allowable business deductions and multiply the difference by 92. State tax forms 2012 35% (. State tax forms 2012 9235). State tax forms 2012 Use Schedule SE (Form 1040) to figure your net earnings and SE tax. State tax forms 2012 If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. State tax forms 2012 35% (. State tax forms 2012 9235). State tax forms 2012 Do not reduce your wages by any business deductions when making this computation. State tax forms 2012 Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. State tax forms 2012 If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. State tax forms 2012 Amounts included in gross income. State tax forms 2012   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. State tax forms 2012 , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. State tax forms 2012 This amount is also subject to income tax. State tax forms 2012   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. State tax forms 2012 Example. State tax forms 2012 Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. State tax forms 2012 The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. State tax forms 2012 His church owns a parsonage that has a fair rental value of $12,000 per year. State tax forms 2012 The church gives Pastor Adams the use of the parsonage. State tax forms 2012 He is not exempt from SE tax. State tax forms 2012 He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. State tax forms 2012 The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. State tax forms 2012 Overseas duty. State tax forms 2012   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. State tax forms 2012 S. State tax forms 2012 citizen or resident alien serving abroad and living in a foreign country. State tax forms 2012   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. State tax forms 2012 Example. State tax forms 2012 Diane Jones was the minister of a U. State tax forms 2012 S. State tax forms 2012 church in Mexico. State tax forms 2012 She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. State tax forms 2012 The United States does not have a social security agreement with Mexico, so Mrs. State tax forms 2012 Jones is subject to U. State tax forms 2012 S. State tax forms 2012 SE tax and must include $35,000 when figuring net earnings from self-employment. State tax forms 2012 Specified U. State tax forms 2012 S. State tax forms 2012 possessions. State tax forms 2012    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. State tax forms 2012 Also see Residents of Puerto Rico, the U. State tax forms 2012 S. State tax forms 2012 Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. State tax forms 2012 S. State tax forms 2012 Citizens and Resident and Nonresident Aliens. State tax forms 2012 Amounts not included in gross income. State tax forms 2012   Do not include the following amounts in gross income when figuring your net earnings from self-employment. State tax forms 2012 Offerings that others made to the church. State tax forms 2012 Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. State tax forms 2012 Pension payments or retirement allowances you receive for your past ministerial services. State tax forms 2012 The rental value of a parsonage or a parsonage allowance provided to you after you retire. State tax forms 2012 Allowable deductions. State tax forms 2012   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. State tax forms 2012 These are ministerial expenses you incurred while working other than as a common-law employee of the church. State tax forms 2012 They include expenses incurred in performing marriages and baptisms, and in delivering speeches. State tax forms 2012 Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. State tax forms 2012   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . State tax forms 2012 Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. State tax forms 2012 Do not complete Schedule C or C-EZ (Form 1040). State tax forms 2012 However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. State tax forms 2012 Employee reimbursement arrangements. State tax forms 2012   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. State tax forms 2012 Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. State tax forms 2012 Accountable plans. State tax forms 2012   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. State tax forms 2012 Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. State tax forms 2012 You must adequately account to your employer for these expenses within a reasonable period of time. State tax forms 2012 You must return any excess reimbursement or allowance within a reasonable period of time. State tax forms 2012   The reimbursement is not reported on your Form W-2. State tax forms 2012 Generally, if your expenses equal your reimbursement, you have no deduction. State tax forms 2012 If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. State tax forms 2012 Nonaccountable plan. State tax forms 2012   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. State tax forms 2012 In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. State tax forms 2012 Excess reimbursements you fail to return to your employer. State tax forms 2012 Reimbursement of nondeductible expenses related to your employer's business. State tax forms 2012   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. State tax forms 2012 Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. State tax forms 2012   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. State tax forms 2012 Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. State tax forms 2012 If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. State tax forms 2012 Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. State tax forms 2012 The tax rate for the social security part is 12. State tax forms 2012 4%. State tax forms 2012 In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. State tax forms 2012 This tax rate is 2. State tax forms 2012 9%. State tax forms 2012 The combined self-employment tax rate is 15. State tax forms 2012 3%. State tax forms 2012 Additional Medicare Tax. State tax forms 2012   Beginning in 2013, a 0. State tax forms 2012 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. State tax forms 2012 Medicare wages and self-employment income are combined to determine if income exceeds the threshold. State tax forms 2012 A self-employment loss is not considered for purposes of this tax. State tax forms 2012 RRTA compensation is separately compared to the threshold. State tax forms 2012 For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. State tax forms 2012 Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. State tax forms 2012 In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. State tax forms 2012 You may use the nonfarm optional method if you meet all the following tests. State tax forms 2012 You are self-employed on a regular basis. State tax forms 2012 You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. State tax forms 2012 The net earnings can be from either farm or nonfarm earnings or both. State tax forms 2012 You have used this method less than 5 prior years. State tax forms 2012 (There is a 5-year lifetime limit. State tax forms 2012 ) The years do not have to be consecutive. State tax forms 2012 Your net nonfarm profits were: Less than $5,024, and Less than 72. State tax forms 2012 189% of your gross nonfarm income. State tax forms 2012 If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. State tax forms 2012 Table 3. State tax forms 2012 Figuring Nonfarm Net Earnings IF your gross nonfarm income is . State tax forms 2012 . State tax forms 2012 . State tax forms 2012 THEN your net earnings are equal to . State tax forms 2012 . State tax forms 2012 . State tax forms 2012 $6,960 or less Two-thirds of your gross nonfarm income. State tax forms 2012 More than $6,960 $4,640. State tax forms 2012 Actual net earnings. State tax forms 2012   Multiply your total earnings subject to SE tax by 92. State tax forms 2012 35% (. State tax forms 2012 9235) to get actual net earnings. State tax forms 2012 Actual net earnings are equivalent to net earnings under the “Regular Method. State tax forms 2012 ” More information. State tax forms 2012   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. State tax forms 2012 Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. State tax forms 2012 Note. State tax forms 2012 For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. State tax forms 2012 Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. State tax forms 2012 Offerings and Fees If you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. State tax forms 2012 , in addition to your salary. State tax forms 2012 If the offering is made to the religious institution, it is not taxable to you. State tax forms 2012 Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. State tax forms 2012 However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. State tax forms 2012 For more information, see Publication 526. State tax forms 2012 Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. State tax forms 2012 Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. State tax forms 2012 This exclusion applies only for income tax purposes. State tax forms 2012 It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. State tax forms 2012 Designation requirement. State tax forms 2012   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. State tax forms 2012 It must designate a definite amount. State tax forms 2012 It cannot determine the amount of the housing allowance at a later date. State tax forms 2012 If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. State tax forms 2012   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. State tax forms 2012 The local congregation must officially designate the part of your salary that is a housing allowance. State tax forms 2012 However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. State tax forms 2012 Rental allowances. State tax forms 2012   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. State tax forms 2012   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. State tax forms 2012 Fair rental value of parsonage. State tax forms 2012   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. State tax forms 2012 However, the exclusion cannot be more than the reasonable pay for your services. State tax forms 2012 If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. State tax forms 2012 Example. State tax forms 2012 Rev. State tax forms 2012 Joanna Baker is a full-time minister. State tax forms 2012 The church allows her to use a parsonage that has an annual fair rental value of $24,000. State tax forms 2012 The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. State tax forms 2012 Her actual utility costs during the year were $7,000. State tax forms 2012 For income tax purposes, Rev. State tax forms 2012 Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). State tax forms 2012 She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). State tax forms 2012 Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). State tax forms 2012 Home ownership. State tax forms 2012   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. State tax forms 2012 Excess rental allowance. State tax forms 2012   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. State tax forms 2012   Include in the total on Form 1040, line 7. State tax forms 2012 On the dotted line next to line 7, enter “Excess allowance” and the amount. State tax forms 2012 You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. State tax forms 2012 However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). State tax forms 2012 Retired ministers. State tax forms 2012   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. State tax forms 2012 However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. State tax forms 2012 Teachers or administrators. State tax forms 2012   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. State tax forms 2012 However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. State tax forms 2012    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. State tax forms 2012 In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. State tax forms 2012   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. State tax forms 2012 Theological students. State tax forms 2012   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. State tax forms 2012 Traveling evangelists. State tax forms 2012   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. State tax forms 2012 You are an ordained minister. State tax forms 2012 You perform ministerial services at churches located away from your community. State tax forms 2012 You actually use the rental allowance to maintain your permanent home. State tax forms 2012 Cantors. State tax forms 2012   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. State tax forms 2012 Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. State tax forms 2012 See Members of Religious Orders , earlier, under Social Security Coverage. State tax forms 2012 Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. State tax forms 2012 S. State tax forms 2012 possession. State tax forms 2012 Publication 54 discusses the foreign earned income exclusion. State tax forms 2012 Publication 570, Tax Guide for Individuals With Income From U. State tax forms 2012 S. State tax forms 2012 Possessions, covers the rules for taxpayers with income from U. State tax forms 2012 S. State tax forms 2012 possessions. State tax forms 2012 You can get these free publications from the Internal Revenue Service at IRS. State tax forms 2012 gov or from most U. State tax forms 2012 S. State tax forms 2012 Embassies or consulates. State tax forms 2012 Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. State tax forms 2012 Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. State tax forms 2012 You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). State tax forms 2012 You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. State tax forms 2012 See Publication 529 for more information on this limit. State tax forms 2012 However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). State tax forms 2012 Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. State tax forms 2012 You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. State tax forms 2012 Exception. State tax forms 2012   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. State tax forms 2012 Figuring the allocation. State tax forms 2012   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. State tax forms 2012    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. State tax forms 2012 Example. State tax forms 2012 Rev. State tax forms 2012 Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. State tax forms 2012 He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. State tax forms 2012 $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. State tax forms 2012 Rev. State tax forms 2012 Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. State tax forms 2012 Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. State tax forms 2012   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. State tax forms 2012 The statement must contain all of the following information. State tax forms 2012 A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. State tax forms 2012 ) plus the amount. State tax forms 2012 A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. State tax forms 2012 A list of each item of otherwise deductible ministerial expenses plus the amount. State tax forms 2012 How you figured the nondeductible part of your otherwise deductible expenses. State tax forms 2012 A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. State tax forms 2012   See the attachments prepared for the Comprehensive Example , later. State tax forms 2012 Following the example, you will find blank worksheets for your own use. State tax forms 2012 Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. State tax forms 2012 If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. State tax forms 2012 See the Instructions for Form 1040 to figure your deduction. State tax forms 2012 The following special rules apply to the self-employed health insurance deduction. State tax forms 2012 You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. State tax forms 2012 You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. State tax forms 2012 The deduction cannot exceed your net earnings from the business under which the insurance plan is established. State tax forms 2012 Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. State tax forms 2012 More information. State tax forms 2012   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. State tax forms 2012 Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. State tax forms 2012 This is an income tax deduction only, on Form 1040, line 27. State tax forms 2012 Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. State tax forms 2012 Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. State tax forms 2012 You must pay the tax as you earn or receive income during the year. State tax forms 2012 An employee usually has income tax withheld from his or her wages or salary. State tax forms 2012 However, your salary is not subject to federal income tax withholding if both of the following conditions apply. State tax forms 2012 You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. State tax forms 2012 Your salary is for ministerial services (see Ministerial Services , earlier). State tax forms 2012 If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. State tax forms 2012 You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. State tax forms 2012 Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. State tax forms 2012 Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. State tax forms 2012 See Form 1040-ES for the different payment methods. State tax forms 2012 The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. State tax forms 2012 For more information, see chapter 2 of Publication 505. State tax forms 2012 If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. State tax forms 2012 Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. State tax forms 2012 Table 4. State tax forms 2012 2013 Filing Requirements for Most Taxpayers IF your filing status is . State tax forms 2012 . State tax forms 2012 . State tax forms 2012 AND at the end of 2013 you were* . State tax forms 2012 . State tax forms 2012 . State tax forms 2012 THEN file a return if your gross income** was at least . State tax forms 2012 . State tax forms 2012 . State tax forms 2012 single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. State tax forms 2012 ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). State tax forms 2012 Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). State tax forms 2012 If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. State tax forms 2012 Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). State tax forms 2012 Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. State tax forms 2012 But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. State tax forms 2012 *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. State tax forms 2012 Additional requirements. State tax forms 2012   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. State tax forms 2012 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). State tax forms 2012 Self-employment tax. State tax forms 2012   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. State tax forms 2012   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. State tax forms 2012 You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). State tax forms 2012 You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. State tax forms 2012 However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). State tax forms 2012 Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. State tax forms 2012 Note. State tax forms 2012 For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. State tax forms 2012 You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. State tax forms 2012 Exemption from SE tax. State tax forms 2012   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). State tax forms 2012 Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. State tax forms 2012 However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. State tax forms 2012    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). State tax forms 2012 Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. State tax forms 2012 More information. State tax forms 2012   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. State tax forms 2012 Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. State tax forms 2012 You generally can deduct your contributions to the plan. State tax forms 2012 Your contributions and the earnings on them are not taxed until they are distributed. State tax forms 2012 Retirement plans for the self-employed. State tax forms 2012   To set up one of the following plans you must be self-employed. State tax forms 2012 SEP (simplified employee pension) plan. State tax forms 2012 SIMPLE (savings incentive match plan for employees) plan. State tax forms 2012 Qualified retirement plan (also called a Keogh or H. State tax forms 2012 R. State tax forms 2012 10 plan). State tax forms 2012   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. State tax forms 2012 See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. State tax forms 2012 This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. State tax forms 2012   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. State tax forms 2012 You are not a self-employed person for purposes of setting up a retirement plan. State tax forms 2012 This result is true even if your salary is subject to SE tax. State tax forms 2012   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. State tax forms 2012   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). State tax forms 2012 Individual retirement arrangements (IRAs). State tax forms 2012   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. State tax forms 2012 Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). State tax forms 2012   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. State tax forms 2012 You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. State tax forms 2012   If you contribute to a traditional IRA, your contribution may be deductible. State tax forms 2012 However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). State tax forms 2012   For more information on IRAs, see Publication 590. State tax forms 2012 Tax-sheltered annuity plans. State tax forms 2012   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. State tax forms 2012 For more