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Tax Act Online 2012

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Tax Act Online 2012

Tax act online 2012 6. Tax act online 2012   Dual-Status Tax Year Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tax Year Income Subject to Tax Restrictions for Dual-Status Taxpayers Exemptions How To Figure TaxIncome Tax Credits and Payments Forms To File When and Where To File Introduction You have a dual-status tax year when you have been both a resident alien and a nonresident alien in the same year. Tax act online 2012 Dual status does not refer to your citizenship; it refers only to your resident status in the United States. Tax act online 2012 In determining your U. Tax act online 2012 S. Tax act online 2012 income tax liability for a dual-status tax year, different rules apply for the part of the year you are a resident of the United States and the part of the year you are a nonresident. Tax act online 2012 The most common dual-status tax years are the years of arrival and departure. Tax act online 2012 See Dual-Status Aliens in chapter 1. Tax act online 2012 If you are married and choose to be treated as a U. Tax act online 2012 S. Tax act online 2012 resident for the entire year, as explained in chapter 1, the rules of this chapter do not apply to you for that year. Tax act online 2012 Topics - This chapter discusses: Income subject to tax, Restrictions for dual-status taxpayers, Exemptions, How to figure the tax, Forms to file, When and where to file, and How to fill out a dual-status return. Tax act online 2012 Useful Items - You may want to see: Publication 503 Child and Dependent Care Expenses 514 Foreign Tax Credit for Individuals 575 Pension and Annuity Income Form (and Instructions) 1040 U. Tax act online 2012 S. Tax act online 2012 Individual Income Tax Return 1040-C U. Tax act online 2012 S. Tax act online 2012 Departing Alien Income Tax Return 1040-ES Estimated Tax for Individuals 1040-ES (NR) U. Tax act online 2012 S. Tax act online 2012 Estimated Tax for Nonresident Alien Individuals 1040NR U. Tax act online 2012 S. Tax act online 2012 Nonresident Alien Income Tax Return 1116 Foreign Tax Credit See chapter 12 for information about getting these publications and forms. Tax act online 2012 Tax Year You must file your tax return on the basis of an annual accounting period called a tax year. Tax act online 2012 If you have not previously established a fiscal tax year, your tax year is the calendar year. Tax act online 2012 A calendar year is 12 consecutive months ending on December 31. Tax act online 2012 If you have previously established a regular fiscal year (12 consecutive months ending on the last day of a month other than December, or a 52–53 week year) and are considered to be a U. Tax act online 2012 S. Tax act online 2012 resident for any calendar year, you will be treated as a U. Tax act online 2012 S. Tax act online 2012 resident for any part of your fiscal year that falls within that calendar year. Tax act online 2012 Income Subject to Tax For the part of the year you are a resident alien, you are taxed on income from all sources. Tax act online 2012 Income from sources outside the United States is taxable if you receive it while you are a resident alien. Tax act online 2012 The income is taxable even if you earned it while you were a nonresident alien or if you became a nonresident alien after receiving it and before the end of the year. Tax act online 2012 For the part of the year you are a nonresident alien, you are taxed on income from U. Tax act online 2012 S. Tax act online 2012 sources and on certain foreign source income treated as effectively connected with a U. Tax act online 2012 S. Tax act online 2012 trade or business. Tax act online 2012 (The rules for treating foreign source income as effectively connected are discussed in chapter 4 under Foreign Income. Tax act online 2012 ) Income from sources outside the United States that is not effectively connected with a trade or business in the United States is not taxable if you receive it while you are a nonresident alien. Tax act online 2012 The income is not taxable even if you earned it while you were a resident alien or if you became a resident alien or a U. Tax act online 2012 S. Tax act online 2012 citizen after receiving it and before the end of the year. Tax act online 2012 Income from U. Tax act online 2012 S. Tax act online 2012 sources is taxable whether you receive it while a nonresident alien or a resident alien unless specifically exempt under the Internal Revenue Code or a tax treaty provision. Tax act online 2012 Generally, tax treaty provisions apply only to the part of the year you were a nonresident. Tax act online 2012 In certain cases, however, treaty provisions may apply while you were a resident alien. Tax act online 2012 See chapter 9 for more information. Tax act online 2012 When determining what income is taxed in the United States, you must consider exemptions under U. Tax act online 2012 S. Tax act online 2012 tax law as well as the reduced tax rates and exemptions provided by tax treaties between the United States and certain foreign countries. Tax act online 2012 For a further discussion of tax treaties, see chapter 9. Tax act online 2012 Restrictions for Dual-Status Taxpayers The following restrictions apply if you are filing a tax return for a dual-status tax year. Tax act online 2012 1) Standard deduction. Tax act online 2012   You cannot use the standard deduction allowed on Form 1040. Tax act online 2012 However, you can itemize any allowable deductions. Tax act online 2012 2) Exemptions. Tax act online 2012   Your total deduction for the exemptions for your spouse and allowable dependents cannot be more than your taxable income (figured without deducting personal exemptions) for the period you are a resident alien. Tax act online 2012 3) Head of household. Tax act online 2012   You cannot use the head of household Tax Table column or Tax Computation Worksheet. Tax act online 2012 4) Joint return. Tax act online 2012   You cannot file a joint return. Tax act online 2012 However, see Choosing Resident Alien Status under Dual-Status Aliens in chapter 1. Tax act online 2012 5) Tax rates. Tax act online 2012   If you are married and a nonresident of the United States for all or part of the tax year and you do not choose to file jointly as discussed in chapter 1, you must use the Tax Table column or Tax Computation Worksheet for married filing separately to figure your tax on income effectively connected with a U. Tax act online 2012 S. Tax act online 2012 trade or business. Tax act online 2012 You cannot use the Tax Table column or Tax Computation Worksheet for married filing jointly or single. Tax act online 2012 However, you may be able to file as single if you lived apart from your spouse during the last 6 months of the year and you are a: Married resident of Canada, Mexico, or South Korea, or Married U. Tax act online 2012 S. Tax act online 2012 national. Tax act online 2012  See the instructions for Form 1040NR to see if you qualify. Tax act online 2012    A U. Tax act online 2012 S. Tax act online 2012 national is an individual who, although not a U. Tax act online 2012 S. Tax act online 2012 citizen, owes his or her allegiance to the United States. Tax act online 2012 U. Tax act online 2012 S. Tax act online 2012 nationals include American Samoans and Northern Mariana Islanders who chose to become U. Tax act online 2012 S. Tax act online 2012 nationals instead of U. Tax act online 2012 S. Tax act online 2012 citizens. Tax act online 2012 6) Tax credits. Tax act online 2012   You cannot claim the education credits, the earned income credit, or the credit for the elderly or the disabled unless: You are married, and You choose to be treated as a resident for all of 2013 by filing a joint return with your spouse who is a U. Tax act online 2012 S. Tax act online 2012 citizen or resident, as discussed in chapter 1. Tax act online 2012 Exemptions As a dual-status taxpayer, you usually will be able to claim your own personal exemption. Tax act online 2012 Subject to the general rules for qualification, you can claim exemptions for your spouse and dependents when you figure taxable income for the part of the year you are a resident alien. Tax act online 2012 The amount you can claim for these exemptions is limited to your taxable income (figured before subtracting exemptions) for the part of the year you are a resident alien. Tax act online 2012 You cannot use exemptions (other than your own) to reduce taxable income to less than zero for that period. Tax act online 2012 Special rules apply to exemptions for the part of the tax year you are a nonresident alien if you are a: Resident of Canada, Mexico, or South Korea, U. Tax act online 2012 S. Tax act online 2012 national, or Student or business apprentice from India. Tax act online 2012 For more information, see Exemptions in chapter 5. Tax act online 2012 How To Figure Tax When you figure your U. Tax act online 2012 S. Tax act online 2012 tax for a dual-status year, you are subject to different rules for the part of the year you are a resident and the part of the year you are a nonresident. Tax act online 2012 Income All income for your period of residence and all income that is effectively connected with a trade or business in the United States for your period of nonresidence, after allowable deductions, is added and taxed at the rates that apply to U. Tax act online 2012 S. Tax act online 2012 citizens and residents. Tax act online 2012 Income that is not connected with a trade or business in the United States for your period of nonresidence is subject to the flat 30% rate or lower treaty rate. Tax act online 2012 You cannot take any deductions against this income. Tax act online 2012 Social security and railroad retirement benefits. Tax act online 2012   During the part of the year you are a nonresident alien, 85% of any U. Tax act online 2012 S. Tax act online 2012 social security benefits (and the equivalent portion of tier 1 railroad retirement benefits) you receive is subject to the flat 30% tax, unless exempt, or subject to a lower treaty rate. Tax act online 2012 (See The 30% Tax in chapter 4. Tax act online 2012 )   During the part of the year you are a resident alien, part of the social security and the equivalent portion of tier 1 railroad retirement benefits will be taxed at graduated rates if your modified adjusted gross income plus half of these benefits is more than a certain base amount. Tax act online 2012 Use the Social Security Benefits Worksheet in the Form 1040 instructions to help you figure the taxable part of your social security and equivalent tier 1 railroad retirement benefits for the part of the year you were a resident alien. Tax act online 2012 If you received U. Tax act online 2012 S. Tax act online 2012 social security benefits while you were a nonresident alien, the Social Security Administration will send you Form SSA-1042S showing your combined benefits for the entire year and the amount of tax withheld. Tax act online 2012 You will not receive separate statements for the benefits received during your periods of U. Tax act online 2012 S. Tax act online 2012 residence and nonresidence. Tax act online 2012 Therefore, it is important for you to keep careful records of these amounts. Tax act online 2012 You will need this information to properly complete your return and determine your tax liability. Tax act online 2012 If you received railroad retirement benefits while you were a nonresident alien, the U. Tax act online 2012 S. Tax act online 2012 Railroad Retirement Board (RRB) will send you Form RRB-1042S, Statement for Nonresident Alien Recipients of Payments by the Railroad Retirement Board, and/or Form RRB-1099-R, Annuities or Pensions by the Railroad Retirement Board. Tax act online 2012 If your country of legal residence changed or your rate of tax changed during the tax year, you may receive more than one form. Tax act online 2012 Tax Credits and Payments This discussion covers tax credits and payments for dual-status aliens. Tax act online 2012 Credits As a dual-status alien, you generally can claim tax credits using the same rules that apply to resident aliens. Tax act online 2012 There are certain restrictions that may apply. Tax act online 2012 These restrictions are discussed here, along with a brief explanation of credits often claimed by individuals. Tax act online 2012 Foreign tax credit. Tax act online 2012   If you have paid or are liable for the payment of income tax to a foreign country on income from foreign sources, you may be able to claim a credit for the foreign taxes. Tax act online 2012   If you claim the foreign tax credit, you generally must file Form 1116 with your income tax return. Tax act online 2012 For more information, see the Instructions for Form 1116 and Publication 514. Tax act online 2012 Child and dependent care credit. Tax act online 2012   You may qualify for this credit if you pay someone to care for your qualifying child who is under age 13, or your disabled dependent or disabled spouse so that you can work or look for work. Tax act online 2012 Generally, you must be able to claim an exemption for your dependent. Tax act online 2012   Married dual-status aliens can claim the credit only if they choose to file a joint return as discussed in chapter 1, or if they qualify as certain married individuals living apart. Tax act online 2012   The amount of your child and dependent care expense that qualifies for the credit in any tax year cannot be more than your earned income for that tax year. Tax act online 2012   For more information, get Publication 503 and Form 2441. Tax act online 2012 Retirement savings contributions credit. Tax act online 2012   You may qualify for this credit (also known as the saver's credit) if you made eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA) in 2013. Tax act online 2012 You cannot claim this credit if: You were born after January 1, 1996, You were a full-time student, Your exemption is claimed by someone else on his or her 2013 tax return, or Your adjusted gross income is more than $29,500. Tax act online 2012 Use Form 8880 to figure the credit. Tax act online 2012 For more information, see Publication 590. Tax act online 2012 Child tax credit. Tax act online 2012   You may be able to take this credit if you have a qualifying child. Tax act online 2012   A qualifying child for purposes of the child tax credit is a child who: Was under age 17 at the end of 2013. Tax act online 2012 Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). Tax act online 2012 Is a U. Tax act online 2012 S. Tax act online 2012 citizen, a U. Tax act online 2012 S. Tax act online 2012 national, or a resident alien. Tax act online 2012 Did not provide over half of his or her own support for 2013. Tax act online 2012 Lived with you more than half of 2013. Tax act online 2012 Temporary absences, such as for school, vacation, or medical care, count as time lived in the home. Tax act online 2012 Is claimed as a dependent on your return. Tax act online 2012 An adopted child is always treated as your own child. Tax act online 2012 An adopted child includes a child lawfully placed with you for legal adoption. Tax act online 2012   See your form instructions for additional details. Tax act online 2012 Adoption credit. Tax act online 2012   You may qualify to take a tax credit of up to $12,970 for qualifying expenses paid to adopt an eligible child. Tax act online 2012 This amount may be allowed for the adoption of a child with special needs regardless of whether you have qualifying expenses. Tax act online 2012 To claim the adoption credit, file Form 8839 with the U. Tax act online 2012 S. Tax act online 2012 income tax return that you file. Tax act online 2012   Married dual-status aliens can claim the credit only if they choose to file a joint return with a U. Tax act online 2012 S. Tax act online 2012 citizen or resident spouse as discussed in chapter 1, or if they qualify as certain married individuals living apart (see Married Persons Not Filing Jointly in the Form 8839 instructions). Tax act online 2012 Payments You can report as payments against your U. Tax act online 2012 S. Tax act online 2012 income tax liability certain taxes you paid, are considered to have paid, or that were withheld from your income. Tax act online 2012 These include: Tax withheld from wages earned in the United States, Taxes withheld at the source from various items of income from U. Tax act online 2012 S. Tax act online 2012 sources other than wages, Estimated tax paid with Form 1040-ES or Form 1040-ES (NR), and Tax paid with Form 1040-C, at the time of departure from the United States. Tax act online 2012 Forms To File The U. Tax act online 2012 S. Tax act online 2012 income tax return you must file as a dual-status alien depends on whether you are a resident alien or a nonresident alien at the end of the tax year. Tax act online 2012 Resident at end of year. Tax act online 2012   You must file Form 1040 if you are a dual-status taxpayer who becomes a resident during the year and who is a U. Tax act online 2012 S. Tax act online 2012 resident on the last day of the tax year. Tax act online 2012 Write “Dual-Status Return” across the top of the return. Tax act online 2012 Attach a statement to your return to show the income for the part of the year you are a nonresident. Tax act online 2012 You can use Form 1040NR or Form 1040NR-EZ as the statement, but be sure to mark “Dual-Status Statement” across the top. Tax act online 2012 Nonresident at end of year. Tax act online 2012   You must file Form 1040NR or Form 1040NR-EZ if you are a dual-status taxpayer who gives up residence in the United States during the year and who is not a U. Tax act online 2012 S. Tax act online 2012 resident on the last day of the tax year. Tax act online 2012 Write “Dual-Status Return” across the top of the return. Tax act online 2012 Attach a statement to your return to show the income for the part of the year you are a resident. Tax act online 2012 You can use Form 1040 as the statement, but be sure to mark “Dual-Status Statement” across the top. Tax act online 2012   If you expatriated or terminated your residency in 2013, you may be required to file an expatriation statement (Form 8854) with your tax return. Tax act online 2012 For more information, see Expatriation Tax in chapter 4. Tax act online 2012 Statement. Tax act online 2012   Any statement must have your name, address, and taxpayer identification number on it. Tax act online 2012 You do not need to sign a separate statement or schedule accompanying your return, because your signature on the return also applies to the supporting statements and schedules. Tax act online 2012 When and Where To File If you are a resident alien on the last day of your tax year and report your income on a calendar year basis, you must file no later than April 15 of the year following the close of your tax year. Tax act online 2012 If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 4th month following the close of your tax year. Tax act online 2012 In either case, file your return with the address for dual-status aliens shown on the back page of the Form 1040 instructions. Tax act online 2012 If you are a nonresident alien on the last day of your tax year and you report your income on a calendar year basis, you must file no later than April 15 of the year following the close of your tax year if you receive wages subject to withholding. Tax act online 2012 If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 4th month following the close of your tax year. Tax act online 2012 If you did not receive wages subject to withholding and you report your income on a calendar year basis, you must file no later than June 15 of the year following the close of your tax year. Tax act online 2012 If you report your income on other than a calendar year basis, file your return no later than the 15th day of the 6th month following the close of your tax year. Tax act online 2012 In any case, mail your return to:  Department of the Treasury Internal Revenue Service  Austin, TX 73301-0215 If enclosing a payment, mail your return to:  Internal Revenue Service  P. Tax act online 2012 O. Tax act online 2012 Box 1303 Charlotte, NC 28201-1303 If the regular due date for filing falls on a Saturday, Sunday, or legal holiday, the due date is the next day that is not a Saturday, Sunday, or legal holiday. Tax act online 2012 Prev  Up  Next   Home   More Online Publications
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Understanding Your CP2531 Notice

You need to contact us. We’ve received information not reported on your tax return.

What you need to do

  • Read your notice carefully – it explains the information we received. Complete the notice response form to indicate if you agree or disagree with the information reported.
  • Compare the information in the two columns - "Shown on return" and "Reported to IRS by others". Did you receive the income? If you received the income, was it reported on your tax return? IRS employees search the tax return to locate all income, but they may be unable to determine the source if some items are combined.
  • If it wasn't reported on your tax return, you don't need to file an amended return to report the income. Simply check the box indicating that you agree with the information reported by others, sign and date the CP 2531 response page and return it.
  • If you don't agree with the information we sent you, check the box indicating that you don’t agree with some or all of the information on the CP 2531 response page and return it with a signed statement explaining each item of discrepancy. If applicable, attach copies of documents to support the entries on the original return behind this.  

You may want to

  • Send us the name, address and taxpayer identification number of the other party that received the income if it isn't yours.  
  • Notify the payers to correct their records to show the name and taxpayer identification number of the person or business who actually received the income, so that future reports to us are accurate.  

Answers to Common Questions

Is this notice a bill?


No. It informs you about the information we’ve received.

Why did it take you so long to contact me about this matter?

Tax years generally end on Dec. 31, but we don't receive information from banks, businesses, and other payers until much later. Once we receive all the tax returns and payer information, we compare the information you reported with the information the third party payers provided to us. It can take 8 months or more to complete the review.

Should I call with my response or mail it in?

If you have a simple response, such as directing us to a specific line on your original return where you reported the income, you can call a Customer Service Representative and provide the information. A toll-free number is listed in the top right hand corner of the notice.   

A written response may be required if the issue is more involved, especially if you disagree with some of the proposed changes. You may want to mail copies of payer information documents, such as Form(s) 1099 or Schedule(s) K-1. Include any other letters or documents that support your position. You should submit a written statement to fully explain any unusual tax situations.

I need more time to find my records and go through them all.  Will you allow me additional time to respond?

Your response is due by the date shown on the notice or we'll use the proposed changes to continue processing the case. If you need more time to research your records, you can call the toll-free number at the top of your notice to request a 30 day extension. We may also provide additional time to respond if you have unusual circumstances.  

What should I do to avoid problems like this in the future?

Keep accurate payment information from banks and other payers to verify you've received all payment information for filing your return. Review the documents to be sure they show your most current address.  

Take the following actions when filing your tax return to avoid similar issues in the future:

  • Report specific income type on the correct line on the Form 1120, U.S. Corporation Income Tax Return. For example, rental income should be claimed on Form 1120, line 6 (Gross Rents).  For additional information, please see the reporting instructions for Form 1120.
  • If you report income on a line not traditionally reserved for that type of income, please provide us with a statement indicating where the income was reported. For example, your business is related to investment activity and you're reporting all interest income (including amounts reported to the IRS on Form 1099-INT, Interest Income) with your gross receipts on Form 1120, line 1.
  • Always attach a statement identifying the source of the amount reported on Form 1120, line 10 (Other Income).
  • Provide an attached statement explaining your percentage of gross proceeds (ex; reported to us on Form 1099-MISC) that you would be liable to claim on your tax return. 
  • Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient.  You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts applicable to each.  

Tax publications you may find useful

 

Page Last Reviewed or Updated: 28-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Tax Act Online 2012

Tax act online 2012 1. Tax act online 2012   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Tax act online 2012  You can set up and make contributions to an IRA if you receive taxable compensation. Tax act online 2012 Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Tax act online 2012 For more information about IRAs, see Publication 590. Tax act online 2012 Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Tax act online 2012 The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Tax act online 2012 Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Tax act online 2012 Many types of educational assistance are tax free if they meet the requirements discussed here. Tax act online 2012 Special rules apply to U. Tax act online 2012 S. Tax act online 2012 citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Tax act online 2012 For information about these rules, see Publication 54, Tax Guide for U. Tax act online 2012 S. Tax act online 2012 Citizens and Resident Aliens Abroad. Tax act online 2012 Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Tax act online 2012 A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Tax act online 2012 Amount of scholarship or fellowship. Tax act online 2012   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Tax act online 2012 This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Tax act online 2012 The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Tax act online 2012 Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Tax act online 2012 Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Tax act online 2012 A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Tax act online 2012 (But for exceptions, see Payment for services,later. Tax act online 2012 Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Tax act online 2012 Candidate for a degree. Tax act online 2012   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Tax act online 2012 Eligible educational institution. Tax act online 2012   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Tax act online 2012 Qualified education expenses. Tax act online 2012   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Tax act online 2012 These items must be required of all students in your course of instruction. Tax act online 2012 Expenses that do not qualify. Tax act online 2012   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Tax act online 2012 Payment for services. Tax act online 2012   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Tax act online 2012 This applies even if all candidates for a degree must perform the services to receive the degree. Tax act online 2012 (See exceptions next. Tax act online 2012 ) Exceptions. Tax act online 2012   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax act online 2012 Example 1. Tax act online 2012 You received a scholarship of $2,500. Tax act online 2012 The scholarship was not received under either of the exceptions mentioned above. Tax act online 2012 As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Tax act online 2012 Of the $2,500 scholarship, $1,000 represents payment for teaching. Tax act online 2012 The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Tax act online 2012 Your qualified education expenses were at least $1,500. Tax act online 2012 Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Tax act online 2012 The $1,000 you received for teaching is taxable. Tax act online 2012 Example 2. Tax act online 2012 You are a candidate for a degree at a medical school. Tax act online 2012 You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Tax act online 2012 The terms of your scholarship require you to perform future services. Tax act online 2012 A substantial penalty applies if you do not comply. Tax act online 2012 The entire amount of your grant is taxable as payment for services in the year it is received. Tax act online 2012 Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Tax act online 2012 Worksheet 1-1. Tax act online 2012    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Tax act online 2012    Worksheet 1-1. Tax act online 2012 Taxable Scholarship and Fellowship Income 1. Tax act online 2012 Enter the total amount of any scholarship or fellowship for 2013. Tax act online 2012 See Amount of scholarship or fellowship, earlier. Tax act online 2012 1. Tax act online 2012       If you are a degree candidate at an eligible educational institution, go to line 2. Tax act online 2012 If you are not a degree candidate at an eligible educational institution, stop here. Tax act online 2012 The entire amount is taxable. Tax act online 2012 For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Tax act online 2012       2. Tax act online 2012 Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Tax act online 2012 (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax act online 2012 ) 2. Tax act online 2012     3. Tax act online 2012 Subtract line 2 from line 1 3. Tax act online 2012     4. Tax act online 2012 Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Tax act online 2012     5. Tax act online 2012 Subtract line 4 from line 3 5. Tax act online 2012     6. Tax act online 2012 Enter the amount of your qualified education expenses 6. Tax act online 2012     7. Tax act online 2012 Enter the smaller of line 5 or line 6. Tax act online 2012 This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Tax act online 2012     8. Tax act online 2012 Subtract line 7 from line 5 8. Tax act online 2012     9. Tax act online 2012 Taxable part. Tax act online 2012 Add lines 2, 4, and 8. Tax act online 2012 See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Tax act online 2012     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Tax act online 2012 You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Tax act online 2012 Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Tax act online 2012 If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Tax act online 2012 If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Tax act online 2012 You must report the taxable amount whether or not you received a Form W-2. Tax act online 2012 If you receive an incorrect Form W-2, ask the payer for a corrected one. Tax act online 2012 For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Tax act online 2012 How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Tax act online 2012 Form 1040EZ. Tax act online 2012   If you file Form 1040EZ, include the taxable amount in the total on line 1. Tax act online 2012 If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Tax act online 2012 Form 1040A. Tax act online 2012   If you file Form 1040A, include the taxable amount in the total on line 7. Tax act online 2012 If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Tax act online 2012 Form 1040. Tax act online 2012   If you file Form 1040, include the taxable amount in the total on line 7. Tax act online 2012 If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Tax act online 2012 Schedule SE (Form 1040). Tax act online 2012   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Tax act online 2012 If your net earnings are $400 or more, you must pay self-employment tax. Tax act online 2012 Use Schedule SE, Self-Employment Tax, to figure this tax. Tax act online 2012 Form 1040NR. Tax act online 2012   If you file Form 1040NR, report the taxable amount on line 12. Tax act online 2012 Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Tax act online 2012 S. Tax act online 2012 Source Income Subject to Withholding. Tax act online 2012 See the Instructions for Form 1040NR for more information. Tax act online 2012 Form 1040NR-EZ. Tax act online 2012   If you file Form 1040NR-EZ, report the taxable amount on line 5. Tax act online 2012 Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Tax act online 2012 See the Instructions for Form 1040NR-EZ for more information. Tax act online 2012 Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Tax act online 2012 Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Tax act online 2012 Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Tax act online 2012 They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Tax act online 2012 Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Tax act online 2012 Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Tax act online 2012 Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Tax act online 2012 Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Tax act online 2012 Do not include these payments as income on your federal tax return. Tax act online 2012 If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Tax act online 2012 This applies only to the part of your VA payments that is required to be used for education expenses. Tax act online 2012 You may want to visit the Veteran's Administration website at www. Tax act online 2012 gibill. Tax act online 2012 va. Tax act online 2012 gov for specific information about the various VA benefits for education. Tax act online 2012 Example. Tax act online 2012 You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Tax act online 2012 Neither of these benefits is taxable and you do not report them on your tax return. Tax act online 2012 You also want to claim an American opportunity credit on your return. Tax act online 2012 You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Tax act online 2012 To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Tax act online 2012 You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Tax act online 2012 Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Tax act online 2012 This is called a “tuition reduction. Tax act online 2012 ” You do not have to include a qualified tuition reduction in your income. Tax act online 2012 A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Tax act online 2012 You do not have to use the tuition reduction at the eligible educational institution from which you received it. Tax act online 2012 In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Tax act online 2012 The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Tax act online 2012 You must include in your income any tuition reduction you receive that is payment for your services. Tax act online 2012 Eligible educational institution. Tax act online 2012   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Tax act online 2012 Officers, owners, and highly compensated employees. Tax act online 2012   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Tax act online 2012 This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Tax act online 2012 The group must be defined under a reasonable classification set up by the employer. Tax act online 2012 The classification must not discriminate in favor of owners, officers, or highly compensated employees. Tax act online 2012 Payment for services. Tax act online 2012   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Tax act online 2012 This applies even if all candidates for a degree must perform the services to receive the degree. Tax act online 2012 (See below for exceptions. Tax act online 2012 ) Exceptions. Tax act online 2012   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax act online 2012 Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Tax act online 2012 You are an employee of the eligible educational institution. Tax act online 2012 You were an employee of the eligible educational institution, but you retired or left on disability. Tax act online 2012 You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Tax act online 2012 You are the dependent child or spouse of an individual described in (1) through (3), above. Tax act online 2012 Child of deceased parents. Tax act online 2012   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Tax act online 2012 Child of divorced parents. Tax act online 2012   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Tax act online 2012 Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Tax act online 2012 It is provided by an eligible educational institution. Tax act online 2012 You are a graduate student who performs teaching or research activities for the educational institution. Tax act online 2012 You must include in income any other tuition reductions for graduate education that you receive. Tax act online 2012 How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Tax act online 2012 Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Tax act online 2012 Prev  Up  Next   Home   More Online Publications