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Tax Act Online 2012

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Tax Act Online 2012

Tax act online 2012 5. Tax act online 2012   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. Tax act online 2012 Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. Tax act online 2012   If you are a U. Tax act online 2012 S. Tax act online 2012 citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. Tax act online 2012 S. Tax act online 2012 law. Tax act online 2012 This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. Tax act online 2012 This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Tax act online 2012 If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. Tax act online 2012 For details, 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 Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. Tax act online 2012 The following topics are included. Tax act online 2012 Bonuses and awards. Tax act online 2012 Special rules for certain employees. Tax act online 2012 Sickness and injury benefits. Tax act online 2012 The chapter explains what income is included in the employee's gross income and what is not included. Tax act online 2012 Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. Tax act online 2012 Form W-2. Tax act online 2012    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. Tax act online 2012 Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. Tax act online 2012   If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Tax act online 2012 These wages must be included on line 7 of Form 1040. Tax act online 2012 See Form 8919 for more information. Tax act online 2012 Childcare providers. Tax act online 2012    If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Tax act online 2012 If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Tax act online 2012 You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Tax act online 2012 Babysitting. Tax act online 2012   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Tax act online 2012 Miscellaneous Compensation This section discusses different types of employee compensation. Tax act online 2012 Advance commissions and other earnings. Tax act online 2012   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Tax act online 2012    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Tax act online 2012 If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. Tax act online 2012 See Repayments in chapter 12. Tax act online 2012 Allowances and reimbursements. Tax act online 2012    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. Tax act online 2012 If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Tax act online 2012 Back pay awards. Tax act online 2012    Include in income amounts you are awarded in a settlement or judgment for back pay. Tax act online 2012 These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Tax act online 2012 They should be reported to you by your employer on Form W-2. Tax act online 2012 Bonuses and awards. Tax act online 2012   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Tax act online 2012 These include prizes such as vacation trips for meeting sales goals. Tax act online 2012 If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Tax act online 2012 However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Tax act online 2012 Employee achievement award. Tax act online 2012   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Tax act online 2012 However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Tax act online 2012 Your employer can tell you whether your award is a qualified plan award. Tax act online 2012 Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Tax act online 2012   However, the exclusion does not apply to the following awards: A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Tax act online 2012 A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Tax act online 2012 Example. Tax act online 2012 Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Tax act online 2012 Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Tax act online 2012 However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income. Tax act online 2012 Differential wage payments. Tax act online 2012   This is any payment made to you by an employer for any period during which you are, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages you would have received from the employer during that period. Tax act online 2012 These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Tax act online 2012 The payments are reported as wages on Form W-2. Tax act online 2012 Government cost-of-living allowances. Tax act online 2012   Most payments received by U. Tax act online 2012 S. Tax act online 2012 Government civilian employees for working abroad are taxable. Tax act online 2012 However, certain cost-of-living allowances are tax free. Tax act online 2012 Publication 516, U. Tax act online 2012 S. Tax act online 2012 Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Tax act online 2012 Nonqualified deferred compensation plans. Tax act online 2012   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Tax act online 2012 This amount is shown on Form W-2, box 12, using code Y. Tax act online 2012 This amount is not included in your income. Tax act online 2012   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Tax act online 2012 This amount is included in your wages shown on Form W-2, box 1. Tax act online 2012 It is also shown on Form W-2, box 12, using code Z. Tax act online 2012 Note received for services. Tax act online 2012    If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Tax act online 2012 When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Tax act online 2012 Do not include that part again in your income. Tax act online 2012 Include the rest of the payment in your income in the year of payment. Tax act online 2012   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Tax act online 2012 Severance pay. Tax act online 2012   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Tax act online 2012 Accrued leave payment. Tax act online 2012    If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Tax act online 2012   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Tax act online 2012 You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Tax act online 2012 Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2. Tax act online 2012 Outplacement services. Tax act online 2012   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Tax act online 2012    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Tax act online 2012 Sick pay. Tax act online 2012   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Tax act online 2012 In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. Tax act online 2012 A state sickness or disability fund. Tax act online 2012 An association of employers or employees. Tax act online 2012 An insurance company, if your employer paid for the plan. Tax act online 2012 However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Tax act online 2012 For more information, see Publication 525. Tax act online 2012 Social security and Medicare taxes paid by employer. Tax act online 2012   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Tax act online 2012 The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Tax act online 2012 However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Tax act online 2012 Stock appreciation rights. Tax act online 2012   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Tax act online 2012 When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Tax act online 2012 You include the cash payment in your income in the year you use the right. Tax act online 2012 Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Tax act online 2012 Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Tax act online 2012 Accounting period. Tax act online 2012   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Tax act online 2012 Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Tax act online 2012 The general rule: benefits are reported for a full calendar year (January 1–December 31). Tax act online 2012 The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Tax act online 2012 For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Tax act online 2012  Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Tax act online 2012   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Tax act online 2012 Form W-2. Tax act online 2012   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Tax act online 2012 Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Tax act online 2012 However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Tax act online 2012 Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Tax act online 2012 Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . Tax act online 2012 For information on the items covered in this section, other than Long-term care coverage, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Tax act online 2012 Long-term care coverage. Tax act online 2012    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Tax act online 2012 However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Tax act online 2012 This amount will be reported as wages in box 1 of your Form W-2. Tax act online 2012   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. Tax act online 2012 Archer MSA contributions. Tax act online 2012    Contributions by your employer to your Archer MSA generally are not included in your income. Tax act online 2012 Their total will be reported in box 12 of Form W-2 with code R. Tax act online 2012 You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Tax act online 2012 File the form with your return. Tax act online 2012 Health flexible spending arrangement (health FSA). Tax act online 2012   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Tax act online 2012 Note. Tax act online 2012 Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Tax act online 2012 The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Tax act online 2012 For more information, see Notice 2012-40, 2012-26 I. Tax act online 2012 R. Tax act online 2012 B. Tax act online 2012 1046, available at www. Tax act online 2012 irs. Tax act online 2012 gov/irb/2012-26 IRB/ar09. Tax act online 2012 html. Tax act online 2012 Health reimbursement arrangement (HRA). Tax act online 2012   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Tax act online 2012 Health savings accounts (HSA). Tax act online 2012   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Tax act online 2012 Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Tax act online 2012 Contributions made by your employer are not included in your income. Tax act online 2012 Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Tax act online 2012 Distributions not used for qualified medical expenses are included in your income. Tax act online 2012 See Publication 969 for the requirements of an HSA. Tax act online 2012   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Tax act online 2012 The contributions are treated as a distribution of money and are not included in the partner's gross income. Tax act online 2012 Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Tax act online 2012 In both situations, the partner can deduct the contribution made to the partner's HSA. Tax act online 2012   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Tax act online 2012 The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Tax act online 2012 Qualified HSA funding distribution. Tax act online 2012   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Tax act online 2012 See Publication 590 for the requirements for these qualified HSA funding distributions. Tax act online 2012 Failure to maintain eligibility. Tax act online 2012   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Tax act online 2012 If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Tax act online 2012 This income is also subject to an additional 10% tax. Tax act online 2012 Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Tax act online 2012 See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Tax act online 2012 Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Tax act online 2012 They also are included as social security and Medicare wages in boxes 3 and 5. Tax act online 2012 However, they are not included as wages in box 1. Tax act online 2012 To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Tax act online 2012 File the form with your return. Tax act online 2012 De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Tax act online 2012 In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Tax act online 2012 Holiday gifts. Tax act online 2012   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Tax act online 2012 However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Tax act online 2012 Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Tax act online 2012 For more information, see Publication 970, Tax Benefits for Education. Tax act online 2012 Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Tax act online 2012 However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Tax act online 2012 For exceptions, see Entire cost excluded , and Entire cost taxed , later. Tax act online 2012 If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Tax act online 2012 Also, it is shown separately in box 12 with code C. Tax act online 2012 Group-term life insurance. Tax act online 2012   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Tax act online 2012 Permanent benefits. Tax act online 2012   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Tax act online 2012 Your employer should be able to tell you the amount to include in your income. Tax act online 2012 Accidental death benefits. Tax act online 2012   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Tax act online 2012 Former employer. Tax act online 2012   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Tax act online 2012 Also, it is shown separately in box 12 with code C. Tax act online 2012 Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Tax act online 2012 You must pay these taxes with your income tax return. Tax act online 2012 Include them on line 60, Form 1040, and follow the instructions for line 60. Tax act online 2012 For more information, see the Instructions for Form 1040. Tax act online 2012 Two or more employers. Tax act online 2012   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Tax act online 2012 If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Tax act online 2012 You must figure how much to include in your income. Tax act online 2012 Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Tax act online 2012 Figuring the taxable cost. Tax act online 2012   Use the following worksheet to figure the amount to include in your income. Tax act online 2012     Worksheet 5-1. Tax act online 2012 Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Tax act online 2012 Enter the total amount of your insurance coverage from your employer(s) 1. Tax act online 2012   2. Tax act online 2012 Limit on exclusion for employer-provided group-term life insurance coverage 2. Tax act online 2012 50,000 3. Tax act online 2012 Subtract line 2 from line 1 3. Tax act online 2012   4. Tax act online 2012 Divide line 3 by $1,000. Tax act online 2012 Figure to the nearest tenth 4. Tax act online 2012   5. Tax act online 2012 Go to Table 5-1. Tax act online 2012 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Tax act online 2012   6. Tax act online 2012 Multiply line 4 by line 5 6. Tax act online 2012   7. Tax act online 2012 Enter the number of full months of coverage at this cost. Tax act online 2012 7. Tax act online 2012   8. Tax act online 2012 Multiply line 6 by line 7 8. Tax act online 2012   9. Tax act online 2012 Enter the premiums you paid per month 9. Tax act online 2012       10. Tax act online 2012 Enter the number of months you paid the premiums 10. Tax act online 2012       11. Tax act online 2012 Multiply line 9 by line 10. Tax act online 2012 11. Tax act online 2012   12. Tax act online 2012 Subtract line 11 from line 8. Tax act online 2012 Include this amount in your income as wages 12. Tax act online 2012      Table 5-1. Tax act online 2012 Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. Tax act online 2012 05 25 through 29 . Tax act online 2012 06 30 through 34 . Tax act online 2012 08 35 through 39 . Tax act online 2012 09 40 through 44 . Tax act online 2012 10 45 through 49 . Tax act online 2012 15 50 through 54 . Tax act online 2012 23 55 through 59 . Tax act online 2012 43 60 through 64 . Tax act online 2012 66 65 through 69 1. Tax act online 2012 27 70 and older 2. Tax act online 2012 06 Example. Tax act online 2012 You are 51 years old and work for employers A and B. Tax act online 2012 Both employers provide group-term life insurance coverage for you for the entire year. Tax act online 2012 Your coverage is $35,000 with employer A and $45,000 with employer B. Tax act online 2012 You pay premiums of $4. Tax act online 2012 15 a month under the employer B group plan. Tax act online 2012 You figure the amount to include in your income as shown in Worksheet 5-1. Tax act online 2012 Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. Tax act online 2012 Worksheet 5-1. Tax act online 2012 Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. Tax act online 2012 Enter the total amount of your insurance coverage from your employer(s) 1. Tax act online 2012 80,000 2. Tax act online 2012 Limit on exclusion for employer-provided group-term life insurance coverage 2. Tax act online 2012 50,000 3. Tax act online 2012 Subtract line 2 from line 1 3. Tax act online 2012 30,000 4. Tax act online 2012 Divide line 3 by $1,000. Tax act online 2012 Figure to the nearest tenth 4. Tax act online 2012 30. Tax act online 2012 0 5. Tax act online 2012 Go to Table 5-1. Tax act online 2012 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Tax act online 2012 . Tax act online 2012 23 6. Tax act online 2012 Multiply line 4 by line 5 6. Tax act online 2012 6. Tax act online 2012 90 7. Tax act online 2012 Enter the number of full months of coverage at this cost. Tax act online 2012 7. Tax act online 2012 12 8. Tax act online 2012 Multiply line 6 by line 7 8. Tax act online 2012 82. Tax act online 2012 80 9. Tax act online 2012 Enter the premiums you paid per month 9. Tax act online 2012 4. Tax act online 2012 15     10. Tax act online 2012 Enter the number of months you paid the premiums 10. Tax act online 2012 12     11. Tax act online 2012 Multiply line 9 by line 10. Tax act online 2012 11. Tax act online 2012 49. Tax act online 2012 80 12. Tax act online 2012 Subtract line 11 from line 8. Tax act online 2012 Include this amount in your income as wages 12. Tax act online 2012 33. Tax act online 2012 00 Entire cost excluded. Tax act online 2012   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Tax act online 2012 You are permanently and totally disabled and have ended your employment. Tax act online 2012 Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Tax act online 2012 A charitable organization (defined in chapter 24) to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Tax act online 2012 (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Tax act online 2012 ) The plan existed on January 1, 1984, and You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Tax act online 2012 Entire cost taxed. Tax act online 2012   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Tax act online 2012 You are a key employee and your employer's plan discriminates in favor of key employees. Tax act online 2012 Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Tax act online 2012 Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Tax act online 2012 You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Tax act online 2012 Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Tax act online 2012 A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Tax act online 2012 Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Tax act online 2012 However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Tax act online 2012 Exclusion limit. Tax act online 2012   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Tax act online 2012   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Tax act online 2012   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Tax act online 2012   If the benefits have a value that is more than these limits, the excess must be included in your income. Tax act online 2012 You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Tax act online 2012 Commuter highway vehicle. Tax act online 2012   This is a highway vehicle that seats at least six adults (not including the driver). Tax act online 2012 At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Tax act online 2012 Transit pass. Tax act online 2012   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Tax act online 2012 Qualified parking. Tax act online 2012   This is parking provided to an employee at or near the employer's place of business. Tax act online 2012 It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Tax act online 2012 It does not include parking at or near the employee's home. Tax act online 2012 Qualified bicycle commuting. Tax act online 2012   This is reimbursement based on the number of qualified bicycle commuting months for the year. Tax act online 2012 A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Tax act online 2012 The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Tax act online 2012 Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Tax act online 2012 (Your employer can tell you whether your retirement plan is qualified. Tax act online 2012 ) However, the cost of life insurance coverage included in the plan may have to be included. Tax act online 2012 See Group-Term Life Insurance , earlier, under Fringe Benefits. Tax act online 2012 If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Tax act online 2012 However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Tax act online 2012 For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. Tax act online 2012 S. Tax act online 2012 Civil Service Retirement Benefits, if you are a federal employee or retiree). Tax act online 2012 Elective deferrals. Tax act online 2012   If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Tax act online 2012 The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Tax act online 2012 An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Tax act online 2012 However, it is included in wages subject to social security and Medicare taxes. Tax act online 2012   Elective deferrals include elective contributions to the following retirement plans. Tax act online 2012 Cash or deferred arrangements (section 401(k) plans). Tax act online 2012 The Thrift Savings Plan for federal employees. Tax act online 2012 Salary reduction simplified employee pension plans (SARSEP). Tax act online 2012 Savings incentive match plans for employees (SIMPLE plans). Tax act online 2012 Tax-sheltered annuity plans (403(b) plans). Tax act online 2012 Section 501(c)(18)(D) plans. Tax act online 2012 Section 457 plans. Tax act online 2012 Qualified automatic contribution arrangements. Tax act online 2012   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Tax act online 2012 You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Tax act online 2012 The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Tax act online 2012   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Tax act online 2012 Overall limit on deferrals. Tax act online 2012   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3) and (5) above. Tax act online 2012 The limit for SIMPLE plans is $12,000. Tax act online 2012 The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. Tax act online 2012 The limit for section 457 plans is the lesser of your includible compensation or $17,500. Tax act online 2012 Amounts deferred under specific plan limits are part of the overall limit on deferrals. Tax act online 2012 Designated Roth contributions. Tax act online 2012   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Tax act online 2012 Designated Roth contributions are treated as elective deferrals, except that they are included in income. Tax act online 2012 Excess deferrals. Tax act online 2012   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Tax act online 2012 However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Tax act online 2012   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. Tax act online 2012 See Publication 525 for a discussion of the tax treatment of excess deferrals. Tax act online 2012 Catch-up contributions. Tax act online 2012   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. Tax act online 2012 Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option. Tax act online 2012 However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. Tax act online 2012 Your employer can tell you which kind of option you hold. Tax act online 2012 For more information, see Publication 525. Tax act online 2012 Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. Tax act online 2012 However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. Tax act online 2012 (You can choose to include the value of the property in your income in the year it is transferred to you. Tax act online 2012 ) For more information, see Restricted Property in Publication 525. Tax act online 2012 Dividends received on restricted stock. Tax act online 2012   Dividends you receive on restricted stock are treated as compensation and not as dividend income. Tax act online 2012 Your employer should include these payments on your Form W-2. Tax act online 2012 Stock you chose to include in income. Tax act online 2012   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. Tax act online 2012 Report them on your return as dividends. Tax act online 2012 For a discussion of dividends, see chapter 8. Tax act online 2012    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. Tax act online 2012 Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. Tax act online 2012 Clergy Generally, 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. Tax act online 2012 , in addition to your salary. Tax act online 2012 If the offering is made to the religious institution, it is not taxable to you. Tax act online 2012 If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. Tax act online 2012 However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Tax act online 2012 See chapter 24. Tax act online 2012 Pension. Tax act online 2012    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. Tax act online 2012 It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Tax act online 2012 Housing. Tax act online 2012    Special rules for housing apply to members of the clergy. Tax act online 2012 Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. Tax act online 2012 However, the exclusion cannot be more than the reasonable pay for your service. Tax act online 2012 If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. Tax act online 2012 The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. Tax act online 2012 However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. Tax act online 2012 For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Tax act online 2012 Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. Tax act online 2012 Services performed for the order. Tax act online 2012   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. Tax act online 2012   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. Tax act online 2012 Any wages you earn as an agent of an order that you turn over to the order are not included in your income. Tax act online 2012 Example. Tax act online 2012 You are a member of a church order and have taken a vow of poverty. Tax act online 2012 You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. Tax act online 2012 You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. Tax act online 2012 However, you remain under the general direction and control of the order. Tax act online 2012 You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. Tax act online 2012 Services performed outside the order. Tax act online 2012   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. Tax act online 2012 They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. Tax act online 2012 If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. Tax act online 2012 Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. Tax act online 2012 Example. Tax act online 2012 Mark Brown is a member of a religious order and has taken a vow of poverty. Tax act online 2012 He renounces all claims to his earnings and turns over his earnings to the order. Tax act online 2012 Mark is a schoolteacher. Tax act online 2012 He was instructed by the superiors of the order to get a job with a private tax-exempt school. Tax act online 2012 Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. Tax act online 2012 Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. Tax act online 2012 The wages Mark earns working for the school are included in his income. Tax act online 2012 Foreign Employer Special rules apply if you work for a foreign employer. Tax act online 2012 U. Tax act online 2012 S. Tax act online 2012 citizen. Tax act online 2012   If you are a U. Tax act online 2012 S. Tax act online 2012 citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. Tax act online 2012 Social security and Medicare taxes. Tax act online 2012   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. Tax act online 2012 However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. Tax act online 2012 This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. Tax act online 2012 Employees of international organizations or foreign governments. Tax act online 2012   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Tax act online 2012   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. Tax act online 2012 You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Tax act online 2012 Your work is like the work done by employees of the United States in foreign countries. Tax act online 2012 The foreign government gives an equal exemption to employees of the United States in its country. Tax act online 2012 Waiver of alien status. Tax act online 2012   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. Tax act online 2012 See Foreign Employer in Publication 525. Tax act online 2012 Employment abroad. Tax act online 2012   For information on the tax treatment of income earned abroad, see Publication 54. Tax act online 2012 Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. Tax act online 2012 Allowances generally are not taxed. Tax act online 2012 For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. Tax act online 2012 Differential wage payments. Tax act online 2012   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. Tax act online 2012 These wages are subject to income tax withholding and are reported on a Form W-2. Tax act online 2012 See the discussion under Miscellaneous Compensation , earlier. Tax act online 2012 Military retirement pay. Tax act online 2012   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Tax act online 2012 Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. Tax act online 2012   For more detailed discussion of survivor annuities, see chapter 10. Tax act online 2012 Disability. Tax act online 2012   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. Tax act online 2012 Veterans' benefits. Tax act online 2012   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). Tax act online 2012 The following amounts paid to veterans or their families are not taxable. Tax act online 2012 Education, training, and subsistence allowances. Tax act online 2012 Disability compensation and pension payments for disabilities paid either to veterans or their families. Tax act online 2012 Grants for homes designed for wheelchair living. Tax act online 2012 Grants for motor vehicles for veterans who lost their sight or the use of their limbs. Tax act online 2012 Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. Tax act online 2012 Interest on insurance dividends you leave on deposit with the VA. Tax act online 2012 Benefits under a dependent-care assistance program. Tax act online 2012 The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. Tax act online 2012 Payments made under the compensated work therapy program. Tax act online 2012 Any bonus payment by a state or political subdivision because of service in a combat zone. Tax act online 2012 Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. Tax act online 2012 Peace Corps. Tax act online 2012   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. Tax act online 2012 Taxable allowances. Tax act online 2012   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. Tax act online 2012 Living allowances designated by the Director of the Peace Corps as basic compensation. Tax act online 2012 These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. Tax act online 2012 Leave allowances. Tax act online 2012 Readjustment allowances or termination payments. Tax act online 2012 These are considered received by you when credited to your account. Tax act online 2012 Example. Tax act online 2012 Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. Tax act online 2012 Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. Tax act online 2012 Volunteers in Service to America (VISTA). Tax act online 2012   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. Tax act online 2012 National Senior Services Corps programs. Tax act online 2012   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. Tax act online 2012 Retired Senior Volunteer Program (RSVP). Tax act online 2012 Foster Grandparent Program. Tax act online 2012 Senior Companion Program. Tax act online 2012 Service Corps of Retired Executives (SCORE). Tax act online 2012   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. Tax act online 2012 Volunteer tax counseling. Tax act online 2012   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). Tax act online 2012   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. Tax act online 2012 See chapter 24. Tax act online 2012 Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. Tax act online 2012 In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Tax act online 2012 If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Tax act online 2012 However, certain payments may not be taxable to you. Tax act online 2012 Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. Tax act online 2012 In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. Tax act online 2012 Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. Tax act online 2012 Cost paid by you. Tax act online 2012   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Tax act online 2012 If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Tax act online 2012 See Reimbursement in a later year in chapter 21. Tax act online 2012 Cafeteria plans. Tax act online 2012   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. Tax act online 2012 If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. Tax act online 2012 Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Tax act online 2012 You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. Tax act online 2012 Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Tax act online 2012 You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Tax act online 2012 For information on this credit and the definition of permanent and total disability, see chapter 33. Tax act online 2012 Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Tax act online 2012 Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Tax act online 2012 The rules for reporting pensions are explained in How To Report in chapter 10. Tax act online 2012 For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. Tax act online 2012 Retirement and profit-sharing plans. Tax act online 2012   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Tax act online 2012 The payments must be reported as a pension or annuity. Tax act online 2012 For more information on pensions, see chapter 10. Tax act online 2012 Accrued leave payment. Tax act online 2012   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Tax act online 2012 The payment is not a disability payment. Tax act online 2012 Include it in your income in the tax year you receive it. Tax act online 2012 Military and Government Disability Pensions Certain military and government disability pensions are not taxable. Tax act online 2012 Service-connected disability. Tax act online 2012   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. Tax act online 2012 The armed forces of any country. Tax act online 2012 The National Oceanic and Atmospheric Administration. Tax act online 2012 The Public Health Service. Tax act online 2012 The Foreign Service. Tax act online 2012 Conditions for exclusion. Tax act online 2012   Do not include the disability payments in your income if any of the following conditions apply. Tax act online 2012 You were entitled to receive a disability payment before September 25, 1975. Tax act online 2012 You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. Tax act online 2012 You receive the disability payments for a combat-related injury. Tax act online 2012 This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. Tax act online 2012 You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. Tax act online 2012 Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. Tax act online 2012 Pension based on years of service. Tax act online 2012   If you receive a disability pension based on years of service, in most cases you must include it in your income. Tax act online 2012 However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. Tax act online 2012 You must include the rest of your pension in your income. Tax act online 2012 Retroactive VA determination. Tax act online 2012   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. Tax act online 2012 You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. Tax act online 2012 You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. Tax act online 2012 The letter must show the amount withheld and the effective date of the benefit. Tax act online 2012   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. Tax act online 2012 However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. Tax act online 2012 Special statute of limitations. Tax act online 2012   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. Tax act online 2012 However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. Tax act online 2012 This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. Tax act online 2012 Example. Tax act online 2012 You retired in 2007 and receive a pension based on your years of service. Tax act online 2012 On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. Tax act online 2012 Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. Tax act online 2012 However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. Tax act online 2012 You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. Tax act online 2012 Terrorist attack or military action. Tax act online 2012   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. Tax act online 2012 Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. Tax act online 2012 Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. Tax act online 2012 To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. Tax act online 2012 A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. Tax act online 2012 The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Tax act online 2012 Qualified long-term care services. Tax act online 2012   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. Tax act online 2012 Chronically ill individual. Tax act online 2012   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. Tax act online 2012 Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Tax act online 2012 An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Tax act online 2012 Limit on exclusion. Tax act online 2012   You generally can exclude from gross income up to $320 a day for 2013. Tax act online 2012 See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. Tax act online 2012 Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Tax act online 2012 The exemption also applies to your survivors. Tax act online 2012 The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Tax act online 2012 If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Tax act online 2012 For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Tax act online 2012 Return to work. Tax act online 2012    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Tax act online 2012 Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Tax act online 2012 Railroad sick pay. Tax act online 2012    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. Tax act online 2012 However, do not include them in your income if they are for an on-the-job injury. Tax act online 2012   If you received income because of a disability, see Disability Pensions , earlier. Tax act online 2012 Federal Employees' Compensation Act (FECA). Tax act online 2012   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Tax act online 2012 However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Tax act online 2012 Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. Tax act online 2012 Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Tax act online 2012    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Tax act online 2012 For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. Tax act online 2012    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. Tax act online 2012 It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). Tax act online 2012 If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. Tax act online 2012 Do not deduct it separately. Tax act online 2012 Other compensation. Tax act online 2012   Many other amounts you receive as compensation for sickness or injury are not taxable. Tax act online 2012 These include the following amounts. Tax act online 2012 Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. Tax act online 2012 Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Tax act online 2012 Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Tax act online 2012 Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. Tax act online 2012 This compensation must be based only on the injury and not on the period of your absence from work. Tax act online 2012 These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Tax act online 2012 Reimbursement for medical care. Tax act online 2012    A reimbursement for medical care is generally not taxable. Tax act online 2012 However, it may reduce your medical expense deduction. Tax act online 2012 For more information, see chapter 21. Tax act online 2012 Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Severe Storms, Tornadoes, Straight-Line Winds and Flooding in Alabama

Updated 2/7/12 to add Perry County.

AL/TN-2012-06AL, Feb. 2, 2012

BIRMINGHAM — Victims of the severe storms, tornadoes, straight-line winds and flooding that took place on Jan. 22, 2012 in parts of Alabama may qualify for tax relief from the Internal Revenue Service.

The President has declared Chilton, Jefferson and Perry counties a federal disaster area. Individuals who reside or have a business in this county may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Jan. 22, and on or before March 22, have been postponed to March 22, 2012.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Jan. 22, and on or before Feb. 6, as long as the deposits are made by Feb. 6, 2012.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until March 22 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Jan. 22 and on or before March 22.

The IRS also gives affected taxpayers until March 22 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Jan. 22 and on or before March 22.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Jan. 22 and on or before Feb. 6 provided the taxpayer makes these deposits by Feb. 6.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Virginia/Earthquake” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

Page Last Reviewed or Updated: 09-Jan-2014

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