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Tax Deductions

Tax deductions Publication 1212 - Introductory Material Table of Contents Future Developments Photographs of Missing Children IntroductionOrdering forms and publications. Tax deductions Tax questions. Tax deductions Useful Items - You may want to see: Future Developments For the latest information about developments related to Pub. Tax deductions 1212, such as legislation enacted after it was published, go to www. Tax deductions irs. Tax deductions gov/pub1212. Tax deductions Photographs of Missing Children The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Tax deductions Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Tax deductions You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Tax deductions Introduction This publication has two purposes. Tax deductions Its primary purpose is to help brokers and other middlemen identify publicly offered original issue discount (OID) debt instruments they may hold as nominees for the true owners, so they can file Forms 1099-OID or Forms 1099-INT as required. Tax deductions The other purpose of the publication is to help owners of publicly offered OID debt instruments determine how much OID to report on their income tax returns. Tax deductions The list of publicly offered OID debt instruments (OID list) is on the IRS website. Tax deductions The original issue discount tables, Sections I-A through III-F, are only available on the IRS website at www. Tax deductions irs. Tax deductions gov/pub1212 by clicking the link under Recent Developments. Tax deductions The tables are posted to the website in late November or early December of each year. Tax deductions The information on these lists come from the issuers of the debt instruments and from financial publications and is updated annually. Tax deductions (However, see Debt Instruments Not on the OID List, later. Tax deductions ) Brokers and other middlemen can rely on this list to determine, for information reporting purposes, whether a debt instrument was issued at a discount and the OID to be reported on information returns. Tax deductions However, because the information in the list has generally not been verified by the IRS as correct, the following tax matters are subject to change upon examination by the IRS. Tax deductions The OID reported by owners of a debt instrument on their income tax returns. Tax deductions The issuer's classification of an instrument as debt for federal income tax purposes. Tax deductions Instructions for issuers of OID debt instruments. Tax deductions   In general, issuers of publicly offered OID debt instruments must, within 30 days after the issue date, report information about the instruments to the IRS on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. Tax deductions See the form instructions for more information. Tax deductions Issuers should report errors in and omissions from the list in writing at the following address:  IRS OID Publication Project SE:W:CAR:MP:T  1111 Constitution Ave. Tax deductions NW, IR-6526 Washington, D. Tax deductions C. Tax deductions 20224 REMIC and CDO information reporting requirements. Tax deductions   Brokers and other middlemen must follow special information reporting requirements for real estate mortgage investment conduits (REMIC) regular, and collateralized debt obligations (CDO) interests. Tax deductions The rules are explained in Publication 938, Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). Tax deductions   Holders of interests in REMICs and CDOs should see chapter 1 of Publication 550 for information on REMICs and CDOs. Tax deductions Comments and suggestions. Tax deductions   We welcome your comments about this publication and your suggestions for future editions. Tax deductions   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Tax deductions NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Tax deductions Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Tax deductions   You can send your comments from www. Tax deductions irs. Tax deductions gov/formspubs/. 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Tax deductions Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 550 Investment Income and Expenses 938 Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). Tax deductions Form (and Instructions) 1096 Annual Summary and Transmittal of U. Tax deductions S. Tax deductions Information Returns 1099-B Proceeds From Broker and Barter Exchange Transactions 1099-INT Interest Income 1099-OID Original Issue Discount 8949 Sales and Other Dispositions of Capital Assets Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses W-8 Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY See How To Get Tax Help near the end of this publication for information about getting publications and forms. Tax deductions Prev  Up  Next   Home   More Online Publications
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Affordable Care Act Tax Provisions

Check out the new Affordable Care Act Tax Provisions Home Page

Información en Español: Disposiciones de La Ley del Cuidado de Salud de Bajo Precio
 

Update

The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from Oct. 1, 2013, through March 31, 2014. If you are seeking information about how to obtain health care coverage or financial assistance to purchase health care coverage for you and your family, visit the Health and Human Services website, HealthCare.gov.

Effect of Sequestration on Small Business Health Care Tax Credit

Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued to certain small tax-exempt employers claiming the refundable portion of the Small Business Health Care Tax Credit under Internal Revenue Code Section 45R, are subject to sequestration. This means that refund payments processed on or after Oct.1, 2013, and on or before Sept. 30, 2014, to a Section 45R applicant will be reduced by the fiscal year 2014 sequestration rate of 7.2 percent, irrespective of when the original or amended tax return was received by the IRS. The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change.

Affected taxpayers will be notified through correspondence that a portion of their requested payment was subject to the sequester reduction and the amount.

IRC §7216, Disclosure or Use of Information by Tax Return Preparers

Final Treasury Regulations on rules and consent requirements relating to the disclosure or use of tax return information by tax return preparers became effective Dec. 28, 2012. For additional information about how these apply to services and education related to the Affordable Care Act, please see our questions and answers

Medical Loss Ratio (MLR)

Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012. For information on the federal tax consequences to an insurance company that pays a MLR rebate and an individual policyholder who receives a MLR rebate, as well as information on the federal tax consequences to employees if a MLR rebate stems from a group health insurance policy, see our frequently asked questions.

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits.

More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.

Net Investment Income Tax

A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. On Nov. 26, 2013, the IRS and the Treasury Department issued final regulations, which provide guidance on the general application of the Net Investment Income Tax and the computation of Net Investment Income. In addition, on Nov. 26, 2013, the IRS and the Treasury Department issued proposed regulations on the computation of net investment income as it relates to certain specific types of property. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Net Investment Income Tax, see our questions and answers.

Additional Medicare Tax

A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. On Nov. 26, 2013, the IRS and the Department of the Treasury issued final regulations which provide guidance for employers and individuals relating to the implementation of Additional Medicare Tax, including the requirement to withhold Additional Medicare Tax on certain wages and compensation, the requirement to report Additional Medicare Tax, and the employer process for adjusting underpayments and overpayments of Additional Medicare Tax. In addition, the regulations provide guidance on the employer and individual processes for filing a claim for refund for an overpayment of Additional Medicare Tax. For additional information on the Additional Medicare Tax, see our questions and answers.

Minimum Value

On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Additionally, on April 30, 2013, the Treasury Department and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment.

Information Reporting on Health Coverage by Employers

On March 5, 2014, the Department of the Treasury and IRS issued final regulations on employer health insurance coverage information reporting. The information reporting relates to health insurance coverage that is offered by certain employers, referred to as applicable large employers, and reporting is to be provided by each member of an applicable large employer. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45, announcing transition relief for 2014 from this annual information reporting. Learn more about this reporting requirement by reading the fact sheet issued by the U.S. Department of the Treasury.

Information Reporting on Health Coverage by Insurers

On March 5, 2014, the Department of the Treasury and IRS issued final regulations on minimum essential coverage information reporting. The information reporting is to be provided by health insurance issuers, certain sponsors of self-insured plans, government agencies and certain other parties that provide health coverage. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45 announcing transition relief for 2014 from this annual information reporting. Learn more about this reporting requirement by reading the fact sheet issued by the U.S. Department of the Treasury.

Disclosure of Return Information

On Aug. 13, 2013, the Department of the Treasury and the IRS issued final regulations with rules for disclosure of return information to the Department of Health and Human Services that will be used to carry out eligibility determinations for advance payments of the premium tax credit, Medicaid and other health insurance affordability programs. For additional information on the final regulations, see our questions and answers.

Small Business Health Care Tax Credit

This credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. On Aug. 23, 2013, the Department of Treasury and the IRS issued proposed regulations, which include information on the transition of eligibility for the credit and requiring the purchase of insurance coverage through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). Additionally, IRS Notice 2014-06 provides transition relief for employers in certain counties in Washington and Wisconsin with no SHOP coverage available. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers.

Application of the Affordable Care Act to Health Reimbursement Arrangements, Health Flexible Spending Arrangements and Certain Other Employer Healthcare Arrangements

The Affordable Care Act’s market reforms apply to group health plans. On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. The notice also provides guidance on employee assistance programs or EAPs and on section 125(f)(3), which prohibits the use of pre-tax employee contributions to cafeteria plans to purchase coverage on an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The notice applies for plan years beginning on and after Jan. 1, 2014, but taxpayers may apply the guidance provided in the notice for all prior periods.  

DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03, and HHS will shortly issue guidance to reflect that it concurs with Notice 2013-54. On Jan. 24, 2013, DOL and HHS issued FAQs that addressed the application of the Affordable Care Act to HRAs.

On Jan. 9, 2014, DOL and HHS issued FAQs that addressed, among other things, future rules relating to excepted benefits.

Health Flexible Spending Arrangements

Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This standard applies only to purchases made on or after Jan. 1, 2011. A similar rule went into effect on Jan. 1, 2011, for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions. For more information, see news release IR-2010-95, Notice 2010-59, Revenue Ruling 2010-23 and our questions and answers. FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met. For more information, see news release IR-2010-128 and Notice 2011-5. Additionally, Notice 2013-57 provides information about the definition of preventive care for purposes of high deductible health plans associated with HSAs. 

In addition, starting in 2013, there are new rules about the amount that can be contributed to an FSA. Notice 2012-40 provides information about these rules and flexibility for employers applying the new rules. On Oct. 31, 2013, the Department of the Treasury and IRS issued Notice 2013-71, which provides information on a new $500 carryover option for employer-sponsored healthcare flexible spending arrangements. Learn more by reading the news release issued by the U.S. Department of the Treasury.

Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain health FSAs.   

Medical Device Excise Tax

On Dec. 5, 2012, the IRS and the Department of the Treasury issued final regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of certain medical devices starting in 2013. On Dec. 5, 2012, the IRS and the Department of the Treasury also issued Notice 2012-77, which provides interim guidance on certain issues related to the medical device excise tax. Additional information is available on the Medical Device Excise Tax page and Medical Device Excise Tax FAQs on IRS.gov.

Changes to Itemized Deduction for Medical Expenses

Beginning Jan. 1, 2013, you can claim deductions for medical expenses not covered by your health insurance when they reach 10 percent of your adjusted gross income. This change affects your 2013 tax return that you will file in 2014. There is a temporary exemption from Jan. 1, 2013, to Dec. 31, 2016, for individuals age 65 and older and their spouses. For additional information, see our questions and answers.

Health Insurance Premium Tax Credit

Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums. On May 18, 2012, the Department of the Treasury and the IRS issued final regulations, which provide guidance for individuals who enroll in qualified health plans through Marketplaces and claim the premium tax credit, and for Marketplaces that make qualified health plans available to individuals and employers. On Jan. 30, 2013, the Department of the Treasury and IRS released final regulations on the premium tax credit affordability test for related individuals. On April 30, 2013, the Department of the Treasury and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. Additionally, Notice 2013-41, issued on June 26, 2013, provides information for determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high-risk pool programs. This determination will affect whether the individual is eligible for the premium tax credit. On June 28, 2013, the Department of the Treasury and IRS issued proposed regulations on the new reporting requirements for Marketplaces. Notice 2014-23 was issued on March 26, 2014, and allows certain victims of domestic abuse to claim the premium tax credit while filing a return using the Married Filing Separately filing status for the 2014 calendar year. For more information on the credit, see our premium tax credit page and our questions and answers.

Individual Shared Responsibility Provision

Starting in 2014, the Individual Shared Responsibility provision calls for each individual to either have minimum essential coverage for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. On Aug. 27, 2013, the Department of the Treasury and the IRS issued final regulations on the Individual Shared Responsibility provision. On Jan. 23, 2014, the Department of the Treasury and the IRS issued proposed regulations addressing several issues that were identified in the preamble to the final regulations. In particular, the proposed regulations provide that certain limited-benefit Medicaid and TRICARE coverage is not minimum essential coverage. The proposed regulations also address the treatment of health reimbursement arrangements and wellness program incentives for purposes of determining the exemption for individuals who cannot afford employer-sponsored coverage. Comments are due April 28, 2014, and may be submitted electronically, by mail or hand delivered to the IRS. Additionally, because individuals may not be aware that these limited-benefit government health programs are not minimum essential coverage at the time of enrollment, Notice 2014-10, issued on Jan. 23, 2014, provides transition relief from the shared responsibility payment for months in 2014 in which individuals have certain Medicaid coverage or limited-benefit coverage under chapter 55 of title 10, U.S.C. For additional information on the Individual Shared Responsibility provision, the final regulations and Notice 2013-42, see our ISRP page and questions and answers. Additional information on exemptions and minimum essential coverage is available in final regulations issued by the U.S. Department of Health & Human Services. The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from Oct. 1, 2013, through March 31, 2014.

Health Coverage for Older Children

Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Learn more by reading our news release or this notice.

Excise Tax on Indoor Tanning Services

A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn't apply to phototherapy services performed by a licensed medical professional on his or her premises. There's also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee. For more information on the tax and how it is administered, see the Indoor Tanning Services Tax Center.

Adoption Credit

For tax years 2010 and 2011, the Affordable Care Act raised the maximum adoption credit per child and the credit was refundable. For more information related to the adoption credit for tax years 2010 and 2011, see our news release, tax tip, questions and answers, flyer, Notice 2010-66, Revenue Procedure 2010-31, Revenue Procedure 2010-35 and Revenue Procedure 2011-52.

For tax year 2012, the credit has reverted to being nonrefundable, with a maximum amount (dollar limitation) of $12,650 per child. If you adopted a child in 2012, see Tax Topic 607 for more information. 

Transitional Reinsurance Program

The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. For information on the tax treatment of contributions made under the Reinsurance Program, see our frequently asked questions.

Medicare Shared Savings Program

The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs. Additional information on the MSSP is available on the Department of Health and Human Services website.

The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate.

Qualified Therapeutic Discovery Project Program

This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant. IRS guidance describes the application process.

Submission of certification applications began June 21, 2010, and applications had to be postmarked no later than July 21, 2010, to be considered for the program. Applications that were postmarked by July 21, 2010, were reviewed by both the Department of Health and Human Services (HHS) and the IRS. All applicants were notified by letter dated October 29, 2010, advising whether or not the application for certification was approved. For those applications that were approved, the letter also provided the amount of the grant to be awarded or the tax credit the applicant was eligible to take.

The IRS published the names of the applicants whose projects were approved as required by law. Listings of results are available by state.

Learn more by reading the IRS news release, the news release issued by the U.S. Department of the Treasury, the page on the HHS website and our questions and answers.

Group Health Plan Requirements

The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 and REG-140038-10, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts. On March 19, 2013, HHS, DOL and IRS issued proposed regulations on the ninety-day waiting period limitation.. 

More information on group health plan requirements is available on the websites of the Departments of Health and Human Services and Labor and in additional guidance.

Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. 

Annual Fee on Health Insurance Providers

The Affordable Care Act created an annual fee on certain health insurance providers beginning in 2014. On Nov. 26, 2013, the Treasury Department and IRS issued final regulations on this annual fee imposed on covered entities engaged in the business of providing health insurance for United States health risks.

For additional information visit our Affordable Care Act Provision 9010 - Health Insurance Providers Fee page

Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers

The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Revenue Procedure 2012-11, issued in conjunction with temporary regulations and a notice of proposed rulemaking, sets out the procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under 501(c)(29).

An overview of the CO-OP program is available on the HHS website.

Medicare Part D Coverage Gap “donut hole” Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at www.medicare.gov.

Additional Requirements for Tax-Exempt Hospitals

The Affordable Care Act added new requirements for charitable hospitals (see Notice 2010-39 and Notice 2011-52). On June 26, 2012, the IRS published proposed regulations that provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. On April 5, 2013, the IRS published proposed regulations on the requirement that charitable hospitals conduct community health needs assessments (CHNAs) and adopt implementation strategies at least once every three years. These proposed regulations also discuss the related excise tax and reporting requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. On August 15, 2013, the IRS published temporary regulations and proposed regulations providing information on which form to use when making an excise tax payment for failure to meet the CHNA requirements and the due date for filing the form. Notice 2014-2 confirms that hospital organizations can rely on proposed regulations under section 501(r) of the Internal Revenue Code published on June 26, 2012 and April 5, 2013, pending the publication of final regulations or other applicable guidance. Notice 2014-3 contains a proposed revenue procedure that provides correction and disclosure procedures under which certain failures to meet the requirements of section 501(r) will be excused.

Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers

The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On Aug. 15, 2011, the IRS issued temporary regulations and a notice of proposed rulemaking on the branded prescription drug fee. The temporary regulations describe the rules related to the fee, including how it is computed and how it is paid. On Aug. 5, 2013, the IRS issued Notice 2013-51, which provides additional guidance on the branded prescription drug fee for the 2014 fee year. For information on the fee for the 2012 fee year and for the 2013 fee year, see Notice 2011-92 and Notice 2012-74.

For additional information, visit our Affordable Care Act Provision 9008 Branded Prescription Drug Fee page.

Modification of Section 833 Treatment of Certain Health Organizations

The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. IRS Notice 2010-79 provides transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio (MLR) for purposes of section 833, the consequences of nonapplication and changes in accounting method. Notice 2011-04 provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums. Notice 2012-37 extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after Dec. 31, 2012. 

On January 6, 2014, the IRS issued final regulations that describe how the MLR for purposes of section 833 is computed.

Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers (amended section 162(m))

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. On April 1, 2013, the Treasury Department and IRS issued proposed regulations on this provision. 

Employer Shared Responsibility Payment

The Affordable Care Act establishes that certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Feb. 10, 2014, the Department of the Treasury and the IRS issued final regulations on the Employer Shared Responsibility provisions. For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers. On July 9, 2013, the Department of the Treasury and the IRS announced transition relief from the Employer Shared Responsibility provisions for 2014. For more information, please see Notice 2013-45. For additional transition relief generally applicable to 2015, see the preamble to the final regulations.  

Patient-Centered Outcomes Research Institute Fee

The Affordable Care Act imposes the Patient-Centered Outcomes Research Institute (PCORI). Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will assist patients, clinicians, purchasers and policy-makers in making informed health decisions by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans.

The IRS and the Department of the Treasury have issued final regulations on this fee. Additional information on the fee is available on the PCORI page and in our questions and answers and chart summaryForm 720, Quarterly Federal Excise Tax Return, was revised to provide for the reporting and payment of the PCORI fee.

Retiree Drug Subsidies

Under § 139A of the Internal Revenue Code, certain special subsidy payments for retiree drug coverage made under the Social Security Act  are not included in the gross income of plan sponsors. Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans. For taxable years beginning on or after Jan. 1, 2013, new statutory rules affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies. See our questions and answers for more information.

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Page Last Reviewed or Updated: 26-Mar-2014

 

The Tax Deductions

Tax deductions 17. Tax deductions   Individual Retirement Arrangements (IRAs) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Traditional IRAsWho Can Open a Traditional IRA? When and How Can a Traditional IRA Be Opened? How Much Can Be Contributed? When Can Contributions Be Made? How Much Can You Deduct? Nondeductible Contributions Inherited IRAs Can You Move Retirement Plan Assets? When Can You Withdraw or Use IRA Assets? When Must You Withdraw IRA Assets? (Required Minimum Distributions) Are Distributions Taxable? What Acts Result in Penalties or Additional Taxes? Roth IRAsWhat Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA? Can You Move Amounts Into a Roth IRA? Are Distributions Taxable? What's New Traditional IRA contribution and deduction limit. Tax deductions  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. Tax deductions If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. Tax deductions For more information, see How Much Can Be Contributed? later. Tax deductions Roth IRA contribution limit. Tax deductions  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. Tax deductions If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. Tax deductions However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Tax deductions For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? later. Tax deductions Modified AGI limit for traditional IRA contributions increased. Tax deductions  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Tax deductions If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. Tax deductions If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Tax deductions See How Much Can You Deduct , later. Tax deductions Modified AGI limit for Roth IRA contributions increased. Tax deductions  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Tax deductions Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Tax deductions You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Tax deductions Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. Tax deductions You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Tax deductions Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Tax deductions You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Tax deductions See Can You Contribute to a Roth IRA , later. Tax deductions Net Investment Income Tax. Tax deductions   For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan including IRAs (for example; 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Tax deductions However, these distributions are taken into account when determining the modified adjusted gross income threshold. Tax deductions Distributions from a nonqualified retirement plan are included in net investment income. Tax deductions See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Tax deductions Name change. Tax deductions  All spousal IRAs have been renamed Kay Bailey Hutchison Spousal IRAs. Tax deductions There are no changes to the rules regarding these IRAs. Tax deductions See Kay Bailey Hutchison Spousal IRA Limit , later, for more information. Tax deductions Reminders 2014 limits. Tax deductions   You can find information about the 2014 contribution and AGI limits in Publication 590. Tax deductions Contributions to both traditional and Roth IRAs. Tax deductions   For information on your combined contribution limit if you contribute to both traditional and Roth IRAs, see Roth IRAs and traditional IRAs under How Much Can Be Contributed? in Roth IRAs, later. Tax deductions Statement of required minimum distribution. Tax deductions  If a minimum distribution from your IRA is required, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the required minimum distribution to you, or offer to calculate it for you. Tax deductions The report or offer must include the date by which the amount must be distributed. Tax deductions The report is due January 31 of the year in which the minimum distribution is required. Tax deductions It can be provided with the year-end fair market value statement that you normally get each year. Tax deductions No report is required for IRAs of owners who have died. Tax deductions IRA interest. Tax deductions  Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Tax deductions Tax on your traditional IRA is generally deferred until you take a distribution. Tax deductions Do not report this interest on your tax return as tax-exempt interest. Tax deductions Form 8606. Tax deductions   To designate contributions as nondeductible, you must file Form 8606, Nondeductible IRAs. Tax deductions The term “50 or older” is used several times in this chapter. Tax deductions It refers to an IRA owner who is age 50 or older by the end of the tax year. Tax deductions Introduction An individual retirement arrangement (IRA) is a personal savings plan that gives you tax advantages for setting aside money for your retirement. Tax deductions This chapter discusses the following topics. Tax deductions The rules for a traditional IRA (any IRA that is not a Roth or SIMPLE IRA). Tax deductions The Roth IRA, which features nondeductible contributions and tax-free distributions. Tax deductions Simplified Employee Pensions (SEPs) and Savings Incentive Match Plans for Employees (SIMPLEs) are not discussed in this chapter. Tax deductions For more information on these plans and employees' SEP IRAs and SIMPLE IRAs that are part of these plans, see Publications 560 and 590. Tax deductions For information about contributions, deductions, withdrawals, transfers, rollovers, and other transactions, see Publication 590. Tax deductions Useful Items - You may want to see: Publication 560 Retirement Plans for Small Business 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts 8606 Nondeductible IRAs Traditional IRAs In this chapter, the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Tax deductions ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Tax deductions Two advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances, and Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Tax deductions Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. Tax deductions What is compensation?   Generally, compensation is what you earn from working. Tax deductions Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services. Tax deductions The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Tax deductions   Scholarship and fellowship payments are compensation for this purpose only if shown in box 1 of Form W-2. Tax deductions   Compensation also includes commissions and taxable alimony and separate maintenance payments. Tax deductions Self-employment income. Tax deductions   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deductible part of your self-employment tax. Tax deductions   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Tax deductions Nontaxable combat pay. Tax deductions   For IRA purposes, if you were a member of the U. Tax deductions S. Tax deductions Armed Forces, your compensation includes any nontaxable combat pay you receive. Tax deductions What is not compensation?   Compensation does not include any of the following items. Tax deductions Earnings and profits from property, such as rental income, interest income, and dividend income. Tax deductions Pension or annuity income. Tax deductions Deferred compensation received (compensation payments postponed from a past year). Tax deductions Income from a partnership for which you do not provide services that are a material income-producing factor. Tax deductions Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Tax deductions Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Tax deductions When and How Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Tax deductions However, the time for making contributions for any year is limited. Tax deductions See When Can Contributions Be Made , later. Tax deductions You can open different kinds of IRAs with a variety of organizations. Tax deductions You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Tax deductions You can also open an IRA through your stockbroker. Tax deductions Any IRA must meet Internal Revenue Code requirements. Tax deductions Kinds of traditional IRAs. Tax deductions   Your traditional IRA can be an individual retirement account or annuity. Tax deductions It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Tax deductions How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Tax deductions These limits and other rules are explained below. Tax deductions Community property laws. Tax deductions   Except as discussed later under Kay Bailey Hutchison Spousal IRA limit , each spouse figures his or her limit separately, using his or her own compensation. Tax deductions This is the rule even in states with community property laws. Tax deductions Brokers' commissions. Tax deductions   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Tax deductions Trustees' fees. Tax deductions   Trustees' administrative fees are not subject to the contribution limit. Tax deductions Qualified reservist repayments. Tax deductions   If you are (or were) a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions you received. Tax deductions You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. Tax deductions To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or similar arrangement. Tax deductions   For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1 of Publication 590. Tax deductions Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Tax deductions (See Roth IRAs, later. Tax deductions ) General limit. Tax deductions   For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts. Tax deductions $5,500 ($6,500 if you are 50 or older). Tax deductions Your taxable compensation (defined earlier) for the year. Tax deductions This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. Tax deductions (See Nondeductible Contributions , later. Tax deductions ) Qualified reservist repayments do not affect this limit. Tax deductions Example 1. Tax deductions Betty, who is 34 years old and single, earned $24,000 in 2013. Tax deductions Her IRA contributions for 2013 are limited to $5,500. Tax deductions Example 2. Tax deductions John, an unmarried college student working part time, earned $3,500 in 2013. Tax deductions His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Tax deductions Kay Bailey Hutchison Spousal IRA limit. Tax deductions   For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following amounts. Tax deductions $5,500 ($6,500 if you are 50 or older). Tax deductions The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. Tax deductions Your spouse's IRA contribution for the year to a traditional IRA. Tax deductions Any contribution for the year to a Roth IRA on behalf of your spouse. Tax deductions This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is 50 or older, or $13,000 if both of you are 50 or older). Tax deductions When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). Tax deductions Contributions must be in the form of money (cash, check, or money order). Tax deductions Property cannot be contributed. Tax deductions Contributions must be made by due date. Tax deductions   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Tax deductions Age 70½ rule. Tax deductions   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Tax deductions   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Tax deductions If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Tax deductions Designating year for which contribution is made. Tax deductions   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. Tax deductions If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). Tax deductions Filing before a contribution is made. Tax deductions   You can file your return claiming a traditional IRA contribution before the contribution is actually made. Tax deductions Generally, the contribution must be made by the due date of your return, not including extensions. Tax deductions Contributions not required. Tax deductions   You do not have to contribute to your traditional IRA for every tax year, even if you can. Tax deductions How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if it applies). Tax deductions However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Tax deductions See Limit If Covered by Employer Plan , later. Tax deductions You may be able to claim a credit for contributions to your traditional IRA. Tax deductions For more information, see chapter 37. Tax deductions Trustees' fees. Tax deductions   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Tax deductions However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Tax deductions See chapter 28. Tax deductions Brokers' commissions. Tax deductions   Brokers' commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Tax deductions Full deduction. Tax deductions   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older in 2013). Tax deductions 100% of your compensation. Tax deductions This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Tax deductions Kay Bailey Hutchison Spousal IRA. Tax deductions   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of the following amounts. Tax deductions $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older in 2013). Tax deductions The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. Tax deductions The IRA deduction for the year of the spouse with the greater compensation. Tax deductions Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Tax deductions Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Tax deductions This limit is reduced by any contributions to a 501(c)(18) plan on behalf of the spouse with the lesser compensation. Tax deductions Note. Tax deductions If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. Tax deductions After a divorce or legal separation, you can deduct only contributions to your own IRA. Tax deductions Your deductions are subject to the rules for single individuals. Tax deductions Covered by an employer retirement plan. Tax deductions   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. Tax deductions This is discussed later under Limit If Covered by Employer Plan . Tax deductions Limits on the amount you can deduct do not affect the amount that can be contributed. Tax deductions See Nondeductible Contributions , later. Tax deductions Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. Tax deductions The “Retirement plan” box should be checked if you were covered. Tax deductions Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered by an Employer Plan , later. Tax deductions If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Tax deductions Federal judges. Tax deductions   For purposes of the IRA deduction, federal judges are covered by an employer retirement plan. Tax deductions For Which Year(s) Are You Covered by an Employer Plan? Special rules apply to determine the tax years for which you are covered by an employer plan. Tax deductions These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Tax deductions Tax year. Tax deductions   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Tax deductions For almost all people, the tax year is the calendar year. Tax deductions Defined contribution plan. Tax deductions   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. Tax deductions   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Tax deductions Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Tax deductions Defined benefit plan. Tax deductions   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. Tax deductions This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. Tax deductions   A defined benefit plan is any plan that is not a defined contribution plan. Tax deductions Defined benefit plans include pension plans and annuity plans. Tax deductions No vested interest. Tax deductions   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. Tax deductions Situations in Which You Are Not Covered by an Employer Plan Unless you are covered under another employer plan, you are not covered by an employer plan if you are in one of the situations described below. Tax deductions Social security or railroad retirement. Tax deductions   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Tax deductions Benefits from a previous employer's plan. Tax deductions   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Tax deductions Reservists. Tax deductions   If the only reason you participate in a plan is because you are a member of a reserve unit of the armed forces, you may not be covered by the plan. Tax deductions You are not covered by the plan if both of the following conditions are met. Tax deductions The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Tax deductions You did not serve more than 90 days on active duty during the year (not counting duty for training). Tax deductions Volunteer firefighters. Tax deductions   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Tax deductions You are not covered by the plan if both of the following conditions are met. Tax deductions The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Tax deductions Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Tax deductions Limit If Covered by Employer Plan If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. Tax deductions Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. Tax deductions These amounts vary depending on your filing status. Tax deductions To determine if your deduction is subject to phaseout, you must determine your modified adjusted gross income (AGI) and your filing status. Tax deductions See Filing status and Modified adjusted gross income (AGI) , later. Tax deductions Then use Table 17-1 or 17-2 to determine if the phaseout applies. Tax deductions Social security recipients. Tax deductions   Instead of using Table 17-1 or Table 17-2, use the worksheets in Appendix B of Publication 590 if, for the year, all of the following apply. Tax deductions You received social security benefits. Tax deductions You received taxable compensation. Tax deductions Contributions were made to your traditional IRA. Tax deductions You or your spouse was covered by an employer retirement plan. Tax deductions Use those worksheets to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Tax deductions Deduction phaseout. Tax deductions   If you were covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI as shown in Table 17-1. Tax deductions Table 17-1. Tax deductions Effect of Modified AGI1 on Deduction if You Are Covered by Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Tax deductions IF your filing status is. Tax deductions . Tax deductions . Tax deductions   AND your modified AGI is. Tax deductions . Tax deductions . Tax deductions   THEN you can take. Tax deductions . Tax deductions . Tax deductions single   or  head of household   $59,000 or less   a full deduction. Tax deductions   more than $59,000 but less than $69,000   a partial deduction. Tax deductions   $69,000 or more   no deduction. Tax deductions married filing jointly   or  qualifying widow(er)   $95,000 or less   a full deduction. Tax deductions   more than $95,000 but less than $115,000   a partial deduction. Tax deductions   $115,000 or more   no deduction. Tax deductions married filing separately2   less than $10,000   a partial deduction. Tax deductions   $10,000 or more   no deduction. Tax deductions 1Modified AGI (adjusted gross income). Tax deductions See Modified adjusted gross income (AGI) . Tax deductions 2If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” column). Tax deductions If your spouse is covered. Tax deductions   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 17-2. Tax deductions Filing status. Tax deductions   Your filing status depends primarily on your marital status. Tax deductions For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. Tax deductions If you need more information on filing status, see chapter 2. Tax deductions Lived apart from spouse. Tax deductions   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. Tax deductions Table 17-2. Tax deductions Effect of Modified AGI1 on Deduction if You Are NOT Covered by Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Tax deductions IF your filing status is. Tax deductions . Tax deductions . Tax deductions   AND your modified AGI is. Tax deductions . Tax deductions . Tax deductions   THEN you can take. Tax deductions . Tax deductions . Tax deductions single, head of household, or qualifying widow(er)   any amount   a full deduction. Tax deductions married filing jointly or separately with a spouse who is not covered by a plan at work   any amount   a full deduction. Tax deductions married filing jointly with a spouse who is covered by a plan at work   $178,000 or less   a full deduction. Tax deductions   more than $178,000 but less than $188,000   a partial deduction. Tax deductions   $188,000 or more   no deduction. Tax deductions married filing separately with a spouse who is covered by a plan at work2   less than $10,000   a partial deduction. Tax deductions   $10,000 or more   no deduction. Tax deductions 1Modified AGI (adjusted gross income). Tax deductions See Modified adjusted gross income (AGI) . Tax deductions 2You are entitled to the full deduction if you did not live with your spouse at any time during the year. Tax deductions Modified adjusted gross income (AGI). Tax deductions   How you figure your modified AGI depends on whether you are filing Form 1040 or Form 1040A. Tax deductions If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Publication 590. Tax deductions You may be able to use Worksheet 17-1 to figure your modified AGI. Tax deductions    Do not assume that your modified AGI is the same as your compensation. Tax deductions Your modified AGI may include income in addition to your compensation (discussed earlier), such as interest, dividends, and income from IRA distributions. Tax deductions Form 1040. Tax deductions   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following eight amounts. Tax deductions IRA deduction. Tax deductions Student loan interest deduction. Tax deductions Tuition and fees deduction. Tax deductions Domestic production activities deduction. Tax deductions Foreign earned income exclusion. Tax deductions Foreign housing exclusion or deduction. Tax deductions Exclusion of qualified savings bond interest shown on Form 8815, Exclusion of Interest From Series EE and I U. Tax deductions S. Tax deductions Savings Bonds Issued After 1989. Tax deductions Exclusion of employer-provided adoption benefits shown on Form 8839, Qualified Adoption Expenses. Tax deductions This is your modified AGI. Tax deductions Form 1040A. Tax deductions   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Tax deductions IRA deduction. Tax deductions Student loan interest deduction. Tax deductions Tuition and fees deduction. Tax deductions Exclusion of qualified savings bond interest shown on Form 8815. Tax deductions This is your modified AGI. Tax deductions Both contributions for 2013 and distributions in 2013. Tax deductions   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Tax deductions You received distributions in 2013 from one or more traditional IRAs. Tax deductions You made contributions to a traditional IRA for 2013. Tax deductions Some of those contributions may be nondeductible contributions. Tax deductions If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Tax deductions To do this, you can use Worksheet 1-5, Figuring the Taxable Part of Your IRA Distribution, in Publication 590. Tax deductions   If at least one of the above does not apply, figure your modified AGI using Worksheet 17-1, later. Tax deductions    How to figure your reduced IRA deduction. Tax deductions   You can figure your reduced IRA deduction for either Form 1040 or Form 1040A by using the worksheets in chapter 1 of Publication 590. Tax deductions Also, the instructions for Form 1040 and Form 1040A include similar worksheets that you may be able to use instead. Tax deductions Worksheet 17-1. Tax deductions Figuring Your Modified AGI Use this worksheet to figure your modified adjusted gross income for traditional IRA purposes. Tax deductions 1. Tax deductions Enter your adjusted gross income (AGI) from Form 1040, line 38, or Form 1040A, line 22, figured without taking into account the amount from Form 1040, line 32, or Form 1040A, line 17 1. Tax deductions   2. Tax deductions Enter any student loan interest deduction from Form 1040, line 33, or Form 1040A, line 18 2. Tax deductions   3. Tax deductions Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Tax deductions   4. Tax deductions Enter any domestic production activities deduction from Form 1040, line 35 4. Tax deductions   5. Tax deductions Enter any foreign earned income and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Tax deductions   6. Tax deductions Enter any foreign housing deduction from Form 2555, line 50 6. Tax deductions   7. Tax deductions Enter any excludable savings bond interest from Form 8815, line 14 7. Tax deductions   8. Tax deductions Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Tax deductions   9. Tax deductions Add lines 1 through 8. Tax deductions This is your Modified AGI for traditional IRA purposes 9. Tax deductions   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Tax deductions If you file Form 1040A, enter your IRA deduction on line 17. Tax deductions You cannot deduct IRA contributions on Form 1040EZ. Tax deductions Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. Tax deductions The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Tax deductions Example. Tax deductions Mike is 28 years old and single. Tax deductions In 2013, he was covered by a retirement plan at work. Tax deductions His salary was $57,312. Tax deductions His modified AGI was $70,000. Tax deductions Mike made a $5,500 IRA contribution for 2013. Tax deductions Because he was covered by a retirement plan and his modified AGI was over $69,000, he cannot deduct his $5,500 IRA contribution. Tax deductions He must designate this contribution as a nondeductible contribution by reporting it on Form 8606, as explained next. Tax deductions Form 8606. Tax deductions   To designate contributions as nondeductible, you must file Form 8606. Tax deductions   You do not have to designate a contribution as nondeductible until you file your tax return. Tax deductions When you file, you can even designate otherwise deductible contributions as nondeductible. Tax deductions   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Tax deductions A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. Tax deductions In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Tax deductions See Form 8606 under Distributions Fully or Partly Taxable, later. Tax deductions Failure to report nondeductible contributions. Tax deductions   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible contributions when withdrawn. Tax deductions All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Tax deductions Penalty for overstatement. Tax deductions   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. Tax deductions Penalty for failure to file Form 8606. Tax deductions   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. Tax deductions    Tax on earnings on nondeductible contributions. Tax deductions   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. Tax deductions See When Can You Withdraw or Use IRA Assets , later. Tax deductions Cost basis. Tax deductions   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Tax deductions Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Tax deductions Inherited IRAs If you inherit a traditional IRA, you are called a beneficiary. Tax deductions A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Tax deductions Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Tax deductions Inherited from spouse. Tax deductions   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Tax deductions You can: Treat it as your own IRA by designating yourself as the account owner. Tax deductions Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (section 403(b) plan), or Deferred compensation plan of a state or local government (section 457 plan). Tax deductions Treat yourself as the beneficiary rather than treating the IRA as your own. Tax deductions Treating it as your own. Tax deductions   You will be considered to have chosen to treat the IRA as your own if: Contributions (including rollover contributions) are made to the inherited IRA, or You do not take the required minimum distribution for a year as a beneficiary of the IRA. Tax deductions You will only be considered to have chosen to treat the IRA as your own if: You are the sole beneficiary of the IRA, and You have an unlimited right to withdraw amounts from it. Tax deductions   However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse's IRA. Tax deductions Inherited from someone other than spouse. Tax deductions   If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. Tax deductions This means that you cannot make any contributions to the IRA. Tax deductions It also means you cannot roll over any amounts into or out of the inherited IRA. Tax deductions However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. Tax deductions For more information, see the discussion of inherited IRAs under Rollover From One IRA Into Another, later. Tax deductions Can You Move Retirement Plan Assets? You can transfer, tax free, assets (money or property) from other retirement plans (including traditional IRAs) to a traditional IRA. Tax deductions You can make the following kinds of transfers. Tax deductions Transfers from one trustee to another. Tax deductions Rollovers. Tax deductions Transfers incident to a divorce. Tax deductions Transfers to Roth IRAs. Tax deductions   Under certain conditions, you can move assets from a traditional IRA or from a designated Roth account to a Roth IRA. Tax deductions You can also move assets from a qualified retirement plan to a Roth IRA. Tax deductions See Can You Move Amounts Into a Roth IRA? under Roth IRAs, later. Tax deductions Trustee-to-Trustee Transfer A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. Tax deductions Because there is no distribution to you, the transfer is tax free. Tax deductions Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers, discussed later under Rollover From One IRA Into Another . Tax deductions For information about direct transfers to IRAs from retirement plans other than IRAs, see Can You Move Retirement Plan Assets? in chapter 1 and Can You Move Amounts Into a Roth IRA? in chapter 2 of Publication 590. Tax deductions Rollovers Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute (roll over) to another retirement plan. Tax deductions The contribution to the second retirement plan is called a “rollover contribution. Tax deductions ” Note. Tax deductions An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan. Tax deductions Kinds of rollovers to a traditional IRA. Tax deductions   You can roll over amounts from the following plans into a traditional IRA: A traditional IRA, An employer's qualified retirement plan for its employees, A deferred compensation plan of a state or local government (section 457 plan), or A tax-sheltered annuity plan (section 403(b) plan). Tax deductions Treatment of rollovers. Tax deductions   You cannot deduct a rollover contribution, but you must report the rollover distribution on your tax return as discussed later under Reporting rollovers from IRAs and under Reporting rollovers from employer plans . Tax deductions Kinds of rollovers from a traditional IRA. Tax deductions   You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. Tax deductions These plans include the federal Thrift Savings Fund (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans). Tax deductions The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Tax deductions Qualified plans may, but are not required to, accept such rollovers. Tax deductions Time limit for making a rollover contribution. Tax deductions   You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer's plan. Tax deductions The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. Tax deductions For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Tax deductions Extension of rollover period. Tax deductions   If an amount distributed to you from a traditional IRA or a qualified employer retirement plan is a frozen deposit at any time during the 60-day period allowed for a rollover, special rules extend the rollover period. Tax deductions For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Tax deductions More information. Tax deductions   For more information on rollovers, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Tax deductions Rollover From One IRA Into Another You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. Tax deductions Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA. Tax deductions Waiting period between rollovers. Tax deductions   Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. Tax deductions You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover. Tax deductions   The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. Tax deductions Example. Tax deductions You have two traditional IRAs, IRA-1 and IRA-2. Tax deductions You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). Tax deductions You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. Tax deductions However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. Tax deductions This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2. Tax deductions Exception. Tax deductions   For an exception for distributions from failed financial institutions, see Rollover From One IRA Into Another under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Tax deductions Partial rollovers. Tax deductions   If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. Tax deductions The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). Tax deductions The amount you keep may be subject to the 10% additional tax on early distributions, discussed later under What Acts Result in Penalties or Additional Taxes? . Tax deductions Required distributions. Tax deductions   Amounts that must be distributed during a particular year under the required distribution rules (discussed later) are not eligible for rollover treatment. Tax deductions Inherited IRAs. Tax deductions   If you inherit a traditional IRA from your spouse, you generally can roll it over, or you can choose to make the inherited IRA your own. Tax deductions See Treating it as your own , earlier. Tax deductions Not inherited from spouse. Tax deductions   If you inherit a traditional IRA from someone other than your spouse, you cannot roll it over or allow it to receive a rollover contribution. Tax deductions You must withdraw the IRA assets within a certain period. Tax deductions For more information, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Tax deductions Reporting rollovers from IRAs. Tax deductions   Report any rollover from one traditional IRA to the same or another traditional IRA on lines 15a and 15b, Form 1040, or lines 11a and 11b, Form 1040A, as follows. Tax deductions   Enter the total amount of the distribution on Form 1040, line 15a, or Form 1040A, line 11a. Tax deductions If the total amount on Form 1040, line 15a, or Form 1040A, line 11a, was rolled over, enter zero on Form 1040, line 15b, or Form 1040A, line 11b. Tax deductions If the total distribution was not rolled over, enter the taxable portion of the part that was not rolled over on Form 1040, line 15b, or Form 1040A, line 11b. Tax deductions Put “Rollover” next to Form 1040, line 15b, or Form 1040A, line 11b. Tax deductions See your tax return instructions. Tax deductions   If you rolled over the distribution into a qualified plan (other than an IRA) or you make the rollover in 2014, attach a statement explaining what you did. Tax deductions Rollover From Employer's Plan Into an IRA You can roll over into a traditional IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan; Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). Tax deductions A qualified plan is one that meets the requirements of the Internal Revenue Code. Tax deductions Eligible rollover distribution. Tax deductions   Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following. Tax deductions A required minimum distribution (explained later under When Must You Withdraw IRA Assets? (Required Minimum Distributions) ). Tax deductions A hardship distribution. Tax deductions Any of a series of substantially equal periodic distributions paid at least once a year over: Your lifetime or life expectancy, The lifetimes or life expectancies of you and your beneficiary, or A period of 10 years or more. Tax deductions Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or of excess annual additions and any allocable gains. Tax deductions A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan. Tax deductions Dividends on employer securities. Tax deductions The cost of life insurance coverage. Tax deductions Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. Tax deductions To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. Tax deductions See Form 8606 under Distributions Fully or Partly Taxable, later. Tax deductions Rollover by nonspouse beneficiary. Tax deductions   A direct transfer from a deceased employee's qualified pension, profit-sharing, or stock bonus plan; annuity plan; tax-sheltered annuity (section 403(b)) plan; or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. Tax deductions The IRA is treated as an inherited IRA. Tax deductions For more information about inherited IRAs, see Inherited IRAs , earlier. Tax deductions Reporting rollovers from employer plans. Tax deductions    Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a, or Form 1040A, line 12a. Tax deductions This amount should be shown in box 1 of Form 1099-R. Tax deductions From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. Tax deductions From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Tax deductions Enter the remaining amount, even if zero, on Form 1040, line 16b, or Form 1040A, line 12b. Tax deductions Also, enter "Rollover" next to Form 1040, line 16b, or Form 1040A, line 12b. Tax deductions Transfers Incident to Divorce If an interest in a traditional IRA is transferred from your spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such a decree, the interest in the IRA, starting from the date of the transfer, is treated as your IRA. Tax deductions The transfer is tax free. Tax deductions For detailed information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Tax deductions Converting From Any Traditional IRA to a Roth IRA Allowable conversions. Tax deductions   You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. Tax deductions The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. Tax deductions If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply. Tax deductions However, a part or all of the conversion contribution from your traditional IRA is included in your gross income. Tax deductions Required distributions. Tax deductions   You cannot convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 70½) under the required distribution rules (discussed later). Tax deductions Income. Tax deductions   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. Tax deductions These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. Tax deductions   You do not include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed later. Tax deductions   You must file Form 8606 to report 2013 conversions from traditional, SEP, or SIMPLE IRAs to a Roth IRA in 2013 (unless you recharacterized the entire amount) and to figure the amount to include in income. Tax deductions   If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Tax deductions See chapter 4. Tax deductions Recharacterizations You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. Tax deductions This is called recharacterizing the contribution. Tax deductions See Can You Move Retirement Plan Assets? in chapter 1 of Publication 590 for more detailed information. Tax deductions How to recharacterize a contribution. Tax deductions   To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. Tax deductions If the transfer is made by the due date (including extensions) for your tax return for the year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. Tax deductions If you recharacterize your contribution, you must do all three of the following. Tax deductions Include in the transfer any net income allocable to the contribution. Tax deductions If there was a loss, the net income you must transfer may be a negative amount. Tax deductions Report the recharacterization on your tax return for the year during which the contribution was made. Tax deductions Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA. Tax deductions No deduction allowed. Tax deductions   You cannot deduct the contribution to the first IRA. Tax deductions Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. Tax deductions Required notifications. Tax deductions   To recharacterize a contribution, you must notify both the trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the one to which the contribution is being moved) that you have elected to treat the contribution as having been made to the second IRA rather than the first. Tax deductions You must make the notifications by the date of the transfer. Tax deductions Only one notification is required if both IRAs are maintained by the same trustee. Tax deductions The notification(s) must include all of the following information. Tax deductions The type and amount of the contribution to the first IRA that is to be recharacterized. Tax deductions The date on which the contribution was made to the first IRA and the year for which it was made. Tax deductions A direction to the trustee of the first IRA to transfer in a trustee-to-trustee transfer the amount of the contribution and any net income (or loss) allocable to the contribution to the trustee of the second IRA. Tax deductions The name of the trustee of the first IRA and the name of the trustee of the second IRA. Tax deductions Any additional information needed to make the transfer. Tax deductions Reporting a recharacterization. Tax deductions   If you elect to recharacterize a contribution to one IRA as a contribution to another IRA, you must report the recharacterization on your tax return as directed by Form 8606 and its instructions. Tax deductions You must treat the contribution as having been made to the second IRA. Tax deductions When Can You Withdraw or Use IRA Assets? There are rules limiting use of your IRA assets and distributions from it. Tax deductions Violation of the rules generally results in additional taxes in the year of violation. Tax deductions See What Acts Result in Penalties or Additional Taxes , later. Tax deductions Contributions returned before the due date of return. Tax deductions   If you made IRA contributions in 2013, you can withdraw them tax free by the due date of your return. Tax deductions If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. Tax deductions You can do this if, for each contribution you withdraw, both of the following conditions apply. Tax deductions You did not take a deduction for the contribution. Tax deductions You withdraw any interest or other income earned on the contribution. Tax deductions You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Tax deductions If there was a loss, the net income earned on the contribution may be a negative amount. Tax deductions Note. Tax deductions To calculate the amount you must withdraw, see Worksheet 1-4 under When Can You Withdraw or Use Assets? in chapter 1 of Publication 590. Tax deductions Earnings includible in income. Tax deductions   You must include in income any earnings on the contributions you withdraw. Tax deductions Include the earnings in income for the year in which you made the contributions, not in the year in which you withdraw them. Tax deductions Generally, except for any part of a withdrawal that is a return of nondeductible contributions (basis), any withdrawal of your contributions after the due date (or extended due date) of your return will be treated as a taxable distribution. Tax deductions Excess contributions can also be recovered tax free as discussed under What Acts Result in Penalties or Additional Taxes?, later. Tax deductions    Early distributions tax. Tax deductions   The 10% additional tax on distributions made before you reach age 59½ does not apply to these tax-free withdrawals of your contributions. Tax deductions However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59½ rule, it will be subject to this tax. Tax deductions When Must You Withdraw IRA Assets? (Required Minimum Distributions) You cannot keep funds in a traditional IRA indefinitely. Tax deductions Eventually they must be distributed. Tax deductions If there are no distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. Tax deductions See Excess Accumulations (Insufficient Distributions) , later. Tax deductions The requirements for distributing IRA funds differ depending on whether you are the IRA owner or the beneficiary of a decedent's IRA. Tax deductions Required minimum distribution. Tax deductions   The amount that must be distributed each year is referred to as the required minimum distribution. Tax deductions Required distributions not eligible for rollover. Tax deductions   Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment. Tax deductions IRA owners. Tax deductions   If you are the owner of a traditional IRA, you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Tax deductions April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date. Tax deductions Distributions by the required beginning date. Tax deductions   You must receive at least a minimum amount for each year starting with the year you reach age 70½ (your 70½ year). Tax deductions If you do not (or did not) receive that minimum amount in your 70½ year, then you must receive distributions for your 70½ year by April 1 of the next year. Tax deductions   If an IRA owner dies after reaching age 70½, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date. Tax deductions Even if you begin receiving distributions before you attain age 70½, you must begin calculating and receiving required minimum distributions by your required beginning date. Tax deductions Distributions after the required beginning date. Tax deductions   The required minimum distribution for any year after the year you turn 70½ must be made by December 31 of that later year. Tax deductions    Beneficiaries. Tax deductions   If you are the beneficiary of a decedent's traditional IRA, the requirements for distributions from that IRA generally depend on whether the IRA owner died before or after the required beginning date for distributions. Tax deductions More information. Tax deductions   For more information, including how to figure your minimum required distribution each year and how to figure your required distribution if you are a beneficiary of a decedent's IRA, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Tax deductions Are Distributions Taxable? In general, distributions from a traditional IRA are taxable in the year you receive them. Tax deductions Exceptions. Tax deductions   Exceptions to distributions from traditional IRAs being taxable in the year you receive them are: Rollovers, Qualified charitable distributions (QCD), discussed later, Tax-free withdrawals of contributions, discussed earlier, and The return of nondeductible contributions, discussed later under Distributions Fully or Partly Taxable . Tax deductions    Although a conversion of a traditional IRA is considered a rollover for Roth IRA purposes, it is not an exception to the rule that distributions from a traditional IRA are taxable in the year you receive them. Tax deductions Conversion distributions are includible in your gross income subject to this rule and the special rules for conversions explained in Converting From Any Traditional IRA Into a Roth IRA under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Tax deductions Qualified charitable distributions (QCD). Tax deductions   A QCD is generally a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. Tax deductions Special rules apply if you made a qualified charitable distribution in January 2013 that you elected to treat as made in 2012. Tax deductions See Qualified Charitable Distributions in Publication 590 for more information. Tax deductions Ordinary income. Tax deductions   Distributions from traditional IRAs that you include in income are taxed as ordinary income. Tax deductions No special treatment. Tax deductions   In figuring your tax, you cannot use the 10-year tax option or capital gain treatment that applies to lump-sum distributions from qualified retirement plans. Tax deductions Distributions Fully or Partly Taxable Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions. Tax deductions Fully taxable. Tax deductions   If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Tax deductions Because you have no basis in your IRA, any distributions are fully taxable when received. Tax deductions See Reporting taxable distributions on your return , later. Tax deductions Partly taxable. Tax deductions    If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. Tax deductions These nondeductible contributions are not taxed when they are distributed to you. Tax deductions They are a return of your investment in your IRA. Tax deductions   Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts (your cost basis) is tax free. Tax deductions If nondeductible contributions have been made or after-tax amounts have been rolled over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). Tax deductions Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable. Tax deductions Form 8606. Tax deductions   You must complete Form 8606 and attach it to your return if you receive a distribution from a traditional IRA and have ever made nondeductible contributions or rolled over after-tax amounts to any of your traditional IRAs. Tax deductions Using the form, you will figure the nontaxable distributions for 2013 and your total IRA basis for 2013 and earlier years. Tax deductions Note. Tax deductions If you are required to file Form 8606, but you are not required to file an income tax return, you still must file Form 8606. Tax deductions Send it to the IRS at the time and place you would otherwise file an income tax return. Tax deductions Distributions reported on Form 1099-R. Tax deductions   If you receive a distribution from your traditional IRA, you will receive Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Tax deductions , or a similar statement. Tax deductions IRA distributions are shown in boxes 1 and 2a of Form 1099-R. Tax deductions A number or letter code in box 7 tells you what type of distribution you received from your IRA. Tax deductions Withholding. Tax deductions   Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld. Tax deductions See chapter 4. Tax deductions IRA distributions delivered outside the United States. Tax deductions   In general, if you are a U. Tax deductions S. Tax deductions citizen or resident alien and your home address is outside the United States or its possessions, you cannot choose exemption from withholding on distributions from your traditional IRA. Tax deductions Reporting taxable distributions on your return. Tax deductions    Report fully taxable distributions, including early distributions on Form 1040, line 15b, or Form 1040A, line 11b (no entry is required on Form 1040, line 15a, or Form 1040A, line 11a). Tax deductions If only part of the distribution is taxable, enter the total amount on Form 1040, line 15a, or Form 1040A, line 11a, and the taxable part on Form 1040, line 15b, or Form 1040A, line 11b. Tax deductions You cannot report distributions on Form 1040EZ. Tax deductions What Acts Result in Penalties or Additional Taxes? The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules. Tax deductions There are additions to the regular tax for using your IRA funds in prohibited transactions. Tax deductions There are also additional taxes for the following activities. Tax deductions Investing in collectibles. Tax deductions Making excess contributions. Tax deductions Taking early distributions. Tax deductions Allowing excess amounts to accumulate (failing to take required distributions). Tax deductions There are penalties for overstating the amount of nondeductible contributions and for failure to file a Form 8606, if required. Tax deductions Prohibited Transactions Generally, a prohibited transaction is any improper use of your traditional IRA by you, your beneficiary, or any disqualified person. Tax deductions Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendent, and any spouse of a lineal descendent). Tax deductions The following are examples of prohibited transactions with a traditional IRA. Tax deductions Borrowing money from it. Tax deductions Selling property to it. Tax deductions Receiving unreasonable compensation for managing it. Tax deductions Using it as security for a loan. Tax deductions Buying property for personal use (present or future) with IRA funds. Tax deductions Effect on an IRA account. Tax deductions   Generally, if you or your beneficiary engages in a prohibited transaction in connection with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of that year. Tax deductions Effect on you or your beneficiary. Tax deductions   If your account stops being an IRA because you or your beneficiary engaged in a prohibited transaction, the account is treated as distributing all its assets to you at their fair market values on the first day of the year. Tax deductions If the total of those values is more than your basis in the IRA, you will have a taxable gain that is includible in your income. Tax deductions For information on figuring your gain and reporting it in income, see Are Distributions Taxable , earlier. Tax deductions The distribution may be subject to additional taxes or penalties. Tax deductions Taxes on prohibited transactions. Tax deductions   If someone other than the owner or beneficiary of a traditional IRA engages in a prohibited transaction, that person may be liable for certain taxes. Tax deductions In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction is not corrected. Tax deductions More information. Tax deductions   For more information on prohibited transactions, see What Acts Result in Penalties or Additional Taxes? in chapter 1 of Publication 590. Tax deductions Investment in Collectibles If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. Tax deductions You may have to pay the 10% additional tax on early distributions, discussed later. Tax deductions Collectibles. Tax deductions   These include: Artworks, Rugs, Antiques, Metals, Gems, Stamps, Coins, Alcoholic beverages, and Certain other tangible personal property. Tax deductions Exception. Tax deductions    Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U. Tax deductions S. Tax deductions gold coins, or one-ounce silver coins minted by the Treasury Department. Tax deductions It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. Tax deductions Excess Contributions Generally, an excess contribution is the amount contributed to your traditional IRA(s) for the year that is more than the smaller of: The maximum deductible amount for the year. Tax deductions For 2013, this is $5,500 ($6,500 if you are 50 or older), or Your taxable compensation for the year. Tax deductions Tax on excess contributions. Tax deductions   In general, if the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. Tax deductions You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. Tax deductions The tax cannot be more than 6% of the combined value of all your IRAs as of the end of your tax year. Tax deductions Excess contributions withdrawn by due date of return. Tax deductions   You will not have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw interest or other income earned on the excess contribution. Tax deductions You must complete your withdrawal by the date your tax return for that year is due, including extensions. Tax deductions How to treat withdrawn contributions. Tax deductions   Do not include in your gross income an excess contribution that you withdraw from your traditional IRA before your tax return is due if both the following conditions are met. Tax deductions No deduction was allowed for the excess contribution. Tax deductions You withdraw the interest or other income earned on the excess contribution. Tax deductions You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Tax deductions If there was a loss, the net income you must withdraw may be a negative amount. Tax deductions How to treat withdrawn interest or other income. Tax deductions   You must include in your gross income the interest or other income that was earned on the excess contribution. Tax deductions Report it on your return for the year in which the excess contribution was made. Tax deductions Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions, discus