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Tax forms online Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. Tax forms online Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. Tax forms online Method 2. Tax forms online How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. Tax forms online In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Tax forms online You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. Tax forms online Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. Tax forms online If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Tax forms online These wages must be included on line 7 of Form 1040. Tax forms online See Form 8919 for more information. Tax forms online Childcare providers. Tax forms online   If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Tax forms online If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Tax forms online You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Tax forms online Babysitting. Tax forms online   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Tax forms online Bankruptcy. Tax forms online   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. Tax forms online Your W-2 will show your total wages and withheld income tax for the year. Tax forms online On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. Tax forms online Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. Tax forms online If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. Tax forms online   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. Tax forms online For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. Tax forms online   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. Tax forms online The statement must show the allocation and describe the method used to make the allocation. Tax forms online For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. Tax forms online R. Tax forms online B. Tax forms online 596, available at www. Tax forms online irs. Tax forms online gov/irb/2006-40_IRB/ar12. Tax forms online html. Tax forms online Miscellaneous Compensation This section discusses many types of employee compensation. Tax forms online The subjects are arranged in alphabetical order. Tax forms online Advance commissions and other earnings. Tax forms online   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Tax forms online    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Tax forms online If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. Tax forms online See Repayments , later. Tax forms online Allowances and reimbursements. Tax forms online    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Tax forms online If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Tax forms online Back pay awards. Tax forms online   Include in income amounts you are awarded in a settlement or judgment for back pay. Tax forms online These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Tax forms online They should be reported to you by your employer on Form W-2. Tax forms online Bonuses and awards. Tax forms online    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Tax forms online These include prizes such as vacation trips for meeting sales goals. Tax forms online If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Tax forms online However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Tax forms online Employee achievement award. Tax forms online   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Tax forms online However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Tax forms online Your employer can tell you whether your award is a qualified plan award. Tax forms online Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Tax forms online   However, the exclusion does not apply to the following awards. Tax forms online A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Tax forms online A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Tax forms online Example. Tax forms online Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Tax forms online Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Tax forms online However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. Tax forms online Differential wage payments. Tax forms online   This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. Tax forms online These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Tax forms online The payments are reported as wages on Form W-2. Tax forms online Government cost-of-living allowances. Tax forms online   Most payments received by U. Tax forms online S. Tax forms online Government civilian employees for working abroad are taxable. Tax forms online However, certain cost-of-living allowances are tax free. Tax forms online Publication 516, U. Tax forms online S. Tax forms online Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Tax forms online Nonqualified deferred compensation plans. Tax forms online   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Tax forms online This amount is shown on Form W-2, box 12, using code Y. Tax forms online This amount is not included in your income. Tax forms online   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Tax forms online This amount is included in your wages shown on Form W-2, box 1. Tax forms online It is also shown on Form W-2, box 12, using code Z. Tax forms online Nonqualified deferred compensation plans of nonqualified entities. Tax forms online   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. Tax forms online For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. Tax forms online A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. Tax forms online Note received for services. Tax forms online   If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Tax forms online When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Tax forms online Do not include that part again in your income. Tax forms online Include the rest of the payment in your income in the year of payment. Tax forms online   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Tax forms online Severance pay. Tax forms online   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Tax forms online Accrued leave payment. Tax forms online   If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Tax forms online   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Tax forms online You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Tax forms online Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. Tax forms online Outplacement services. Tax forms online   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Tax forms online    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Tax forms online Sick pay. Tax forms online   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Tax forms online In addition, you must include in your income sick pay benefits received from any of the following payers. Tax forms online A welfare fund. Tax forms online A state sickness or disability fund. Tax forms online An association of employers or employees. Tax forms online An insurance company, if your employer paid for the plan. Tax forms online However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Tax forms online For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. Tax forms online Social security and Medicare taxes paid by employer. Tax forms online   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Tax forms online The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Tax forms online However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Tax forms online Stock appreciation rights. Tax forms online   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Tax forms online When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Tax forms online You include the cash payment in income in the year you use the right. Tax forms online Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Tax forms online Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Tax forms online See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. Tax forms online Recipient of fringe benefit. Tax forms online   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. Tax forms online You are considered to be the recipient even if it is given to another person, such as a member of your family. Tax forms online An example is a car your employer gives to your spouse for services you perform. Tax forms online The car is considered to have been provided to you and not to your spouse. Tax forms online   You do not have to be an employee of the provider to be a recipient of a fringe benefit. Tax forms online If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. Tax forms online Provider of benefit. Tax forms online   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. Tax forms online The provider can be a client or customer of an independent contractor. Tax forms online Accounting period. Tax forms online   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Tax forms online Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Tax forms online The general rule: benefits are reported for a full calendar year (January 1–December 31). Tax forms online The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Tax forms online For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Tax forms online Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Tax forms online   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Tax forms online Form W-2. Tax forms online   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Tax forms online Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Tax forms online However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Tax forms online Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Tax forms online Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . Tax forms online For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Tax forms online Long-term care coverage. Tax forms online   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Tax forms online However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Tax forms online This amount will be reported as wages in box 1 of your Form W-2. Tax forms online Archer MSA contributions. Tax forms online    Contributions by your employer to your Archer MSA generally are not included in your income. Tax forms online Their total will be reported in box 12 of Form W-2, with code R. Tax forms online You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Tax forms online File the form with your return. Tax forms online Health flexible spending arrangement (health FSA). Tax forms online   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Tax forms online   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Tax forms online The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Tax forms online For more information, see Notice 2012-40, 2012-26 I. Tax forms online R. Tax forms online B. Tax forms online 1046, available at www. Tax forms online irs. Tax forms online gov/irb/2012-26 IRB/ar09. Tax forms online html. Tax forms online Health reimbursement arrangement (HRA). Tax forms online   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Tax forms online Health savings accounts (HSA). Tax forms online   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Tax forms online Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Tax forms online Contributions made by your employer are not included in your income. Tax forms online Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Tax forms online Distributions not used for qualified medical expenses are included in your income. Tax forms online See Publication 969 for the requirements of an HSA. Tax forms online   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Tax forms online The contributions are treated as a distribution of money and are not included in the partner's gross income. Tax forms online Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Tax forms online In both situations, the partner can deduct the contribution made to the partner's HSA. Tax forms online   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Tax forms online The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Tax forms online Qualified HSA funding distribution. Tax forms online   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Tax forms online See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. Tax forms online Failure to maintain eligibility. Tax forms online   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Tax forms online If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Tax forms online This income is also subject to an additional 10% tax. Tax forms online Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Tax forms online See Instructions for Form 8839, Qualified Adoption Expenses, for more information. Tax forms online Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Tax forms online They also are included as social security and Medicare wages in boxes 3 and 5. Tax forms online However, they are not included as wages in box 1. Tax forms online To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Tax forms online File the form with your return. Tax forms online Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. Tax forms online The gym must be used primarily by employees, their spouses, and their dependent children. Tax forms online If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. Tax forms online De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Tax forms online In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Tax forms online Also see Employee Discounts , later. Tax forms online Holiday gifts. Tax forms online   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Tax forms online However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Tax forms online Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Tax forms online Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. Tax forms online The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Tax forms online Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. Tax forms online Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. Tax forms online To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. Tax forms online See the Instructions for Form 2441 for more information. Tax forms online Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Tax forms online For more information, see Publication 970. Tax forms online Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. Tax forms online The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. Tax forms online However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). Tax forms online The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. Tax forms online For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. Tax forms online (Ask your employer for this percentage. Tax forms online ) For a discount on services, 20%. Tax forms online Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. Tax forms online If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). Tax forms online Qualified retirement planning services paid for you by your employer may be excluded from your income. Tax forms online For more information, see Retirement Planning Services , later. Tax forms online Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Tax forms online However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Tax forms online For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. Tax forms online If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Tax forms online Also, it is shown separately in box 12 with code C. Tax forms online Group-term life insurance. Tax forms online   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Tax forms online Permanent benefits. Tax forms online   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Tax forms online Your employer should be able to tell you the amount to include in your income. Tax forms online Accidental death benefits. Tax forms online   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Tax forms online Former employer. Tax forms online   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Tax forms online Also, it is shown separately in box 12 with code C. Tax forms online Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Tax forms online You must pay these taxes with your income tax return. Tax forms online Include them on line 60, Form 1040, and follow the instructions forline 60. Tax forms online For more information, see the Instructions for Form 1040. Tax forms online Two or more employers. Tax forms online   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Tax forms online If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Tax forms online You must figure how much to include in your income. Tax forms online Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Tax forms online Figuring the taxable cost. Tax forms online    Use the following worksheet to figure the amount to include in your income. Tax forms online   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. Tax forms online However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . Tax forms online Worksheet 1. Tax forms online Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Tax forms online Enter the total amount of your insurance coverage from your employer(s) 1. Tax forms online   2. Tax forms online Limit on exclusion for employer-provided group-term life insurance coverage 2. Tax forms online 50,000 3. Tax forms online Subtract line 2 from line 1 3. Tax forms online   4. Tax forms online Divide line 3 by $1,000. Tax forms online Figure to the nearest tenth 4. Tax forms online   5. Tax forms online Go to Table 1. Tax forms online Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Tax forms online   6. Tax forms online Multiply line 4 by line 5 6. Tax forms online     7. Tax forms online Enter the number of full months of coverage at this cost 7. Tax forms online   8. Tax forms online Multiply line 6 by line 7 8. Tax forms online   9. Tax forms online Enter the premiums you paid per month 9. Tax forms online       10. Tax forms online Enter the number of months you paid the  premiums 10. Tax forms online       11. Tax forms online Multiply line 9 by line 10. Tax forms online 11. Tax forms online   12. Tax forms online Subtract line 11 from line 8. Tax forms online Include this amount in your income as wages 12. Tax forms online   Table 1. Tax forms online Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . Tax forms online 05     25 through 29 . Tax forms online 06     30 through 34 . Tax forms online 08     35 through 39 . Tax forms online 09     40 through 44 . Tax forms online 10     45 through 49 . Tax forms online 15     50 through 54 . Tax forms online 23     55 through 59 . Tax forms online 43     60 through 64 . Tax forms online 66     65 through 69 1. Tax forms online 27     70 and older 2. Tax forms online 06   Example. Tax forms online You are 51 years old and work for employers A and B. Tax forms online Both employers provide group-term life insurance coverage for you for the entire year. Tax forms online Your coverage is $35,000 with employer A and $45,000 with employer B. Tax forms online You pay premiums of $4. Tax forms online 15 a month under the employer B group plan. Tax forms online You figure the amount to include in your income as follows. Tax forms online   Worksheet 1. Tax forms online Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. Tax forms online Enter the total amount of your insurance coverage from your employer(s) 1. Tax forms online 80,000 2. Tax forms online Limit on exclusion for employer-provided group-term life insurance coverage 2. Tax forms online 50,000 3. Tax forms online Subtract line 2 from line 1 3. Tax forms online 30,000 4. Tax forms online Divide line 3 by $1,000. Tax forms online Figure to the nearest tenth 4. Tax forms online 30. Tax forms online 0 5. Tax forms online Go to Table 1. Tax forms online Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Tax forms online . Tax forms online 23 6. Tax forms online Multiply line 4 by line 5 6. Tax forms online 6. Tax forms online 90 7. Tax forms online Enter the number of full months of coverage at this cost. Tax forms online 7. Tax forms online 12 8. Tax forms online Multiply line 6 by line 7 8. Tax forms online 82. Tax forms online 80 9. Tax forms online Enter the premiums you paid per month 9. Tax forms online 4. Tax forms online 15     10. Tax forms online Enter the number of months you paid the premiums 10. Tax forms online 12     11. Tax forms online Multiply line 9 by line 10. Tax forms online 11. Tax forms online 49. Tax forms online 80 12. Tax forms online Subtract line 11 from line 8. Tax forms online Include this amount in your income as wages 12. Tax forms online 33. Tax forms online 00 The total amount to include in income for the cost of excess group-term life insurance is $33. Tax forms online Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. Tax forms online You must add it to the wages shown on your Forms W-2 and include the total on your return. Tax forms online Entire cost excluded. Tax forms online   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Tax forms online You are permanently and totally disabled and have ended your employment. Tax forms online Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Tax forms online A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Tax forms online (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Tax forms online ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Tax forms online Entire cost taxed. Tax forms online   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. Tax forms online The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Tax forms online You are a key employee and your employer's plan discriminates in favor of key employees. Tax forms online Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Tax forms online The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. Tax forms online The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. Tax forms online (You must accept it in order to be able to properly perform your duties. Tax forms online ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. Tax forms online See De Minimis (Minimal) Benefits , earlier. Tax forms online Faculty lodging. Tax forms online   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. Tax forms online However, the lodging must be qualified campus lodging, and you must pay an adequate rent. Tax forms online Academic health center. Tax forms online   This is an organization that meets the following conditions. Tax forms online Its principal purpose or function is to provide medical or hospital care or medical education or research. Tax forms online It receives payments for graduate medical education under the Social Security Act. Tax forms online One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. Tax forms online Qualified campus lodging. Tax forms online   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. Tax forms online The lodging must be located on or near a campus of the educational institution or academic health center. Tax forms online Adequate rent. Tax forms online   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. Tax forms online If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. Tax forms online   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. Tax forms online Example. Tax forms online Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. Tax forms online The house is appraised at $200,000. Tax forms online The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. Tax forms online Carl pays an annual rent of $11,000. Tax forms online Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). Tax forms online If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). Tax forms online Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. Tax forms online See Publication 521 for more information. Tax forms online No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). Tax forms online In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. Tax forms online Example. Tax forms online You are employed as a flight attendant for a company that owns both an airline and a hotel chain. Tax forms online Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. Tax forms online The value of the personal flight is not included in your income. Tax forms online However, the value of the hotel room is included in your income because you do not work in the hotel business. Tax forms online Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Tax forms online Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Tax forms online You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Tax forms online Also, see Financial Counseling Fees , earlier. Tax forms online Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Tax forms online A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Tax forms online Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Tax forms online However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Tax forms online Exclusion limit. Tax forms online   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Tax forms online   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Tax forms online   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Tax forms online   If the benefits have a value that is more than these limits, the excess must be included in your income. Tax forms online You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Tax forms online Commuter highway vehicle. Tax forms online   This is a highway vehicle that seats at least six adults (not including the driver). Tax forms online At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Tax forms online Transit pass. Tax forms online   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Tax forms online Qualified parking. Tax forms online   This is parking provided to an employee at or near the employer's place of business. Tax forms online It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Tax forms online It does not include parking at or near the employee's home. Tax forms online Qualified bicycle commuting. Tax forms online   This is reimbursement based on the number of qualified bicycle commuting months for the year. Tax forms online A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Tax forms online The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Tax forms online Tuition Reduction You can exclude a qualified tuition reduction from your income. Tax forms online This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. Tax forms online For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. Tax forms online Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. Tax forms online For more information, see Publication 970. Tax forms online Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. Tax forms online Example. Tax forms online You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. Tax forms online The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. Tax forms online Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. Tax forms online For an exception, see Group-Term Life Insurance , earlier. Tax forms online General valuation rule. Tax forms online   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. Tax forms online If you pay fair market value for a fringe benefit, no amount is included in your income. Tax forms online Fair market value. Tax forms online   The fair market value of a fringe benefit is determined by all the facts and circumstances. Tax forms online It is the amount you would have to pay a third party to buy or lease the benefit. Tax forms online This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. Tax forms online Employer-provided vehicles. Tax forms online   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. Tax forms online   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. Tax forms online An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. Tax forms online The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. Tax forms online Flights on employer-provided aircraft. Tax forms online   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. Tax forms online   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. Tax forms online The division must be based on all the facts, including which employee or employees control the use of the aircraft. Tax forms online Special valuation rules. Tax forms online   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. Tax forms online If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. Tax forms online You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. Tax forms online   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. Tax forms online The special valuation rules are the following. Tax forms online The automobile lease rule. Tax forms online The vehicle cents-per-mile rule. Tax forms online The commuting rule. Tax forms online The unsafe conditions commuting rule. Tax forms online The employer-operated eating-facility rule. Tax forms online   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Tax forms online    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. Tax forms online 61-21(g) and 1. Tax forms online 61-21(h) of the regulations. Tax forms online Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Tax forms online (Your employer can tell you whether your retirement plan is qualified. Tax forms online ) However, the cost of life insurance coverage included in the plan may have to be included. Tax forms online See Group-Term Life Insurance , earlier, under Fringe Benefits. Tax forms online If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Tax forms online However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Tax forms online For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. Tax forms online S. Tax forms online Civil Service Retirement Benefits, if you are a federal employee or retiree). Tax forms online Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Tax forms online The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Tax forms online An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Tax forms online However, it is included in wages subject to social security and Medicare taxes. Tax forms online Elective deferrals include elective contributions to the following retirement plans. Tax forms online Cash or deferred arrangements (section 401(k) plans). Tax forms online The Thrift Savings Plan for federal employees. Tax forms online Salary reduction simplified employee pension plans (SARSEP). Tax forms online Savings incentive match plans for employees (SIMPLE plans). Tax forms online Tax-sheltered annuity plans (403(b) plans). Tax forms online Section 501(c)(18)(D) plans. Tax forms online (But see Reporting by employer , later. Tax forms online ) Section 457 plans. Tax forms online Qualified automatic contribution arrangements. Tax forms online   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Tax forms online You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Tax forms online The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Tax forms online   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Tax forms online Overall limit on deferrals. Tax forms online   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. Tax forms online The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. Tax forms online Amounts deferred under specific plan limits are part of the overall limit on deferrals. Tax forms online   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Tax forms online However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Tax forms online Catch-up contributions. Tax forms online   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. Tax forms online For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. Tax forms online   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. Tax forms online SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. Tax forms online Section 457 plans, see Limit for deferrals under section 457 plans , later. Tax forms online Limit for deferrals under SIMPLE plans. Tax forms online   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. Tax forms online Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. Tax forms online Limit for tax-sheltered annuities. Tax forms online   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. Tax forms online However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. Tax forms online $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. Tax forms online   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. Tax forms online   For more information, see Publication 571. Tax forms online Limit for deferral under section 501(c)(18) plans. Tax forms online   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. Tax forms online Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. Tax forms online Limit for deferrals under section 457 plans. Tax forms online   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. Tax forms online However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. Tax forms online See Increased limit , later. Tax forms online Includible compensation. Tax forms online   This is the pay you received for the year from the employer who maintained the section 457 plan. Tax forms online In most cases, it includes all the following payments. Tax forms online Wages and salaries. Tax forms online Fees for professional services. Tax forms online The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. Tax forms online Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. Tax forms online Commissions and tips. Tax forms online Fringe benefits. Tax forms online Bonuses. Tax forms online Employer contributions (elective deferrals) to: The section 457 plan. Tax forms online Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. Tax forms online A salary reduction simplified employee pension (SARSEP). Tax forms online A tax-sheltered annuity (section 403(b) plan). Tax forms online A savings incentive match plan for employees (SIMPLE plan). Tax forms online A section 125 cafeteria plan. Tax forms online   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. Tax forms online Your wages as defined for income tax withholding purposes. Tax forms online Your wages as reported in box 1 of Form W-2. Tax forms online Your wages that are subject to social security withholding (including elective deferrals). Tax forms online Increased limit. Tax forms online   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). Tax forms online Catch-up contributions. Tax forms online   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. Tax forms online If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. Tax forms online However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. Tax forms online Designated Roth contributions. Tax forms online   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Tax forms online Designated Roth contributions are treated as elective deferrals, except that they are included in income. Tax forms online Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. Tax forms online   Qualified distributions from a Roth plan are not included in income. Tax forms online In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. Tax forms online Reporting by employer. Tax forms online   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. Tax forms online Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. Tax forms online Section 501(c)(18)(D) contributions. Tax forms online   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. Tax forms online The amount you contributed should be identified with code “H” in box 12. Tax forms online You may deduct the amount deferred subject to the limits that apply. Tax forms online Include your deduction in the total on Form 1040, line 36. Tax forms online Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. Tax forms online Designated Roth contributions. Tax forms online    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. Tax forms online Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. Tax forms online Excess deferrals. Tax forms online   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. Tax forms online If the plan permits, the excess amount will be distributed to you. Tax forms online If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. Tax forms online You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. Tax forms online The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. Tax forms online   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. Tax forms online File Form 1040 to add the excess deferral amount to your wages on line 7. Tax forms online Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. Tax forms online Excess not distributed. Tax forms online   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. Tax forms online Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. Tax forms online Excess distributed to you. Tax forms online   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. Tax forms online If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. Tax forms online Any income on the excess deferral taken out is taxable in the tax year in which you take it out. Tax forms online If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. Tax forms online    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Tax forms online Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. Tax forms online If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. Tax forms online Add the excess deferral amount to your wages on your 2013 tax return. Tax forms online If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. Tax forms online Do not add this amount to your wages on your 2013 return. Tax forms online If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. Tax forms online If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. Tax forms online S. Tax forms online Individual Income Tax Return. Tax forms online If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. Tax forms online If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. Tax forms online Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. Tax forms online Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Tax forms online Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. Tax forms online ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Tax forms online It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Tax forms online Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. Tax forms online If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. Tax forms online You must include the excess contributions in your income as wages on Form 1040, line 7. Tax forms online You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. Tax forms online If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. Tax forms online The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. Tax forms online You should receive a Form 1099-R for the year the excess contributions are distributed to you. Tax forms online Add the distribution to your wages for that year. Tax forms online Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Tax forms online It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Tax forms online Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. Tax forms online Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. Tax forms online A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. Tax forms online A corrective payment consisting of your after-tax contributions is not taxable. Tax forms online If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. Tax forms online Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. Tax forms online Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. Tax forms online Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Tax forms online It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Tax forms online Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. Tax forms online The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. Tax forms online Your employer can tell you which kind of option you hold. Tax forms online Nonstatutory Stock Options Grant of option. Tax forms online   If you are granted a nonstatutory stock option, you may have income when you receive the option. Tax forms online The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. Tax forms online The fair market value of an option can be readily determined if it is actively traded on an established market. Tax forms online    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. Tax forms online You can transfer the option. Tax forms online You can exercise the option immediately in full. Tax forms online The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. Tax forms online The fair market value of the option privilege can be readily determined. Tax forms online The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. Tax forms online For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. Tax forms online The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. Tax forms online If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. Tax forms online For more information on the excise tax, see Internal Revenue Code section 4985. Tax forms online Option with readily determinable value. Tax forms online   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. Tax forms online See Restricted Property , later, for rules on how much income to include and when to include it. Tax forms online However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. Tax forms online Option without readily determinable value. Tax forms online   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. Tax forms online    Exercise or transfer of option. Tax forms online   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. Tax forms online Option with readily determinable value. Tax forms online   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. Tax forms online Option without readily determinable value. Tax forms online   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope