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Www military com 4. Www military com   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. Www military com However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Www military com For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. Www military com This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. Www military com The student loan interest deduction is taken as an adjustment to income. Www military com This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Www military com This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. Www military com Table 4-1. Www military com Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. Www military com Do not rely on this table alone. Www military com Refer to the text for complete details. Www military com Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. Www military com Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. Www military com Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. Www military com Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. Www military com Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). Www military com Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. Www military com It includes both required and voluntary interest payments. Www military com Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. Www military com Loans from the following sources are not qualified student loans. Www military com A related person. Www military com A qualified employer plan. Www military com Your dependent. Www military com   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. Www military com You can find more information about dependents in Publication 501. Www military com Exceptions. Www military com   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. Www military com An individual can be your dependent even if you are the dependent of another taxpayer. Www military com An individual can be your dependent even if the individual files a joint return with a spouse. Www military com An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). Www military com Reasonable period of time. Www military com   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. Www military com   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. Www military com The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. Www military com   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. Www military com Academic period. Www military com   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Www military com In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Www military com Eligible student. Www military com   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Www military com Enrolled at least half-time. Www military com   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Www military com   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Www military com However, the standard may not be lower than any of those established by the U. Www military com S. Www military com Department of Education under the Higher Education Act of 1965. Www military com Related person. Www military com   You cannot deduct interest on a loan you get from a related person. Www military com Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. Www military com ), Your lineal descendants (children, grandchildren, etc. Www military com ), and Certain corporations, partnerships, trusts, and exempt organizations. Www military com Qualified employer plan. Www military com   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. Www military com Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. Www military com They include amounts paid for the following items. Www military com Tuition and fees. Www military com Room and board. Www military com Books, supplies, and equipment. Www military com Other necessary expenses (such as transportation). Www military com The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Www military com Eligible educational institution. Www military com   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Www military com S. Www military com Department of Education. Www military com It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Www military com   Certain educational institutions located outside the United States also participate in the U. Www military com S. Www military com Department of Education's Federal Student Aid (FSA) programs. Www military com   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Www military com   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. Www military com The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. Www military com    The educational institution should be able to tell you if it is an eligible educational institution. Www military com Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. Www military com Employer-provided educational assistance. Www military com See chapter 11, Employer-Provided Educational Assistance . Www military com Tax-free distribution of earnings from a Coverdell education savings account (ESA). Www military com See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. Www military com Tax-free distribution of earnings from a qualified tuition program (QTP). Www military com See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. Www military com U. Www military com S. Www military com savings bond interest that you exclude from income because it is used to pay qualified education expenses. Www military com See chapter 10, Education Savings Bond Program . Www military com The tax-free part of scholarships and fellowships. Www military com See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Www military com Veterans' educational assistance. Www military com See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Www military com Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Www military com Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. Www military com Loan origination fee. Www military com   In general, this is a one-time fee charged by the lender when a loan is made. Www military com To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. Www military com A loan origination fee treated as interest accrues over the term of the loan. Www military com   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. Www military com If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. Www military com The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. Www military com A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. Www military com Example. Www military com In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. Www military com The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. Www military com Bill began making payments on his student loan in 2013. Www military com Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. Www military com Bill's loan is payable in 120 equal monthly payments. Www military com He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). Www military com Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. Www military com To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. Www military com Capitalized interest. Www military com   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Www military com Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. Www military com No deduction for capitalized interest is allowed in a year in which no loan payments were made. Www military com Interest on revolving lines of credit. Www military com   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. Www military com See Qualified Education Expenses , earlier. Www military com Interest on refinanced student loans. Www military com   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. Www military com    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. Www military com Voluntary interest payments. Www military com   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. Www military com Example. Www military com The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. Www military com He began making payments as required. Www military com In September 2013, Roger enrolled in graduate school on a full-time basis. Www military com He applied for and was granted deferment of his loan payments while in graduate school. Www military com Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. Www military com Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. Www military com Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. Www military com To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. Www military com Example. Www military com In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. Www military com The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. Www military com The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. Www military com At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. Www military com The loan is payable over 60 months, with a payment of $200. Www military com 51 due on the first of each month, beginning November 2013. Www military com Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. Www military com However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). Www military com Payment Date   Payment   Stated Interest   Principal November 2013   $200. Www military com 51   $44. Www military com 27   $156. Www military com 24 December 2013   $200. Www military com 51   $43. Www military com 62   $156. Www military com 89 Totals   $401. Www military com 02   $87. Www military com 89   $313. Www military com 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. Www military com 89. Www military com Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). Www military com A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. Www military com Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. Www military com Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. Www military com 02 ($87. Www military com 89 + $10 + $303. Www military com 13). Www military com For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. Www military com She also will apply the remaining amount of capitalized interest ($625 − $303. Www military com 13 = $321. Www military com 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. Www military com Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. Www military com Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. Www military com Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. Www military com Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. Www military com For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. Www military com When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. Www military com Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. Www military com Your filing status is any filing status except married filing separately. Www military com No one else is claiming an exemption for you on his or her tax return. Www military com You are legally obligated to pay interest on a qualified student loan. Www military com You paid interest on a qualified student loan. Www military com Claiming an exemption for you. Www military com   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. Www military com Example 1. Www military com During 2013, Josh paid $600 interest on his qualified student loan. Www military com Only he is legally obligated to make the payments. Www military com No one claimed an exemption for Josh for 2013. Www military com Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. Www military com Example 2. Www military com During 2013, Jo paid $1,100 interest on her qualified student loan. Www military com Only she is legally obligated to make the payments. Www military com Jo's parents claimed an exemption for her on their 2013 tax return. Www military com In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. Www military com Interest paid by others. Www military com   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. Www military com Example 1. Www military com Darla obtained a qualified student loan to attend college. Www military com After Darla's graduation from college, she worked as an intern for a nonprofit organization. Www military com As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. Www military com This payment was treated as additional compensation and reported in box 1 of her Form W-2. Www military com Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. Www military com Example 2. Www military com Ethan obtained a qualified student loan to attend college. Www military com After graduating from college, the first monthly payment on his loan was due in December. Www military com As a gift, Ethan's mother made this payment for him. Www military com No one is claiming a dependency exemption for Ethan on his or her tax return. Www military com Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. Www military com No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). Www military com Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. Www military com However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. Www military com You can use Worksheet 4-1. Www military com Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. Www military com Form 1098-E. Www military com   To help you figure your student loan interest deduction, you should receive Form 1098-E. Www military com Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. Www military com   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Www military com Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. Www military com However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. Www military com See Allocating Payments Between Interest and Principal , earlier. Www military com    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. Www military com The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. Www military com Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). Www military com You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). Www military com Modified adjusted gross income (MAGI). Www military com   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. Www military com However, as discussed below, there may be other modifications. Www military com Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. Www military com Table 4-2. Www military com Effect of MAGI on Student Loan Interest Deduction IF your filing status is. Www military com . Www military com . Www military com AND your MAGI is. Www military com . Www military com . Www military com THEN your student loan interest deduction is. Www military com . Www military com . Www military com single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. Www military com more than $60,000  but less than $75,000 reduced because of the phaseout. Www military com $75,000 or more eliminated by the phaseout. Www military com married filing joint return not more than $125,000 not affected by the phaseout. Www military com more than $125,000 but less than $155,000 reduced because of the phaseout. Www military com $155,000 or more eliminated by the phaseout. Www military com MAGI when using Form 1040A. Www military com   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Www military com MAGI when using Form 1040. Www military com   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Www military com MAGI when using Form 1040NR. Www military com   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). Www military com MAGI when using Form 1040NR-EZ. Www military com   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). Www military com Phaseout. Www military com   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. Www military com To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. Www military com The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). Www military com The denominator is $15,000 ($30,000 in the case of a joint return). Www military com Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. Www military com Example 1. Www military com During 2013 you paid $800 interest on a qualified student loan. Www military com Your 2013 MAGI is $145,000 and you are filing a joint return. Www military com You must reduce your deduction by $533, figured as follows. Www military com   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). Www military com Example 2. Www military com The facts are the same as in Example 1 except that you paid $2,750 interest. Www military com Your maximum deduction for 2013 is $2,500. Www military com You must reduce your maximum deduction by $1,667, figured as follows. Www military com   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). Www military com Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. Www military com However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. Www military com Student Loan Interest Deduction Worksheet at the end of this chapter. Www military com Claiming the Deduction The student loan interest deduction is an adjustment to income. Www military com To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). Www military com Worksheet 4-1. Www military com Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Www military com Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. Www military com 1. Www military com Enter the total interest you paid in 2013 on qualified student loans. Www military com Do not enter  more than $2,500 1. Www military com   2. Www military com Enter the amount from Form 1040, line 22 2. Www military com       3. Www military com Enter the total of the amounts from Form 1040,  lines 23 through 32 3. Www military com           4. Www military com Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. Www military com           5. Www military com Add lines 3 and 4 5. Www military com       6. Www military com Subtract line 5 from line 2 6. Www military com       7. Www military com Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. Www military com       8. Www military com Enter any foreign housing deduction (Form 2555, line 50) 8. Www military com       9. Www military com Enter the amount of income from Puerto Rico you are excluding 9. Www military com       10. Www military com Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. Www military com       11. Www military com Add lines 6 through 10. Www military com This is your modified adjusted gross income 11. Www military com   12. Www military com Enter the amount shown below for your filing status 12. Www military com     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. Www military com Is the amount on line 11 more than the amount on line 12?       □ No. Www military com Skip lines 13 and 14, enter -0- on line 15, and go to line 16. Www military com       □ Yes. Www military com Subtract line 12 from line 11 13. Www military com   14. Www military com Divide line 13 by $15,000 ($30,000 if married filing jointly). Www military com Enter the result as a decimal  (rounded to at least three places). Www military com If the result is 1. Www military com 000 or more, enter 1. Www military com 000 14. Www military com . Www military com 15. Www military com Multiply line 1 by line 14 15. Www military com   16. Www military com Student loan interest deduction. Www military com Subtract line 15 from line 1. Www military com Enter the result here  and on Form 1040, line 33. Www military com Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. Www military com ) 16. Www military com   Prev  Up  Next   Home   More Online Publications
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The Www Military Com

Www military com Publication 15-B - Main Content Table of Contents 1. Www military com Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. Www military com Fringe Benefit Exclusion RulesAccident and Health Benefits Achievement Awards Adoption Assistance Athletic Facilities De Minimis (Minimal) Benefits Dependent Care Assistance Educational Assistance Employee Discounts Employee Stock Options Employer-Provided Cell Phones Group-Term Life Insurance Coverage Health Savings Accounts Lodging on Your Business Premises Meals Moving Expense Reimbursements No-Additional-Cost Services Retirement Planning Services Transportation (Commuting) Benefits Tuition Reduction Working Condition Benefits 3. Www military com Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. Www military com Rules for Withholding, Depositing, and ReportingTransfer of property. Www military com Amount of deposit. Www military com Limitation. Www military com Conformity rules. Www military com Election not to withhold income tax. Www military com How To Get Tax Help 1. Www military com Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. Www military com For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work. Www military com Performance of services. Www military com   A person who performs services for you does not have to be your employee. Www military com A person may perform services for you as an independent contractor, partner, or director. Www military com Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services. Www military com Provider of benefit. Www military com   You are the provider of a fringe benefit if it is provided for services performed for you. Www military com You are considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. Www military com For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you are the provider of this fringe benefit even though the customer is actually providing the day care. Www military com Recipient of benefit. Www military com   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. Www military com That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. Www military com For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. Www military com Are Fringe Benefits Taxable? Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Www military com Section 2 discusses the exclusions that apply to certain fringe benefits. Www military com Any benefit not excluded under the rules discussed in section 2 is taxable. Www military com Including taxable benefits in pay. Www military com   You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. Www military com Any amount the law excludes from pay. Www military com Any amount the recipient paid for the benefit. Www military com The rules used to determine the value of a fringe benefit are discussed in section 3. Www military com   If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. Www military com However, you can use special rules to withhold, deposit, and report the employment taxes. Www military com These rules are discussed in section 4. Www military com   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. Www military com However, you may have to report the benefit on one of the following information returns. Www military com If the recipient receives the benefit as: Use: An independent contractor Form 1099-MISC, Miscellaneous Income A partner Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Www military com For more information, see the instructions for the forms listed above. Www military com Cafeteria Plans A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. Www military com If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. Www military com Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. Www military com However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Www military com Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. Www military com Qualified benefits. Www military com   A cafeteria plan can include the following benefits discussed in section 2. Www military com Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). Www military com Adoption assistance. Www military com Dependent care assistance. Www military com Group-term life insurance coverage (including costs that cannot be excluded from wages). Www military com Health savings accounts (HSAs). Www military com Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. Www military com Benefits not allowed. Www military com   A cafeteria plan cannot include the following benefits discussed in section 2. Www military com Archer MSAs. Www military com See Accident and Health Benefits in section 2. Www military com Athletic facilities. Www military com De minimis (minimal) benefits. Www military com Educational assistance. Www military com Employee discounts. Www military com Employer-provided cell phones. Www military com Lodging on your business premises. Www military com Meals. Www military com Moving expense reimbursements. Www military com No-additional-cost services. Www military com Transportation (commuting) benefits. Www military com Tuition reduction. Www military com Working condition benefits. Www military com It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). Www military com $2,500 limit on a health flexible spending arrangement (FSA). Www military com   For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. Www military com For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. Www military com   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). Www military com While cafeteria plans generally must be amended on a prospective basis, an amendment that is adopted on or before December 31, 2014, may be made effective retroactively, provided that in operation the cafeteria plan meets the limit for plan years beginning after December 31, 2012. Www military com A cafeteria plan that does not limit health FSA contributions to the dollar limit is not a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income. Www military com   For more information, see Notice 2012-40, 2012-26 I. Www military com R. Www military com B. Www military com 1046, available at www. Www military com irs. Www military com gov/irb/2012-26_IRB/ar09. Www military com html. Www military com Employee. Www military com   For these plans, treat the following individuals as employees. Www military com A current common-law employee. Www military com See section 2 in Publication 15 (Circular E) for more information. Www military com A full-time life insurance agent who is a current statutory employee. Www military com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www military com Exception for S corporation shareholders. Www military com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Www military com A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www military com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www military com Plans that favor highly compensated employees. Www military com   If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. Www military com A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. Www military com   A highly compensated employee for this purpose is any of the following employees. Www military com An officer. Www military com A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. Www military com An employee who is highly compensated based on the facts and circumstances. Www military com A spouse or dependent of a person described in (1), (2), or (3). Www military com Plans that favor key employees. Www military com   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. Www military com A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. Www military com However, a plan you maintain under a collective bargaining agreement does not favor key employees. Www military com   A key employee during 2014 is generally an employee who is either of the following. Www military com An officer having annual pay of more than $170,000. Www military com An employee who for 2014 is either of the following. Www military com A 5% owner of your business. Www military com A 1% owner of your business whose annual pay was more than $150,000. Www military com Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Www military com Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. Www military com Eligible employer. Www military com   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. Www military com If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. Www military com If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year. Www military com Eligibility and participation requirements. Www military com   These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. Www military com You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement, or Are nonresident aliens working outside the United States whose income did not come from a U. Www military com S. Www military com source. Www military com Contribution requirements. Www military com   You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. Www military com If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee. Www military com More information. Www military com   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. Www military com 2. Www military com Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. Www military com These rules exclude all or part of the value of certain benefits from the recipient's pay. Www military com The excluded benefits are not subject to federal income tax withholding. Www military com Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2. Www military com This section discusses the exclusion rules for the following fringe benefits. Www military com Accident and health benefits. Www military com Achievement awards. Www military com Adoption assistance. Www military com Athletic facilities. Www military com De minimis (minimal) benefits. Www military com Dependent care assistance. Www military com Educational assistance. Www military com Employee discounts. Www military com Employee stock options. Www military com Employer-provided cell phones. Www military com Group-term life insurance coverage. Www military com Health savings accounts (HSAs). Www military com Lodging on your business premises. Www military com Meals. Www military com Moving expense reimbursements. Www military com No-additional-cost services. Www military com Retirement planning services. Www military com Transportation (commuting) benefits. Www military com Tuition reduction. Www military com Working condition benefits. Www military com See Table 2-1, later, for an overview of the employment tax treatment of these benefits. Www military com Table 2-1. Www military com Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. Www military com ) Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) Federal Unemployment (FUTA) Accident and health benefits Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement. Www military com Exempt, except for certain payments to S corporation employees who are 2% shareholders. Www military com Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). Www military com Adoption assistance Exempt1,3 Taxable Taxable Athletic facilities Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer. Www military com De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). Www military com Educational assistance Exempt up to $5,250 of benefits each year. Www military com (See Educational Assistance , later in this section. Www military com ) Employee discounts Exempt3 up to certain limits. Www military com (See Employee Discounts , later in this section. Www military com ) Employee stock options See Employee Stock Options , later in this section. Www military com Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. Www military com Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. Www military com (Special rules apply to former employees. Www military com ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. Www military com (See Health Savings Accounts , later in this section. Www military com ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. Www military com Meals Exempt if furnished on your business premises for your convenience. Www military com Exempt if de minimis. Www military com Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. Www military com No-additional-cost services Exempt3 Exempt3 Exempt3 Retirement planning services Exempt5 Exempt5 Exempt5 Transportation (commuting) benefits Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement6 ($20). Www military com (See Transportation (Commuting) Benefits , later in this section. Www military com ) Exempt if de minimis. Www military com Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Www military com Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. Www military com 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. Www military com 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. Www military com 4 Exemption does not apply to certain key employees under a plan that favors those employees. Www military com 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. Www military com 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. Www military com 7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Www military com Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Www military com Also, show it in box 12 with code “C. Www military com ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Www military com Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. Www military com Contributions to the cost of accident or health insurance including qualified long-term care insurance. Www military com Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Www military com Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). Www military com This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. Www military com Payments or reimbursements of medical expenses. Www military com Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). Www military com The payments must be figured without regard to any period of absence from work. Www military com Accident or health plan. Www military com   This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. Www military com The plan may be insured or noninsured and does not need to be in writing. Www military com Employee. Www military com   For this exclusion, treat the following individuals as employees. Www military com A current common-law employee. Www military com A full-time life insurance agent who is a current statutory employee. Www military com A retired employee. Www military com A former employee you maintain coverage for based on the employment relationship. Www military com A widow or widower of an individual who died while an employee. Www military com A widow or widower of a retired employee. Www military com For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www military com Special rule for certain government plans. Www military com   For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. Www military com See section 105(j) for details. Www military com Exception for S corporation shareholders. Www military com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Www military com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www military com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www military com Exclusion from wages. Www military com   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. Www military com Exception for certain long-term care benefits. Www military com   You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. Www military com This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. Www military com However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Www military com S corporation shareholders. Www military com   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. Www military com However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Www military com Exception for highly compensated employees. Www military com   If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. Www military com However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Www military com   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. Www military com   A highly compensated employee for this exception is any of the following individuals. Www military com One of the five highest paid officers. Www military com An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. Www military com An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). Www military com   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. Www military com COBRA premiums. Www military com   The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). Www military com The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary. Www military com Achievement Awards This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. Www military com The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. Www military com The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. Www military com Employee. Www military com   For this exclusion, treat the following individuals as employees. Www military com A current employee. Www military com A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. Www military com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www military com Exception for S corporation shareholders. Www military com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Www military com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www military com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www military com Exclusion from wages. Www military com   You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. Www military com The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). Www military com See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. Www military com    To determine for 2014 whether an achievement award is a “qualified plan award” under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2013 as a highly compensated employee. Www military com   If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts. Www military com The part of the cost that is more than your allowable deduction (up to the value of the awards). Www military com The amount by which the value of the awards exceeds your allowable deduction. Www military com Exclude the remaining value of the awards from the employee's wages. Www military com Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. Www military com It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. Www military com To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. Www military com It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). Www military com A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Www military com You give reasonable notice of the plan to eligible employees. Www military com Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. Www military com For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Www military com The employee was a 5% owner at any time during the year or the preceding year. Www military com The employee received more than $115,000 in pay for the preceding year. Www military com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www military com You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. Www military com However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Www military com For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. Www military com You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Www military com Use code “T” to identify this amount. Www military com Exception for S corporation shareholders. Www military com   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Www military com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www military com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, including using the benefit as a reduction in distributions to the 2% shareholder. Www military com Athletic Facilities You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. Www military com For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25. Www military com On-premises facility. Www military com   The athletic facility must be located on premises you own or lease. Www military com It does not have to be located on your business premises. Www military com However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. Www military com Employee. Www military com   For this exclusion, treat the following individuals as employees. Www military com A current employee. Www military com A former employee who retired or left on disability. Www military com A widow or widower of an individual who died while an employee. Www military com A widow or widower of a former employee who retired or left on disability. Www military com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www military com A partner who performs services for a partnership. Www military com De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. Www military com A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Www military com Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. Www military com Examples of de minimis benefits include the following. Www military com Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. Www military com See Employer-Provided Cell Phones , later in this section, for details. Www military com Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. Www military com Holiday gifts, other than cash, with a low fair market value. Www military com Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000. Www military com Meals. Www military com See Meals , later in this section, for details. Www military com Occasional parties or picnics for employees and their guests. Www military com Occasional tickets for theater or sporting events. Www military com Transportation fare. Www military com See Transportation (Commuting) Benefits , later in this section, for details. Www military com Employee. Www military com   For this exclusion, treat any recipient of a de minimis benefit as an employee. Www military com Dependent Care Assistance This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. Www military com The services must be for a qualifying person's care and must be provided to allow the employee to work. Www military com These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. Www military com For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. Www military com Employee. Www military com   For this exclusion, treat the following individuals as employees. Www military com A current employee. Www military com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www military com Yourself (if you are a sole proprietor). Www military com A partner who performs services for a partnership. Www military com Exclusion from wages. Www military com   You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income. Www military com   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. Www military com This limit is reduced to $2,500 for married employees filing separate returns. Www military com   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. Www military com Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. Www military com For more information on the earned income limit, see Publication 503. Www military com Exception for highly compensated employees. Www military com   You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. Www military com   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Www military com The employee was a 5% owner at any time during the year or the preceding year. Www military com The employee received more than $115,000 in pay for the preceding year. Www military com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www military com Form W-2. Www military com   Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. Www military com Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. Www military com Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. Www military com Example. Www military com   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. Www military com In addition, it provides occasional on-site dependent care to its employees at no cost. Www military com Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. Www military com In addition, Emily used the on-site dependent care several times. Www military com The fair market value of the on-site care was $700. Www military com Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). Www military com Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount. Www military com Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. Www military com The exclusion also applies to graduate level courses. Www military com Educational assistance means amounts you pay or incur for your employees' education expenses. Www military com These expenses generally include the cost of books, equipment, fees, supplies, and tuition. Www military com However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education: Has a reasonable relationship to your business, or Is required as part of a degree program. Www military com Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Www military com Nor do they include the cost of lodging, meals, or transportation. Www military com Educational assistance program. Www military com   An educational assistance program is a separate written plan that provides educational assistance only to your employees. Www military com The program qualifies only if all of the following tests are met. Www military com The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. Www military com To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining. Www military com The program does not provide more than 5% of its benefits during the year for shareholders or owners. Www military com A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Www military com The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance. Www military com You give reasonable notice of the program to eligible employees. Www military com Your program can cover former employees if their employment is the reason for the coverage. Www military com   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Www military com The employee was a 5% owner at any time during the year or the preceding year. Www military com The employee received more than $115,000 in pay for the preceding year. Www military com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www military com Employee. Www military com   For this exclusion, treat the following individuals as employees. Www military com A current employee. Www military com A former employee who retired, left on disability, or was laid off. Www military com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www military com Yourself (if you are a sole proprietor). Www military com A partner who performs services for a partnership. Www military com Exclusion from wages. Www military com   You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year. Www military com Assistance over $5,250. Www military com   If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Www military com Working condition benefits may be excluded from wages. Www military com Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. Www military com See Working Condition Benefits , later, in this section. Www military com Employee Discounts This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. Www military com However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). Www military com Employee. Www military com   For this exclusion, treat the following individuals as employees. Www military com A current employee. Www military com A former employee who retired or left on disability. Www military com A widow or widower of an individual who died while an employee. Www military com A widow or widower of an employee who retired or left on disability. Www military com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www military com A partner who performs services for a partnership. Www military com Exclusion from wages. Www military com   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. Www military com For a discount on services, 20% of the price you charge nonemployee customers for the service. Www military com For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. Www military com   Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. Www military com To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. Www military com Exception for highly compensated employees. Www military com   You cannot exclude from the wages of a highly compensated employee any part of the value of a discount that is not available on the same terms to one of the following groups. Www military com All of your employees. Www military com A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. Www military com   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Www military com The employee was a 5% owner at any time during the year or the preceding year. Www military com The employee received more than $115,000 in pay for the preceding year. Www military com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www military com Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. Www military com Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting from the exercise, after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. Www military com The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such exercise. Www military com Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition of stock acquired by the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any disposition of the stock. Www military com The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. Www military com However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. Www military com An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code “V. Www military com ” See Regulations section 1. Www military com 83-7. Www military com An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. Www military com The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. Www military com See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. Www military com You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. Www military com irs. Www military com gov/pub/irs-irbs/irb02-19. Www military com pdf. Www military com See Revenue Ruling 2004-60, 2004-24 I. Www military com R. Www military com B. Www military com 1051, available at www. Www military com irs. Www military com gov/irb/2004-24_IRB/ar13. Www military com html. Www military com For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. Www military com Employer-Provided Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Www military com Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. Www military com For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section. Www military com Noncompensatory business purposes. Www military com   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Www military com Examples of substantial business reasons include the employer's: Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. Www military com Cell phones provided to promote goodwill, boost morale, or attract prospective employees. Www military com   You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. Www military com Additional information. Www military com   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. Www military com R. Www military com B. Www military com 407, available at  www. Www military com irs. Www military com gov/irb/2011-38_IRB/ar07. Www military com html. Www military com Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. Www military com It provides a general death benefit that is not included in income. Www military com You provide it to a group of employees. Www military com See The 10-employee rule , later. Www military com It provides an amount of insurance to each employee based on a formula that prevents individual selection. Www military com This formula must use factors such as the employee's age, years of service, pay, or position. Www military com You provide it under a policy you directly or indirectly carry. Www military com Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Www military com Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. Www military com Group-term life insurance does not include the following insurance. Www military com Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. Www military com Life insurance on the life of your employee's spouse or dependent. Www military com However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. Www military com See De Minimis (Minimal) Benefits , earlier in this section. Www military com Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. Www military com See Regulations section 1. Www military com 79-1 for details. Www military com Employee. Www military com   For this exclusion, treat the following individuals as employees. Www military com A current common-law employee. Www military com A full-time life insurance agent who is a current statutory employee. Www military com An individual who was formerly your employee under (1) or (2). Www military com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction and control. Www military com Exception for S corporation shareholders. Www military com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Www military com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www military com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www military com The 10-employee rule. Www military com   Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. Www military com   For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. Www military com For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. Www military com However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. Www military com A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. Www military com Exceptions. Www military com   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. Www military com   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. Www military com If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical. Www military com You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts. Www military com You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. Www military com See Regulations section 1. Www military com 79-1 for details. Www military com   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. Www military com You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you. Www military com The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. Www military com Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. Www military com   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. Www military com They were 65 or older. Www military com They customarily work 20 hours or less a week or 5 months or less in a calendar year. Www military com They have not been employed for the waiting period given in the policy. Www military com This waiting period cannot be more than 6 months. Www military com Exclusion from wages. Www military com   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. Www military com You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. Www military com In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. Www military com Coverage over the limit. Www military com   You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Www military com Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Www military com Also, show it in box 12 with code “C. Www military com ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Www military com   Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. Www military com For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. Www military com You must prorate the cost from the table if less than a full month of coverage is involved. Www military com Table 2-2. Www military com Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . Www military com 05 25 through 29 . Www military com 06 30 through 34 . Www military com 08 35 through 39 . Www military com 09 40 through 44 . Www military com 10 45 through 49 . Www military com 15 50 through 54 . Www military com 23 55 through 59 . Www military com 43 60 through 64 . Www military com 66 65 through 69 1. Www military com 27 70 and older 2. Www military com 06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost. Www military com Example. Www military com Tom's employer provides him with group-term life insurance coverage of $200,000. Www military com Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Www military com Tom's employer must include $170 in his wages. Www military com The $200,000 of insurance coverage is reduced by $50,000. Www military com The yearly cost of $150,000 of coverage is $270 ($. Www military com 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. Www military com The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. Www military com The employer also enters $170 in box 12 with code “C. Www military com ” Coverage for dependents. Www military com   Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount is not more than $2,000. Www military com If the face amount is greater than $2,000, the entire cost of the dependent coverage must be included in income unless the amount over $2,000 is purchased with employee contributions on an after-tax basis. Www military com The cost of the insurance is determined by using Table 2-2. Www military com Former employees. Www military com   When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. Www military com You are not required to collect those taxes. Www military com Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. Www military com Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. Www military com ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. Www military com Exception for key employees. Www military com   Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. Www military com This exception generally does not apply to church plans. Www military com When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Www military com Include the cost in boxes 1, 3, and 5 of Form W-2. Www military com However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee. Www military com   For this purpose, the cost of the insurance is the greater of the following amounts. Www military com The premiums you pay for the employee's insurance. Www military com See Regulations section 1. Www military com 79-4T(Q&A 6) for more information. Www military com The cost you figure using Table 2-2. Www military com   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. Www military com See section 416(i) of the Internal Revenue Code for more information. Www military com An officer having annual pay of more than $170,000. Www military com An individual who for 2014 was either of the following. Www military com A 5% owner of your business. Www military com A 1% owner of your business whose annual pay was more than $150,000. Www military com   A former employee who was a key employee upon retirement or separation from service is also a key employee. Www military com   Your plan does not favor key employees as to participation if at least one of the following is true. Www military com It benefits at least 70% of your employees. Www military com At least 85% of the participating employees are not key employees. Www military com It benefits employees who qualify under a set of rules you set up that do not favor key employees. Www military com   Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those plans. Www military com   When applying this test, do not consider employees who: Have not completed 3 years of service, Are part-time or seasonal, Are nonresident aliens who receive no U. Www military com S. Www military com source earned income from you, or Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives. Www military com   Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. Www military com Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. Www military com S corporation shareholders. Www military com   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. Www military com When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Www military com Include the cost in boxes 1, 3, and 5 of Form W-2. Www military com However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder. Www military com Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Www military com Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. Www military com Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Www military com The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. Www military com For more information about HSAs, visit the Department of Treasury's website at www. Www military com treasury. Www military com gov and enter “HSA” in the search box. Www military com Eligibility. Www military com   A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. Www military com For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage and $12,700 for family coverage. Www military com   There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution. Www military com Exceptions. Www military com   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. Www military com Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. Www military com However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. Www military com For more information, see Other employee health plans in Publication 969. Www military com Employer contributions. Www military com   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. Www military com For 2014, you can contribute up to $3,300 for self-only coverage or $6,550 for family coverage to a qualified individual's HSA. Www military com   The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. Www military com For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. Www military com No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. Www military com Nondiscrimination rules. Www military com    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. Www military com Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. Www military com   For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54. Www military com 4980G-4. Www military com Exception. Www military com   The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. Www military com A highly compensated employee for 2014 is an employee who meets either of the following tests. Www military com The employee was a 5% owner at any time during the year or the preceding year. Www military com The employee received more than $115,000 in pay for the preceding year. Www military com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www military com Partnerships and S corporations. Www military com   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Www military com Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances. Www military com Cafeteria plans. Www military com   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. Www military com However, cafeteria plan nondiscrimination rules still apply. Www military com For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Www military com Contributions that favor lower-paid employees are not prohibited. Www military com Reporting requirements. Www military com   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. Www military com ” The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Www military com Lodging on Your Business Premises You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests. Www military com It is furnished on your business premises. Www military com It is furnished for your convenience. Www military com The employee must accept it as a condition of employment. Www military com Different tests may apply to lodging furnished by educational institutions. Www military com See section 119(d) of the Internal Revenue Code for details. Www military com The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. Www military com On your business premises. Www military com   For this exclusion, your business premises is generally your employee's place of work. Www military com For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. Www military com For your convenience. Www military com   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. Www military com You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. Www military com This is true even if a law or an employment contract provides that the lodging is furnished as pay. Www military com However, a written statement that the lodging is furnished for your convenience is not sufficient. Www military com Condition of employment. Www military com   Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Www military com Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. Www military com   It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment. Www military com Example. Www military com A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. Www military com If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her employment. Www military com S corporation shareholders. Www military com   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Www military com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www military com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www military com Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. Www military com De Minimis Meals You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. Www military com The exclusion applies, for example, to the following items. Www military com Coffee, doughnuts, or soft drinks. Www military com Occasional meals or meal money provided to enable an employee to work overtime. Www military com However, the exclusion does not apply to meal money figured on the basis of hours worked. Www military com Occasional parties or picnics for employees and their guests. Www military com This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. Www military com For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later. Www military com If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. Www military com The 50% limit on deductions for the cost of meals does not apply. Www military com The deduction limit on meals is discussed in chapter 2 of Publication 535. Www military com Employee. Www military com   For this exclusion, treat any recipient of a de minimis meal as