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1040 Ez 2011 Form

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1040 Ez 2011 Form

1040 ez 2011 form Publication 957 - Main Content Table of Contents 1. 1040 ez 2011 form What is Back Pay?Reporting Back Pay Back Pay Under a Statute Nonstatutory Back Pay Format for Report to the SSA Questions 2. 1040 ez 2011 form Special Wage PaymentsReporting Special Wage Payments Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments Nonqualified Deferred Compensation and Section 457 Plans Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) PlansSpecial rule for box 11 of Form W-2 (distributions and deferral in the same year). 1040 ez 2011 form 1. 1040 ez 2011 form What is Back Pay? Back pay is pay received in a tax year(s) for actual or deemed employment in an earlier tax year(s). 1040 ez 2011 form For social security coverage and benefit purposes, all back pay, whether or not under a statute, is wages if it is payment for covered employment. 1040 ez 2011 form Damages for personal injury, interest, penalties, and legal fees included with back pay awards are not wages. 1040 ez 2011 form Report all back pay. 1040 ez 2011 form However, the tax year(s) for which back pay is credited as wages for social security purposes is different if it is awarded under a statute. 1040 ez 2011 form See Back Pay Under a Statute , later, for more information. 1040 ez 2011 form Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. 1040 ez 2011 form However, for income tax purposes, the IRS treats all back pay as wages in the year paid. 1040 ez 2011 form Employers should use Form W-2, Wage and Tax Statement, or electronic wage reports to report back pay as wages in the year they actually pay the employee. 1040 ez 2011 form The SSA no longer accepts reports on tapes, cartridges, and diskettes. 1040 ez 2011 form Example. 1040 ez 2011 form In 2012, Terry Morris earned wages of $50,000. 1040 ez 2011 form In the same year, she received $100,000 in settlement of a back pay case against her employer that covered the periods January 2007 through December 2011. 1040 ez 2011 form Her employer properly reflected social security wages of $110,100 and Medicare wages of $150,000 on her 2012 Form W-2. 1040 ez 2011 form However, if an employer did not include back pay wages on a previously filed Form W-2, magnetic media, or electronically filed wage report, the employer should prepare a wage correction report, Form W-2c, Corrected Wage and Tax Statement, or electronically filed report, to add the back pay award to the wages previously reported. 1040 ez 2011 form Example. 1040 ez 2011 form If, in the above example, Terry Morris' employer had prepared her 2012 Form W-2 reporting social security and Medicare wages of only $50,000 each, the employer would have to correct that report. 1040 ez 2011 form A Form W-2c correcting the 2012 Form W-2 would show previously reported social security and Medicare wages of $50,000 and the correct amount of $110,100 for social security wages and $150,000 for Medicare wages. 1040 ez 2011 form SSA treatment of back pay under a statute. 1040 ez 2011 form   Under the law, the SSA credits back pay awarded under a statute to an individual's earnings record in the period(s) the wages should have been paid. 1040 ez 2011 form This is important because wages not credited to the proper year may result in lower social security benefits or failure to meet the requirements for benefits. 1040 ez 2011 form   However, back pay under statute payments will remain posted to the employee's social security earnings record in the year reported on Form W-2 (or Form W-2c) unless the employer or employee notifies the SSA (in a separate, special report) of the back pay under a statute payment. 1040 ez 2011 form Then, the SSA can allocate the statutory back pay to the appropriate periods. 1040 ez 2011 form   If a back pay award is not made under a statute, the SSA credits back pay as wages in the year paid. 1040 ez 2011 form    If employers do notify the SSA of this payment, they should prepare a special report (with the information noted below) and send it to: Social Security Administration Attn: CPS Back Pay Staff 7-B-15 SWT 1500 Woodlawn Drive Baltimore, MD 21241-0001 Be sure to send this special report to the above address because the SSA handles it separately from other reports. 1040 ez 2011 form    If you paid the back pay award in the same tax year to which it applies, report the wages on that year's Form W-2. 1040 ez 2011 form No further action is necessary. 1040 ez 2011 form Example. 1040 ez 2011 form In 2012, Judy Wilson received a salary of $30,000 and a back pay under statute award of $2,000 for the period January through June 2012. 1040 ez 2011 form Her employer properly reported wages of $32,000 for social security and Medicare on her 2012 Form W-2. 1040 ez 2011 form No further action is necessary. 1040 ez 2011 form Information the SSA needs to properly credit back pay under a statute (special report). 1040 ez 2011 form   After you complete the special report, you or the employee should send it to the SSA when or after you submit the Form W-2 (on paper or electronically) to the SSA for the year you pay the statutory back pay to the employee. 1040 ez 2011 form There is no statute of limitations on the filing of the special report to enable the SSA to allocate the wages. 1040 ez 2011 form The special report must include the following information. 1040 ez 2011 form The employer's name, address, and employer identification number (EIN). 1040 ez 2011 form A signed statement citing the federal or state statute under which the payment was made. 1040 ez 2011 form If the statute is not identified, the SSA will assume the payment was not under a statute and will not allocate to earlier period(s). 1040 ez 2011 form The name and telephone number of a person to contact. 1040 ez 2011 form The SSA may have additional questions concerning the back pay case or the individual employee's information. 1040 ez 2011 form A list of employees receiving the payment and the following information for each employee: The tax year you paid and reported the back pay. 1040 ez 2011 form The employee's social security number (SSN). 1040 ez 2011 form The employee's name (as shown on his or her social security card). 1040 ez 2011 form The amount of the back pay award excluding any amounts specifically designated otherwise, for example, damages for personal injury, interest, penalties, and legal fees. 1040 ez 2011 form The period(s) the back pay award covers (beginning and ending dates—month and year). 1040 ez 2011 form The other wages paid subject to social security and/or Medicare taxes and reported in the same year as the back pay award (if none, show zero)*. 1040 ez 2011 form Do not include the back pay award shown in that wage report. 1040 ez 2011 form If you originally submitted the report under an establishment number, show that number and the amount of money that is to remain under that establishment number. 1040 ez 2011 form The amount to allocate to each reporting period*. 1040 ez 2011 form This includes any amount you want allocated (if applicable) to the tax year of the award payment. 1040 ez 2011 form If you do not give the SSA specific amounts to allocate, the SSA does the allocation by dividing the back pay award by the number of months or years covered by the award. 1040 ez 2011 form *Note. 1040 ez 2011 form   For periods before January 1, 1978 (before January 1, 1981, for state and local government employers covered by a Section 218 agreement), show the wage amounts for each calendar quarter ending March 31, June 30, September 30, and December 31. 1040 ez 2011 form For all tax years, show and identify the social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) separately. 1040 ez 2011 form MQGE is applicable to federal employees beginning in 1983, and for certain state and local government employees beginning in 1986. 1040 ez 2011 form For tax years 1991 and later, list the social security and Medicare wages separately. 1040 ez 2011 form If you originally reported the individual's wages under an establishment or payroll record unit number, show the amount of wages to remain in the award year for that number and furnish that number to the SSA along with the EIN. 1040 ez 2011 form Back Pay Under a Statute Back pay awarded under a statute is a payment by an employer following an award, determination, or agreement approved or sanctioned by a court or government agency responsible for enforcing a federal or state statute that protects an employee's right to employment or wages. 1040 ez 2011 form Examples of pertinent statutes include: Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay Act, Fair Labor Standards Act, National Labor Relations Act, State minimum wage laws, and State statutes that protect rights to employment and wages. 1040 ez 2011 form Payments based on laws that have a similar effect to those listed above also may qualify as payments made under a statute. 1040 ez 2011 form Back pay awards, under some of the statutes listed above, may be compensation for personal injury and not pay for employment. 1040 ez 2011 form Such awards are not wages for social security coverage purposes. 1040 ez 2011 form If a court-approved or sanctioned settlement agreement states that the agreement is not an admission of discrimination, liability, or act of wrongdoing, the statement does not change the nature of a back pay award. 1040 ez 2011 form The payments made in such a settlement may still be back pay and wages under the rules discussed here. 1040 ez 2011 form Nonstatutory Back Pay A payment for back wages negotiated between an employer and employee without an award, determination, or agreement approved or sanctioned by a court or government agency, the payment is not made under a statute. 1040 ez 2011 form Delayed wage payments and retroactive pay increases resulting from union negotiation or payments under local ordinances or regulations are back pay and are wages. 1040 ez 2011 form However, they are not payments made under a statute. 1040 ez 2011 form If you are uncertain whether the back pay award was under a qualified statute, you may need to contact your personnel department or legal counsel or the attorney who filed the suit. 1040 ez 2011 form Format for Report to the SSA Use the format shown in Table 1, later, to send the SSA the information needed to properly credit back pay under a statute. 1040 ez 2011 form In a cover letter, include: Name and address of the employer, Statute under which you paid the back pay, Name and telephone number of the employer contact, and Signature of the reporting official. 1040 ez 2011 form Under certain circumstances, back pay may be a special wage payment and excluded from wages counted under the social security earnings test. 1040 ez 2011 form If you pay back pay to an employee age 61 or older, report it to the SSA in accordance with this section. 1040 ez 2011 form Read Special Wage Payments, later, for additional reporting instructions. 1040 ez 2011 form Questions If you have questions concerning back pay under a statute, call the SSA at 1-800-772-6270. 1040 ez 2011 form Exception. 1040 ez 2011 form   If you are a state or local government employer who was covered by an agreement under Section 218 of the Social Security Act before January 1, 1987, and you paid a back pay award before January 1, 1987, which you did not report to the SSA, contact your state Social Security Administrator's office. 1040 ez 2011 form Table 1. 1040 ez 2011 form Format for Report (Under Covering Letter) to Request SSA to Allocate Back Pay Under Statute Wages Employer's EIN: xx-xxxxxxx Tax Year in Which Award Payment Was Paid: 2012 (1) SSN and Employee Name (2)1 Award Amount and Period(s) (3)2,3 Other Soc. 1040 ez 2011 form Sec. 1040 ez 2011 form /Med. 1040 ez 2011 form Wages Paid In Award Year (4)3 Allocation     Soc. 1040 ez 2011 form Sec. 1040 ez 2011 form Med. 1040 ez 2011 form /MQGE Year Soc. 1040 ez 2011 form Sec. 1040 ez 2011 form Med. 1040 ez 2011 form /MQGE xxx-xx-xxxx HELEN T. 1040 ez 2011 form SMITH $100,000 1/2009 - 12/2012 $40,000 $40,000 2009 2010 2011 2012 $20,000 25,000 27,000 28,000 $20,000 25,000 27,000 28,000 xxx-xx-xxxx SAM W. 1040 ez 2011 form EVANS 30,000 7/89-12/91 -0- -0- 1989 1990 1991   6,000 12,000 12,000 xxx-xx-xxxx ROLAND S. 1040 ez 2011 form ADAMS 15,000 7/80-12/81 -0- -0- 9/80 12/80 1981 3,500 3,500 8,000   1Exclude amounts specifically designated as damages, penalties, etc. 1040 ez 2011 form  2Exclude the amount of back pay, if any, included in that amount. 1040 ez 2011 form  3For periods before January 1, 1978 (and for state and local government (Section 218) employers before January 1, 1981), show the wage amounts by calendar quarters. 1040 ez 2011 form The social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) must be shown separately FOR ALL YEARS. 1040 ez 2011 form (Wages subject ONLY to MQGE would be shown in the Medicare/MQGE column; no wages would be shown in the Soc. 1040 ez 2011 form Sec. 1040 ez 2011 form column. 1040 ez 2011 form ) For tax years 1991 and later, the social security and Medicare wages must be listed separately. 1040 ez 2011 form Explanation of examples. 1040 ez 2011 form Helen T. 1040 ez 2011 form Smith–The back pay award, excluding interest, was $100,000 for the periods 1/2009-12/2012. 1040 ez 2011 form In 2012, this employee was also paid $40,000 in other wages. 1040 ez 2011 form (Her Form W-2 for 2012 reported $110,100 for social security and $140,000 for Medicare. 1040 ez 2011 form The SSA allocation will result in adjusted posted wages of $68,000 for social security and $68,000 for Medicare for 2012. 1040 ez 2011 form ) Sam W. 1040 ez 2011 form Evans–The back pay award was $30,000 for the periods 7/89-12/91. 1040 ez 2011 form This employee was hired in 1989 and was subject to MQGE only. 1040 ez 2011 form He was no longer employed by this governmental employer in 2012. 1040 ez 2011 form (His Form W-2 for 2012 reported $30,000 for social security and $30,000 for Medicare. 1040 ez 2011 form After the SSA allocation, he will not have any net posted wages for 2012. 1040 ez 2011 form ) Roland S. 1040 ez 2011 form Adams–The back pay award was $15,000 for the periods 7/80-12/81. 1040 ez 2011 form He was no longer employed by this state and local government (Section 218) employer in 2012. 1040 ez 2011 form (His Form W-2 for 2012 reported $15,000 for social security and $15,000 for Medicare; after the SSA allocation, he will not have any net posted wages for 2012. 1040 ez 2011 form ) If the state Social Security Administrator's office needs more information, they can contact the SSA at the following address:   Social Security Administration Office of Income Security Programs Office of Earnings and Program Integrity Policy 6401 Security Boulevard 2506 OPS Baltimore, MD 21235 2. 1040 ez 2011 form Special Wage Payments A special wage payment (SWP) is an amount paid by an employer to an employee (or former employee) for services performed in a prior year. 1040 ez 2011 form Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. 1040 ez 2011 form Special wage payments made to a retired employee receiving social security or to an employee who continues to work while receiving social security benefits may reduce the benefits the individual receives if not reported to the SSA. 1040 ez 2011 form Special wage payments may include (but are not limited to): Accumulated sick and vacation pay, Back pay, Bonuses, Deferred compensation, Payments because of retirement, Sales commissions, Severance pay, and Stock options. 1040 ez 2011 form Note. 1040 ez 2011 form Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments. 1040 ez 2011 form Earnings Test. 1040 ez 2011 form   Benefits paid to a social security beneficiary under full retirement age may be reduced if the beneficiary continues to work. 1040 ez 2011 form The SSA uses the information in boxes 1, 3, and 5 of Form W-2 to determine the beneficiary's current year earnings. 1040 ez 2011 form Special wage payments, which are for services performed in a prior year, will increase the current year earnings on Form W-2, which also may result in a reduction in the beneficiary's benefits. 1040 ez 2011 form If a benefit is reduced because of a special wage payment, the beneficiary must get documentation from the employer before the SSA can restore the deducted portion. 1040 ez 2011 form Therefore, employer reports of special wage payments help prevent incorrect benefit reductions. 1040 ez 2011 form Reporting Special Wage Payments Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. 1040 ez 2011 form Report income, social security, and/or Medicare taxes for special wage payments on Form W-2. 1040 ez 2011 form See Nonqualified Deferred Compensation and Section 457 Plans, later, for reporting nonqualified deferred compensation plan deferrals and payments on Form W-2. 1040 ez 2011 form In addition, report to the SSA special wage payments made during the reporting year to retired employees and employees who continue to work while receiving social security benefits. 1040 ez 2011 form Submit reports after the close of the tax year. 1040 ez 2011 form To avoid delays in processing, submit reports in time to reach the SSA by April 1. 1040 ez 2011 form Use one of the following reporting methods. 1040 ez 2011 form Electronic reporting. 1040 ez 2011 form   Special wage payment files can be sent electronically by logging onto Business Services Online (BSO) via the socialsecurity. 1040 ez 2011 form gov website. 1040 ez 2011 form BSO enables organizations and authorized individuals to conduct business with and submit confidential information to the Social Security Administration. 1040 ez 2011 form You must register to use this website. 1040 ez 2011 form The web address is www. 1040 ez 2011 form socialsecurity. 1040 ez 2011 form gov/bso/bsowelcome. 1040 ez 2011 form htm. 1040 ez 2011 form   Use the specifications and record layout shown in  Table 2, later. 1040 ez 2011 form Only one file at a time may be submitted. 1040 ez 2011 form If your file is large (>10MB), or you have a slow internet connection, the transmission will be faster if the file is zipped. 1040 ez 2011 form A zipped file contains a file that has been compressed to reduce its file size. 1040 ez 2011 form WinZip and PKZIP are examples of acceptable compression packages. 1040 ez 2011 form   Electronic submissions not meeting the specifications in Table 2 will be rejected. 1040 ez 2011 form Paper listing. 1040 ez 2011 form   A paper listing can be used to report special wage payments to several employees. 1040 ez 2011 form Use the format shown in Table 3, later. 1040 ez 2011 form Submit paper listings to the local SSA office nearest your place of business. 1040 ez 2011 form Visit www. 1040 ez 2011 form socialsecurity. 1040 ez 2011 form gov/locator to find a Social Security office near you. 1040 ez 2011 form Form SSA-131. 1040 ez 2011 form   Use Form SSA-131 to report special wage payments made to an employee. 1040 ez 2011 form Also use this form to report nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in box 11 of Form W-2. 1040 ez 2011 form    This image is too large to be displayed in the current screen. 1040 ez 2011 form Please click the link to view the image. 1040 ez 2011 form Publication 957 Reporting Back Pay to the Social Security Administration Instructions for Form SSA–131   EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM 1. 1040 ez 2011 form Provide the EIN that was used or will be used to report the employee's wages on the Form W-2. 1040 ez 2011 form 2. 1040 ez 2011 form Enter the date the employee retired. 1040 ez 2011 form Enter “Not Retired” if the employee has not retired. 1040 ez 2011 form 3. 1040 ez 2011 form Enter the date that the employee last performed services; was not expected to return to work; and was not subject to recall to render additional services. 1040 ez 2011 form This date should be the same as or earlier than the date in item “2”. 1040 ez 2011 form Enter “Not Retired” if the employee has not retired. 1040 ez 2011 form 4. 1040 ez 2011 form Enter the wages that were paid to the employee in the tax year that were for services that were performed in years prior to the tax year or that were paid on account of retirement. 1040 ez 2011 form  Examples (not all inclusive) of payments to be included: Payments in lieu of vacation that were earned in a year prior to the tax year. 1040 ez 2011 form Accumulated sick payments which were paid in a lump sum based on “retirement” as the sole condition of payment. 1040 ez 2011 form Accumulated sick payments paid at or after the date in item 3, which were earned in a year prior to the tax year. 1040 ez 2011 form Payments “on account of retirement”–dismissal, severance or termination pay paid because of retirement. 1040 ez 2011 form Bonuses which are paid pursuant to a prior contract, agreement or promise causing the employee to expect such payments regularly; or announced to induce the employee to work more steadily, rapidly or efficiently or to remain with the employer. 1040 ez 2011 form Stock Options. 1040 ez 2011 form   Do not include in item “4” payments: For annual, sick, holiday, or vacation pay if used (absence from work) prior to the date of retirement (earlier of items “2” or “3”). 1040 ez 2011 form That were reported or will be reported under “Nonqualified Plans” on the Form W-2. 1040 ez 2011 form That were deducted from the employee's wages and paid to a deferred compensation plan (e. 1040 ez 2011 form g. 1040 ez 2011 form , 401k). 1040 ez 2011 form Employees health and dental plan benefits (non-covered/non-taxable for Social Security Wages). 1040 ez 2011 form Bonuses earned and paid in the tax year. 1040 ez 2011 form 5. 1040 ez 2011 form Check whether payments listed in item 4 will be made for years after the tax year. 1040 ez 2011 form If yes, please show the amounts and years in which these will be paid, if known. 1040 ez 2011 form 6. 1040 ez 2011 form Nonqualified deferred compensation and section 457 plans only. 1040 ez 2011 form If you were unable to report nonqualified deferred compensation or section 457 plan payments and deferrals (contributions) on Form W-2 because both payments and deferrals occurred during the year, show the amount of wages earned by the employee during the tax year. 1040 ez 2011 form Generally, the wages earned will be the compensation reported in block 1 of Form W-2 less payments from a nonqualified deferred compensation (or 457) plan, but including any amounts deferred under the plan during the tax year (See IRS Publication 957). 1040 ez 2011 form Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404. 1040 ez 2011 form 702. 1040 ez 2011 form The information that you provide will be used in making a determination regarding the amount of Social Security benefits payable to the above named individual. 1040 ez 2011 form While your response is voluntary, if you do not respond we may not be able to make a correct determination regarding the amount of Social Security benefits payable to the above named individual for the year in question. 1040 ez 2011 form We may also use the information you give us when we match records by computer. 1040 ez 2011 form Matching programs compare our records with those of other Federal, State, or local government agencies. 1040 ez 2011 form Many agencies may use matching programs to find or prove that a person qualifies for benefits paid by the Federal Government. 1040 ez 2011 form The law allows us to do this even if you do not agree to it. 1040 ez 2011 form Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. 1040 ez 2011 form If you want to learn more about this, contact any Social Security Office. 1040 ez 2011 form The Paperwork Reduction Act: This information collection meets the clearance requirements of 44 U. 1040 ez 2011 form S. 1040 ez 2011 form C. 1040 ez 2011 form §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. 1040 ez 2011 form You are not required to answer these questions unless we display a valid Office of Management and Budget control number. 1040 ez 2011 form We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions. 1040 ez 2011 form Form SSA-131 (8-2001) EF (06-2002)   Submit Form SSA-131 to the SSA office nearest your place of business. 1040 ez 2011 form Or, the employee can submit it to the SSA office handling the claim. 1040 ez 2011 form You or the employee must submit this form before the SSA can exclude the special wage payments for purposes of the earnings test. 1040 ez 2011 form If reporting on more than one employee, complete a separate Form SSA-131 for each employee or use the paper listing format (except for reporting nonqualified and section 457 plan deferrals and payments) in Table 3. 1040 ez 2011 form Do not report payments from nonqualified deferred compensation or section 457 plans that were reported in box 11 of Form W-2. 1040 ez 2011 form Use Form SSA-131 if deferrals to and payments from nonqualified or section 457 plans occurred during the tax year. 1040 ez 2011 form Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments A nonstatutory (nonqualified) option to purchase stock which is exercised in a year after the year in which the option was earned is a special wage payment. 1040 ez 2011 form It should not count for the social security earnings test. 1040 ez 2011 form Nonstatutory (nonqualified) options exercised as special wage payments by retired employees or employees who continue to work while receiving social security benefits should be reported by employers using the above reporting methods. 1040 ez 2011 form Nonqualified Deferred Compensation and Section 457 Plans A nonqualified deferred compensation plan is a plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan. 1040 ez 2011 form For social security and Medicare purposes, deferred compensation plans for employees of state and local governments (section 457 plans) are treated the same as nonqualified plans. 1040 ez 2011 form Nonqualified and section 457 plans are reported differently than other special wage payments. 1040 ez 2011 form See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions. 1040 ez 2011 form Reporting Amounts Deferred to Nonqualified and Section 457 Plans Generally, when the related services are performed, nonqualified deferred compensation is subject to social security and Medicare tax when deferred. 1040 ez 2011 form However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. 1040 ez 2011 form The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends. 1040 ez 2011 form No risk of forfeiture. 1040 ez 2011 form   If there is no risk of forfeiture, report wage amounts deferred to a nonqualified deferred compensation or section 457 plan in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. 1040 ez 2011 form Example. 1040 ez 2011 form Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. 1040 ez 2011 form The plan has no risk of forfeiture. 1040 ez 2011 form In 2012, Employee A defers $20,000 to the plan from a total salary of $200,000. 1040 ez 2011 form Form W-2 Completion Amount Box 1 $200,000 Box 3* 110,100 Box 5 200,000 *Wage base maximum for tax year 2012 Risk of forfeiture lapses before retirement. 1040 ez 2011 form   If the substantial risk of forfeiture lapses before the employee retires, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. 1040 ez 2011 form The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year. 1040 ez 2011 form   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. 1040 ez 2011 form If the employee continues working, future deferrals are social security and Medicare wages when they are earned. 1040 ez 2011 form    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. 1040 ez 2011 form Risk of forfeiture lapses at retirement. 1040 ez 2011 form   When an employee's right to a payment is contingent upon working until retirement, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, as social security and/or Medicare wages in the year of retirement. 1040 ez 2011 form Add the amount to other wages paid in that year, and enter in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. 1040 ez 2011 form   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. 1040 ez 2011 form    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. 1040 ez 2011 form Example—risk of forfeiture. 1040 ez 2011 form At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, Employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. 1040 ez 2011 form B's wages, including this year's deferred amount, are $80,000. 1040 ez 2011 form Form W-2 Completion Amount Box 1 $60,000 Box 3* 110,100 Box 5 200,000 Box 11 120,000 *Wage base maximum for tax year 2012 Reporting Payments From Nonqualified and Nongovernmental Section 457 Plans When an employee or former employee retires and begins receiving payments (distributions) from a nonqualified or nongovernmental section 457 plan, report the payments in boxes 1 and 11 of Form W-2. 1040 ez 2011 form Report payments (distributions) from a governmental section 457 plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 1040 ez 2011 form Example. 1040 ez 2011 form Employee D retired from the XYZ company and began receiving social security benefits. 1040 ez 2011 form XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. 1040 ez 2011 form In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. 1040 ez 2011 form D made no deferrals to the nonqualified plan this year. 1040 ez 2011 form Form W-2 Completion Amount Box 1 $52,000 Box 3 27,000 Box 5 27,000 Box 11 25,000 Report the $12,000 bonus to the SSA using electronic reporting, a paper listing, or Form SSA-131. 1040 ez 2011 form For more information, see Reporting Special Wage Payments , earlier. 1040 ez 2011 form Reporting Payments and Deferrals in the Same Year Do not complete box 11 when payments (distributions) are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). 1040 ez 2011 form Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. 1040 ez 2011 form Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified or section 457 plan, but including any amounts deferred under the plan during the tax year. 1040 ez 2011 form See Form SSA-131 and its instructions, earlier. 1040 ez 2011 form Example. 1040 ez 2011 form Employee K retired this year from Company XYZ and began receiving social security benefits. 1040 ez 2011 form During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. 1040 ez 2011 form K also received $75,000 in payments from the company's nonqualified plan. 1040 ez 2011 form Form W-2 Completion Amount Special Wage Payment $75,000 Wages 50,000 Minus: deferral 35,000 Total reported in Box 1 $90,000     Wages including deferral reported in  Boxes 3 and 5 $50,000     Leave Box 11 blank. 1040 ez 2011 form File Form SSA-131 -0-     Form SSA-131 Completion Amount from Box 1 of Form W-2 $90,000 Minus: payments from a nonqualified plan 75,000 Plus: amounts deferred into the plan during the year 35,000 Total wages earned for purposes of Form SSA-131 (item 6) $50,000 Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) Plans It is not necessary to show amounts deferred during the year under an NQDC plan subject to section 409A. 1040 ez 2011 form If you report section 409A deferrals, show the amount in box 12 of Form W-2 using code Y. 1040 ez 2011 form For more information, see Notice 2008-115, 2008-52 I. 1040 ez 2011 form R. 1040 ez 2011 form B. 1040 ez 2011 form 1367, available at www. 1040 ez 2011 form irs. 1040 ez 2011 form gov/irb/2008-52_IRB/ar10. 1040 ez 2011 form html. 1040 ez 2011 form Special reporting rules apply when an NQDC plan is not compliant with section 409A (when there has been a “plan failure”). 1040 ez 2011 form Income included under section 409A from an NQDC plan is reported in box 1 and box 12 of Form W-2 using code Z. 1040 ez 2011 form See Notice 2008-115. 1040 ez 2011 form The following examples use small dollar amounts for illustrative purposes. 1040 ez 2011 form However, the amount reported in box 3 of Form W-2 is always limited by the social security earnings wage base (for example, $110,100 for 2012). 1040 ez 2011 form The term “vested” in the following examples means that the amount deferred is not subject to a substantial risk of forfeiture. 1040 ez 2011 form Conversely, the term “not vested” means that the amount deferred is subject to a substantial risk of forfeiture. 1040 ez 2011 form The examples assume that the NQDC plan is in compliance with section 409A, and that amounts deferred under the plan are not includible in gross income as they are deferred. 1040 ez 2011 form For purposes of the examples, it is assumed that the regular pay of the employee is remuneration for employment and wages for employment tax purposes except to the extent the deferral of a portion of the regular pay results in a reduction in wages. 1040 ez 2011 form Example 1: Deferral that is immediately vested (no substantial risk of forfeiture) with no distributions and no vesting of prior-year deferrals. 1040 ez 2011 form For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into her employer’s NQDC plan. 1040 ez 2011 form The deferral of $20 was vested upon deferral and there was an employer match of $10 under the plan, which was also vested. 1040 ez 2011 form Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10. 1040 ez 2011 form Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 vested deferral) $180 Box 3 ($200 Regular pay plus $10 Employer match, vested) 210 Box 5 ($200 Regular pay plus $10 Employer match, vested) 210 Box 11 -0- Example 2: Deferral with delayed vesting (substantial risk of forfeiture) of employee and employer portions (no distributions and no vesting of prior-year deferrals). 1040 ez 2011 form For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. 1040 ez 2011 form The deferral of $20 was not vested upon deferral, and there was an employer match of $10 under the plan, which was also not vested. 1040 ez 2011 form Regular pay = $200; Deferral, not vested = $20; Employer match, not vested = $10. 1040 ez 2011 form Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, not vested) $180 Box 3 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 5 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 11 -0- Example 3: Deferral that is immediately vested with prior-year deferrals and investment earnings on the prior-year deferrals that are now vesting (no distributions). 1040 ez 2011 form For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. 1040 ez 2011 form The deferral of $20 was vested upon deferral. 1040 ez 2011 form During the year, $100 of prior-year deferrals and $15 of investment earnings on the $100 of prior-year deferrals became vested. 1040 ez 2011 form Regular pay = $200; Deferral, vested = $20; Vesting of prior-year deferrals = $100; Vesting of investment earnings on $100 of prior-year deferral = $15. 1040 ez 2011 form Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, vested) $180 Box 3 ($200 Regular pay plus $100 vested prior-year deferral plus $15 earnings on deferral) 315 Box 5 ($200 Regular pay plus $100 vested prior-year deferral plus $15 vested investment earnings on prior year deferral) 315 Box 11 ($100 vested prior-year deferral plus $15 earnings) 115 Example 4: No deferrals but there are distributions (no vesting of prior-year deferrals). 1040 ez 2011 form For the year, the employee’s regular pay was $100, and the employee deferred no pay into the employer’s NQDC plan. 1040 ez 2011 form There was no vesting of prior-year deferrals under the plan. 1040 ez 2011 form During the year, there were total distributions of $50 from the plan to the employee. 1040 ez 2011 form Regular pay = $100; Distribution = $50. 1040 ez 2011 form Form W-2 Completion Amount Box 1 ($100 Regular pay plus $50 Distribution) $150 Box 3 ($100 Regular pay ) 100 Box 5 ($100 Regular pay) 100 Box 11 ($50 Distribution) 50 Special rule for box 11 of Form W-2 (distributions and deferral in the same year). 1040 ez 2011 form   If, in the same year, there are NQDC distributions and there are deferrals that are reportable in boxes 3 and/or 5 (current or prior-year deferrals) of Form W-2, do not complete box 11. 1040 ez 2011 form Instead, report on Form SSA-131 the total amount the employee earned during the year. 1040 ez 2011 form * Submit the SSA-131 to the nearest SSA office or give it to the employee. 1040 ez 2011 form   *Generally, the amount earned by the employee during the tax year for purposes of item 6 of Form SSA-131 is the amount reported in box 1 of Form W-2 plus current-year deferrals that are vested (employee and employer portions) less distributions. 1040 ez 2011 form Do not consider prior-year deferrals that are vesting in the current year. 1040 ez 2011 form If there was a plan failure, the box 1 amount in this calculation should be as if there were no plan failure. 1040 ez 2011 form Example 5: Deferral that is immediately vested and there are distributions (no vesting of prior-year deferrals). 1040 ez 2011 form For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1040 ez 2011 form There was also an employer match of $10. 1040 ez 2011 form The deferral and employer match were vested upon deferral. 1040 ez 2011 form There was no vesting of prior-year deferrals under the plan. 1040 ez 2011 form During the year, there were total distributions of $50 from the plan to the employee. 1040 ez 2011 form Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10; Distribution = $50. 1040 ez 2011 form Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, vested) $230 Boxes 3 and 5 ($200 Regular pay plus $10 vested employer match) 210 Leave Box 11 blank. 1040 ez 2011 form File Form SSA-131 -0-     Form SSA-131 Completion Item 6 - amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $30 vested current year employee deferral and employer match) $210 Example 6: Deferral with delayed vesting and there are distributions (no vesting of prior-year deferrals). 1040 ez 2011 form For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1040 ez 2011 form The deferral was not vested upon deferral. 1040 ez 2011 form There was no vesting of prior-year deferrals under the plan. 1040 ez 2011 form During the year, there were total distributions of $50 from the plan to the employee. 1040 ez 2011 form Regular pay = $200; Deferral, not vested = $20; Distribution = $50. 1040 ez 2011 form Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay minus $20 deferral that is not vested) 180 Box 11 ($50 Distribution). 1040 ez 2011 form 50 Example 7: Deferral that is immediately vested and there are distributions (also vesting of prior-year deferrals and earnings on those prior-year deferrals). 1040 ez 2011 form For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1040 ez 2011 form The deferral was vested upon deferral. 1040 ez 2011 form There was vesting of $100 of prior-year deferrals and $15 of earnings on the $100 prior-year deferral under the plan. 1040 ez 2011 form During the year, there were total distributions of $50 from the plan to the employee. 1040 ez 2011 form Regular pay = $200; Deferral, vested = $20; Distribution = $50; Vesting of prior-year deferrals ($100) and earnings on those prior-year deferrals ($15) = $115. 1040 ez 2011 form Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 vested deferral $230 Boxes 3 and 5 ($200 Regular pay Plus $115 vested prior deferral (with vested earnings on the deferral)) 315 Leave Box 11 blank. 1040 ez 2011 form File Form SSA-131 -0-     Form SSA-131 Completion Item 6, amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $20 vested current year deferral) $200 Example 8: Deferral with delayed vesting and there are distributions (vesting of prior-year deferrals, including employer matches, and earnings on those deferrals). 1040 ez 2011 form For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. 1040 ez 2011 form The deferral was not vested upon deferral. 1040 ez 2011 form There was also vesting of prior-year deferrals and employer matches and earnings on these amounts under the plan ($115). 1040 ez 2011 form During the year, there were total distributions of $50 from the plan to the employee. 1040 ez 2011 form Regular pay = $200; Deferral, not vested = $20; Distribution = $50; Vesting of prior-year deferrals and employer match = $100 plus earnings on that $100 of $15. 1040 ez 2011 form Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay plus $115 vested prior-year deferral and prior year employer match and earning on the prior year amounts minus $20 deferral that is not vested) 295 Leave Box 11 blank. 1040 ez 2011 form File Form SSA-131 -0-     Form SSA-131 Completion Item 6 ($230 Amount from Box 1 of Form W-2 minus $50 Distribution) $180 Table 2. 1040 ez 2011 form Specifications for Electronic Reporting of Special Wage Payments Record Position  Field Size   Description Start End 1 3 3 Record Type—must include only the capital letters “SWP” 4 12 9 SSN—must be numeric and may not be all zeros 13 27 15 Last Name—all capitals and no punctuation; may have blanks on right only 28 38 11 First Name—all capitals and no punctuation; may have blanks on right only 39 39 1 Middle Initial—must be either a capital letter or blank 40 48 9 EIN—must be numeric and may not be all zeros 49 59 11 Payment—must be numeric; may not be all zeros; last two digits on right are assumed to be cents; no period or dollar sign 60 63 4 Payment Year—must be only a four-digit year 64 66 3 SSA Office Code—must be numeric and may be all zeros 67 67 1 Payment Type Code—must be the capital letter “T” 68 117 50 Filler  The record format is a fixed length of 117. 1040 ez 2011 form  The file format is ASCII. 1040 ez 2011 form  Submit only one file at a time. 1040 ez 2011 form   Table 3. 1040 ez 2011 form Sample—Paper Listing for Reporting Special Wage Payments to Several Employees Report of Special Wage PaymentsTax Year: Page of A. 1040 ez 2011 form Employer Name: EIN:   Address: Contact Name:     Phone: ( )   . 1040 ez 2011 form 1) B. 1040 ez 2011 form Employee Name: (Last) (First) (MI)   C. 1040 ez 2011 form SSN: D. 1040 ez 2011 form SWP:$ E. 1040 ez 2011 form Type: Other: 2) B. 1040 ez 2011 form Employee Name: (Last) (First) (MI)   C. 1040 ez 2011 form SSN: D. 1040 ez 2011 form SWP:$ E. 1040 ez 2011 form Type: Other: 3) B. 1040 ez 2011 form Employee Name: (Last) (First) (MI)   C. 1040 ez 2011 form SSN: D. 1040 ez 2011 form SWP:$ E. 1040 ez 2011 form Type: Other: 4) B. 1040 ez 2011 form Employee Name: (Last) (First) (MI)   C. 1040 ez 2011 form SSN: D. 1040 ez 2011 form SWP:$ E. 1040 ez 2011 form Type: Other: 5) B. 1040 ez 2011 form Employee Name: (Last) (First) (MI)   C. 1040 ez 2011 form SSN: D. 1040 ez 2011 form SWP:$ E. 1040 ez 2011 form Type: Other:     INSTRUCTIONS:   Enter tax year and page number. 1040 ez 2011 form   A. 1040 ez 2011 form Employer name, employer identification number (EIN), address, the name of a contact person, and a phone number where the contact person can be reached during normal business hours. 1040 ez 2011 form   B. 1040 ez 2011 form Employee's name. 1040 ez 2011 form   C. 1040 ez 2011 form Employee's social security number (SSN). 1040 ez 2011 form   D. 1040 ez 2011 form Total amount of special wage payments made to the employee. 1040 ez 2011 form   E. 1040 ez 2011 form Type of special wage payment from the following list: (1) Vacation Pay, (2) Sick Pay, (3) Severance Pay,  (4) Bonus, (5) Deferred Compensation, (6) Stock Options, and (7) Other—Please explain. 1040 ez 2011 form   Do not use a paper listing for nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in block 11 of Form W-2. 1040 ez 2011 form (Get Form SSA-131. 1040 ez 2011 form )                 Prev  Up  Next   Home   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The 1040 Ez 2011 Form

1040 ez 2011 form 1. 1040 ez 2011 form   Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. 1040 ez 2011 form Generally, each year you will report all income and deduct all out-of-pocket expenses in full. 1040 ez 2011 form The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. 1040 ez 2011 form If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). 1040 ez 2011 form Rental Income In most cases, you must include in your gross income all amounts you receive as rent. 1040 ez 2011 form Rental income is any payment you receive for the use or occupation of property. 1040 ez 2011 form In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. 1040 ez 2011 form When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. 1040 ez 2011 form Most individual taxpayers use the cash method. 1040 ez 2011 form Cash method. 1040 ez 2011 form   You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. 1040 ez 2011 form You constructively receive income when it is made available to you, for example, by being credited to your bank account. 1040 ez 2011 form Accrual method. 1040 ez 2011 form    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. 1040 ez 2011 form You generally deduct your expenses when you incur them, rather than when you pay them. 1040 ez 2011 form More information. 1040 ez 2011 form   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. 1040 ez 2011 form Types of Income The following are common types of rental income. 1040 ez 2011 form Advance rent. 1040 ez 2011 form   Advance rent is any amount you receive before the period that it covers. 1040 ez 2011 form Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. 1040 ez 2011 form Example. 1040 ez 2011 form On March 18, 2013, you signed a 10-year lease to rent your property. 1040 ez 2011 form During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. 1040 ez 2011 form You must include $19,200 in your rental income in the first year. 1040 ez 2011 form Canceling a lease. 1040 ez 2011 form   If your tenant pays you to cancel a lease, the amount you receive is rent. 1040 ez 2011 form Include the payment in your income in the year you receive it regardless of your method of accounting. 1040 ez 2011 form Expenses paid by tenant. 1040 ez 2011 form   If your tenant pays any of your expenses, those payments are rental income. 1040 ez 2011 form Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. 1040 ez 2011 form For more information, see Rental Expenses , later. 1040 ez 2011 form Example 1. 1040 ez 2011 form Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. 1040 ez 2011 form Under the terms of the lease, your tenant does not have to pay this bill. 1040 ez 2011 form Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. 1040 ez 2011 form You can deduct the utility payment made by your tenant as a rental expense. 1040 ez 2011 form Example 2. 1040 ez 2011 form While you are out of town, the furnace in your rental property stops working. 1040 ez 2011 form Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. 1040 ez 2011 form Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. 1040 ez 2011 form You can deduct the repair payment made by your tenant as a rental expense. 1040 ez 2011 form Property or services. 1040 ez 2011 form   If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. 1040 ez 2011 form   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. 1040 ez 2011 form Example. 1040 ez 2011 form Your tenant is a house painter. 1040 ez 2011 form He offers to paint your rental property instead of paying 2 months rent. 1040 ez 2011 form You accept his offer. 1040 ez 2011 form Include in your rental income the amount the tenant would have paid for 2 months rent. 1040 ez 2011 form You can deduct that same amount as a rental expense for painting your property. 1040 ez 2011 form Security deposits. 1040 ez 2011 form   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. 1040 ez 2011 form But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. 1040 ez 2011 form    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. 1040 ez 2011 form Include it in your income when you receive it. 1040 ez 2011 form Other Sources of Rental Income Lease with option to buy. 1040 ez 2011 form   If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. 1040 ez 2011 form If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. 1040 ez 2011 form Part interest. 1040 ez 2011 form   If you own a part interest in rental property, you must report your part of the rental income from the property. 1040 ez 2011 form Rental of property also used as your home. 1040 ez 2011 form   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. 1040 ez 2011 form However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. 1040 ez 2011 form See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). 1040 ez 2011 form Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. 1040 ez 2011 form Personal use of rental property. 1040 ez 2011 form   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. 1040 ez 2011 form Also, your rental expense deductions may be limited. 1040 ez 2011 form See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). 1040 ez 2011 form Part interest. 1040 ez 2011 form   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. 1040 ez 2011 form Example. 1040 ez 2011 form Roger owns a one-half undivided interest in a rental house. 1040 ez 2011 form Last year he paid $968 for necessary repairs on the property. 1040 ez 2011 form Roger can deduct $484 (50% × $968) as a rental expense. 1040 ez 2011 form He is entitled to reimbursement for the remaining half from the co-owner. 1040 ez 2011 form When To Deduct You generally deduct your rental expenses in the year you pay them. 1040 ez 2011 form If you use the accrual method, see Publication 538 for more information. 1040 ez 2011 form Types of Expenses Listed below are the most common rental expenses. 1040 ez 2011 form Advertising. 1040 ez 2011 form Auto and travel expenses. 1040 ez 2011 form Cleaning and maintenance. 1040 ez 2011 form Commissions. 1040 ez 2011 form Depreciation. 1040 ez 2011 form Insurance. 1040 ez 2011 form Interest (other). 1040 ez 2011 form Legal and other professional fees. 1040 ez 2011 form Local transportation expenses. 1040 ez 2011 form Management fees. 1040 ez 2011 form Mortgage interest paid to banks, etc. 1040 ez 2011 form Points. 1040 ez 2011 form Rental payments. 1040 ez 2011 form Repairs. 1040 ez 2011 form Taxes. 1040 ez 2011 form Utilities. 1040 ez 2011 form Some of these expenses, as well as other less common ones, are discussed below. 1040 ez 2011 form Depreciation. 1040 ez 2011 form   Depreciation is a capital expense. 1040 ez 2011 form It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. 1040 ez 2011 form   You can begin to depreciate rental property when it is ready and available for rent. 1040 ez 2011 form See Placed in Service under When Does Depreciation Begin and End in chapter 2. 1040 ez 2011 form Insurance premiums paid in advance. 1040 ez 2011 form   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. 1040 ez 2011 form You cannot deduct the total premium in the year you pay it. 1040 ez 2011 form See chapter 6 of Publication 535 for information on deductible premiums. 1040 ez 2011 form Interest expense. 1040 ez 2011 form   You can deduct mortgage interest you pay on your rental property. 1040 ez 2011 form When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. 1040 ez 2011 form Chapter 4 of Publication 535 explains mortgage interest in detail. 1040 ez 2011 form Expenses paid to obtain a mortgage. 1040 ez 2011 form   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. 1040 ez 2011 form These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. 1040 ez 2011 form Form 1098, Mortgage Interest Statement. 1040 ez 2011 form   If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. 1040 ez 2011 form If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. 1040 ez 2011 form Attach a statement to your return showing the name and address of the other person. 1040 ez 2011 form On the dotted line next to line 13, enter “See attached. 1040 ez 2011 form ” Legal and other professional fees. 1040 ez 2011 form   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. 1040 ez 2011 form For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. 1040 ez 2011 form You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. 1040 ez 2011 form Local benefit taxes. 1040 ez 2011 form   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. 1040 ez 2011 form These charges are nondepreciable capital expenditures and must be added to the basis of your property. 1040 ez 2011 form However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. 1040 ez 2011 form Local transportation expenses. 1040 ez 2011 form   You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. 1040 ez 2011 form However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. 1040 ez 2011 form See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. 1040 ez 2011 form   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. 1040 ez 2011 form For 2013, the standard mileage rate for business use is 56. 1040 ez 2011 form 5 cents per mile. 1040 ez 2011 form For more information, see chapter 4 of Publication 463. 1040 ez 2011 form    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. 1040 ez 2011 form In addition, you must complete Form 4562, Part V, and attach it to your tax return. 1040 ez 2011 form Pre-rental expenses. 1040 ez 2011 form   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. 1040 ez 2011 form Rental of equipment. 1040 ez 2011 form   You can deduct the rent you pay for equipment that you use for rental purposes. 1040 ez 2011 form However, in some cases, lease contracts are actually purchase contracts. 1040 ez 2011 form If so, you cannot deduct these payments. 1040 ez 2011 form You can recover the cost of purchased equipment through depreciation. 1040 ez 2011 form Rental of property. 1040 ez 2011 form   You can deduct the rent you pay for property that you use for rental purposes. 1040 ez 2011 form If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. 1040 ez 2011 form Travel expenses. 1040 ez 2011 form   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. 1040 ez 2011 form You must properly allocate your expenses between rental and nonrental activities. 1040 ez 2011 form You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. 1040 ez 2011 form The cost of improvements is recovered by taking depreciation. 1040 ez 2011 form For information on travel expenses, see chapter 1 of Publication 463. 1040 ez 2011 form    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. 1040 ez 2011 form Uncollected rent. 1040 ez 2011 form   If you are a cash basis taxpayer, do not deduct uncollected rent. 1040 ez 2011 form Because you have not included it in your income, it is not deductible. 1040 ez 2011 form   If you use an accrual method, report income when you earn it. 1040 ez 2011 form If you are unable to collect the rent, you may be able to deduct it as a business bad debt. 1040 ez 2011 form See chapter 10 of Publication 535 for more information about business bad debts. 1040 ez 2011 form Vacant rental property. 1040 ez 2011 form   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. 1040 ez 2011 form However, you cannot deduct any loss of rental income for the period the property is vacant. 1040 ez 2011 form Vacant while listed for sale. 1040 ez 2011 form   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. 1040 ez 2011 form If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. 1040 ez 2011 form Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. 1040 ez 2011 form These charges are also called loan origination fees, maximum loan charges, or premium charges. 1040 ez 2011 form Any of these charges (points) that are solely for the use of money are interest. 1040 ez 2011 form Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. 1040 ez 2011 form The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. 1040 ez 2011 form In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). 1040 ez 2011 form The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. 1040 ez 2011 form If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. 1040 ez 2011 form De minimis OID. 1040 ez 2011 form   The OID is de minimis if it is less than one-fourth of 1% (. 1040 ez 2011 form 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). 1040 ez 2011 form   If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. 1040 ez 2011 form On a constant-yield basis over the term of the loan. 1040 ez 2011 form On a straight line basis over the term of the loan. 1040 ez 2011 form In proportion to stated interest payments. 1040 ez 2011 form In its entirety at maturity of the loan. 1040 ez 2011 form You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. 1040 ez 2011 form Example. 1040 ez 2011 form Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. 1040 ez 2011 form The loan is to be repaid over 30 years. 1040 ez 2011 form During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. 1040 ez 2011 form When the loan was made, she paid $1,500 in points to the lender. 1040 ez 2011 form The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. 1040 ez 2011 form Carol determines that the points (OID) she paid are de minimis based on the following computation. 1040 ez 2011 form Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. 1040 ez 2011 form 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). 1040 ez 2011 form Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. 1040 ez 2011 form Under the straight line method, she can deduct $50 each year for 30 years. 1040 ez 2011 form Constant-yield method. 1040 ez 2011 form   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. 1040 ez 2011 form   You figure your deduction for the first year in the following manner. 1040 ez 2011 form Determine the issue price of the loan. 1040 ez 2011 form If you paid points on the loan, the issue price generally is the difference between the principal and the points. 1040 ez 2011 form Multiply the result in (1) by the yield to maturity (defined later). 1040 ez 2011 form Subtract any qualified stated interest payments (defined later) from the result in (2). 1040 ez 2011 form This is the OID you can deduct in the first year. 1040 ez 2011 form Yield to maturity (YTM). 1040 ez 2011 form   This rate is generally shown in the literature you receive from your lender. 1040 ez 2011 form If you do not have this information, consult your lender or tax advisor. 1040 ez 2011 form In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. 1040 ez 2011 form Qualified stated interest (QSI). 1040 ez 2011 form   In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. 1040 ez 2011 form Example—Year 1. 1040 ez 2011 form The facts are the same as in the previous example. 1040 ez 2011 form The yield to maturity on Carol's loan is 10. 1040 ez 2011 form 2467%, compounded annually. 1040 ez 2011 form She figured the amount of points (OID) she could deduct in 2013 as follows. 1040 ez 2011 form Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . 1040 ez 2011 form 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. 1040 ez 2011 form To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. 1040 ez 2011 form Then follow steps (2) and (3), earlier. 1040 ez 2011 form Example—Year 2. 1040 ez 2011 form Carol figured the deduction for 2014 as follows. 1040 ez 2011 form Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . 1040 ez 2011 form 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. 1040 ez 2011 form    If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. 1040 ez 2011 form A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. 1040 ez 2011 form However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. 1040 ez 2011 form Points when loan refinance is more than the previous outstanding balance. 1040 ez 2011 form   When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. 1040 ez 2011 form For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. 1040 ez 2011 form Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. 1040 ez 2011 form Improvements. 1040 ez 2011 form   You must capitalize any expense you pay to improve your rental property. 1040 ez 2011 form An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. 1040 ez 2011 form Betterments. 1040 ez 2011 form   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. 1040 ez 2011 form Restoration. 1040 ez 2011 form   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. 1040 ez 2011 form Adaptation. 1040 ez 2011 form   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. 1040 ez 2011 form Separate the costs of repairs and improvements, and keep accurate records. 1040 ez 2011 form You will need to know the cost of improvements when you sell or depreciate your property. 1040 ez 2011 form The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. 1040 ez 2011 form Table 1-1. 1040 ez 2011 form Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio  Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system   Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting  Insulation Attic Walls, floor Pipes, duct work Prev  Up  Next   Home   More Online Publications