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1040z

1040z 1. 1040z   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). 1040z  You can set up and make contributions to an IRA if you receive taxable compensation. 1040z Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. 1040z For more information about IRAs, see Publication 590. 1040z Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. 1040z The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. 1040z Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. 1040z Many types of educational assistance are tax free if they meet the requirements discussed here. 1040z Special rules apply to U. 1040z S. 1040z citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. 1040z For information about these rules, see Publication 54, Tax Guide for U. 1040z S. 1040z Citizens and Resident Aliens Abroad. 1040z Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. 1040z A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. 1040z Amount of scholarship or fellowship. 1040z   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. 1040z This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. 1040z The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. 1040z Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. 1040z Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. 1040z A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. 1040z (But for exceptions, see Payment for services,later. 1040z Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. 1040z Candidate for a degree. 1040z   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. 1040z Eligible educational institution. 1040z   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 1040z Qualified education expenses. 1040z   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. 1040z These items must be required of all students in your course of instruction. 1040z Expenses that do not qualify. 1040z   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. 1040z Payment for services. 1040z   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. 1040z This applies even if all candidates for a degree must perform the services to receive the degree. 1040z (See exceptions next. 1040z ) Exceptions. 1040z   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. 1040z Example 1. 1040z You received a scholarship of $2,500. 1040z The scholarship was not received under either of the exceptions mentioned above. 1040z As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. 1040z Of the $2,500 scholarship, $1,000 represents payment for teaching. 1040z The provider of your scholarship gives you a Form W-2 showing $1,000 as income. 1040z Your qualified education expenses were at least $1,500. 1040z Assuming that all other conditions are met, $1,500 of your scholarship is tax free. 1040z The $1,000 you received for teaching is taxable. 1040z Example 2. 1040z You are a candidate for a degree at a medical school. 1040z You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. 1040z The terms of your scholarship require you to perform future services. 1040z A substantial penalty applies if you do not comply. 1040z The entire amount of your grant is taxable as payment for services in the year it is received. 1040z Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. 1040z Worksheet 1-1. 1040z    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. 1040z    Worksheet 1-1. 1040z Taxable Scholarship and Fellowship Income 1. 1040z Enter the total amount of any scholarship or fellowship for 2013. 1040z See Amount of scholarship or fellowship, earlier. 1040z 1. 1040z       If you are a degree candidate at an eligible educational institution, go to line 2. 1040z If you are not a degree candidate at an eligible educational institution, stop here. 1040z The entire amount is taxable. 1040z For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. 1040z       2. 1040z Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. 1040z (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. 1040z ) 2. 1040z     3. 1040z Subtract line 2 from line 1 3. 1040z     4. 1040z Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. 1040z     5. 1040z Subtract line 4 from line 3 5. 1040z     6. 1040z Enter the amount of your qualified education expenses 6. 1040z     7. 1040z Enter the smaller of line 5 or line 6. 1040z This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. 1040z     8. 1040z Subtract line 7 from line 5 8. 1040z     9. 1040z Taxable part. 1040z Add lines 2, 4, and 8. 1040z See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. 1040z     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. 1040z You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. 1040z Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. 1040z If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. 1040z If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. 1040z You must report the taxable amount whether or not you received a Form W-2. 1040z If you receive an incorrect Form W-2, ask the payer for a corrected one. 1040z For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. 1040z How To Report How you report any taxable scholarship or fellowship income depends on which return you file. 1040z Form 1040EZ. 1040z   If you file Form 1040EZ, include the taxable amount in the total on line 1. 1040z If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. 1040z Form 1040A. 1040z   If you file Form 1040A, include the taxable amount in the total on line 7. 1040z If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. 1040z Form 1040. 1040z   If you file Form 1040, include the taxable amount in the total on line 7. 1040z If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. 1040z Schedule SE (Form 1040). 1040z   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. 1040z If your net earnings are $400 or more, you must pay self-employment tax. 1040z Use Schedule SE, Self-Employment Tax, to figure this tax. 1040z Form 1040NR. 1040z   If you file Form 1040NR, report the taxable amount on line 12. 1040z Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. 1040z S. 1040z Source Income Subject to Withholding. 1040z See the Instructions for Form 1040NR for more information. 1040z Form 1040NR-EZ. 1040z   If you file Form 1040NR-EZ, report the taxable amount on line 5. 1040z Generally, you must report the amount shown in box 2 of Form(s) 1042-S. 1040z See the Instructions for Form 1040NR-EZ for more information. 1040z Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. 1040z Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. 1040z Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. 1040z They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. 1040z Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. 1040z Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. 1040z Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. 1040z Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. 1040z Do not include these payments as income on your federal tax return. 1040z If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. 1040z This applies only to the part of your VA payments that is required to be used for education expenses. 1040z You may want to visit the Veteran's Administration website at www. 1040z gibill. 1040z va. 1040z gov for specific information about the various VA benefits for education. 1040z Example. 1040z You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. 1040z Neither of these benefits is taxable and you do not report them on your tax return. 1040z You also want to claim an American opportunity credit on your return. 1040z You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). 1040z To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. 1040z You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. 1040z Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. 1040z This is called a “tuition reduction. 1040z ” You do not have to include a qualified tuition reduction in your income. 1040z A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. 1040z You do not have to use the tuition reduction at the eligible educational institution from which you received it. 1040z In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. 1040z The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. 1040z You must include in your income any tuition reduction you receive that is payment for your services. 1040z Eligible educational institution. 1040z   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 1040z Officers, owners, and highly compensated employees. 1040z   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. 1040z This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. 1040z The group must be defined under a reasonable classification set up by the employer. 1040z The classification must not discriminate in favor of owners, officers, or highly compensated employees. 1040z Payment for services. 1040z   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. 1040z This applies even if all candidates for a degree must perform the services to receive the degree. 1040z (See below for exceptions. 1040z ) Exceptions. 1040z   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. 1040z Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. 1040z You are an employee of the eligible educational institution. 1040z You were an employee of the eligible educational institution, but you retired or left on disability. 1040z You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. 1040z You are the dependent child or spouse of an individual described in (1) through (3), above. 1040z Child of deceased parents. 1040z   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. 1040z Child of divorced parents. 1040z   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. 1040z Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. 1040z It is provided by an eligible educational institution. 1040z You are a graduate student who performs teaching or research activities for the educational institution. 1040z You must include in income any other tuition reductions for graduate education that you receive. 1040z How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. 1040z Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). 1040z Prev  Up  Next   Home   More Online Publications
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1040z Index A Aircraft, Cars, Boats, and Aircraft Annuities, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Annuity contracts, Certain Life Insurance and Annuity Contracts Antiques, Paintings, Antiques, and Other Objects of Art Appraisals, Appraisals Cost of, Cost of appraisals. 1040z IRS review of, Internal Revenue Service Review of Appraisals Qualified appraisal, Qualified Appraisal Appraiser, Qualified appraiser. 1040z Art objects, Paintings, Antiques, and Other Objects of Art Valued at $20,000 or more, Art valued at $20,000 or more. 1040z Valued at $50,000 or more, Art valued at $50,000 or more. 1040z Assistance (see Tax help) B Boats, Cars, Boats, and Aircraft Bonds, Stocks and Bonds Books, Books. 1040z Business, interest in, Interest in a Business C Cars, Cars, Boats, and Aircraft Clothing, used, Used Clothing, Deduction over $500 for certain clothing or household items. 1040z Coins, Coin collections. 1040z Collections, Collections Books, Books. 1040z Coins, Coin collections. 1040z Stamps, Stamp collections. 1040z Comments on publication, Comments and suggestions. 1040z Comparable properties, sales of, Sales of Comparable Properties, Selection of Comparable Sales Conservation contribution, Conservation purposes. 1040z Cost, Cost or Selling Price of the Donated Property Rate of increase or decrease, Rate of increase or decrease in value. 1040z Terms of purchase or sale, Terms of the purchase or sale. 1040z D Date of contribution, Date of contribution. 1040z Deductions of more than $5,000, Deductions of More Than $5,000 Deductions of more than $500,000, Deductions of More Than $500,000 F Fair market value, What Is Fair Market Value (FMV)? Comparable properties, sales of, Sales of Comparable Properties Cost, Cost or Selling Price of the Donated Property Date of contribution, Date of contribution. 1040z Determining FMV, Determining Fair Market Value Opinions of experts, Opinions of Experts Problems in determining FMV, Problems in Determining Fair Market Value Replacement cost, Replacement Cost Form 8283, Form 8283 Formulas, use in valuing property, Determining Fair Market Value Free tax services, How To Get Tax Help Future events, effect on value, Future Events H Help (see Tax help) Historic building, Building in registered historic district. 1040z Household goods, Household Goods, Deduction over $500 for certain clothing or household items. 1040z I Interest in a business, Interest in a Business Inventory, Inventory IRS review of appraisals, Internal Revenue Service Review of Appraisals Exception, Exception. 1040z J Jewelry and gems, Jewelry and Gems L Life insurance, Certain Life Insurance and Annuity Contracts M Market conditions, effect on value, Unusual Market Conditions More information (see Tax help) O Opinions of experts, Opinions of Experts P Paintings, Paintings, Antiques, and Other Objects of Art Partial interest, Partial Interest in Property Not in Trust Past events, effect on value, Using Past Events to Predict the Future Patents, Patents Penalties: Imposed on appraiser, Appraiser penalties. 1040z Imposed on taxpayer, Penalty Publications (see Tax help) Publicly traded securities, Publicly traded securities. 1040z Q Qualified appraisal, Qualified Appraisal Qualified appraiser, Qualified appraiser. 1040z Qualified conservation contribution, Qualified Conservation Contribution R Real estate, Real Estate Remainder interests, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Replacement cost, Replacement Cost Reversion interests, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions S Stamps, Stamp collections. 1040z Statement of Value, Exception. 1040z Stocks, Stocks and Bonds Suggestions for publication, Comments and suggestions. 1040z T Tax help, How To Get Tax Help Taxpayer Advocate, Contacting your Taxpayer Advocate. 1040z TTY/TDD information, How To Get Tax Help U Used clothing, Used Clothing, Deduction over $500 for certain clothing or household items. 1040z V Valuation of property, Valuation of Various Kinds of Property Annuities, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Cars, boats, and aircraft, Cars, Boats, and Aircraft Collections, Collections Household goods, Household Goods Interest in a business, Interest in a Business Inventory, Inventory Jewelry and gems, Jewelry and Gems Life insurance and annuity contracts, Certain Life Insurance and Annuity Contracts Paintings, antiques, art objects, Paintings, Antiques, and Other Objects of Art Partial interest in property, Partial Interest in Property Not in Trust Real estate, Real Estate Remainder interests, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Reversion interests, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Stocks and bonds, Stocks and Bonds Terms of years, Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Used clothing, Used Clothing Valuation of property: Patents, Patents Prev  Up     Home   More Online Publications