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2010 1040ez

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2010 1040ez

2010 1040ez 4. 2010 1040ez   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. 2010 1040ez Loan secured by benefits. 2010 1040ez Waiver of survivor benefits. 2010 1040ez Waiver of 30-day waiting period before annuity starting date. 2010 1040ez Involuntary cash-out of benefits not more than dollar limit. 2010 1040ez Exception for certain loans. 2010 1040ez Exception for QDRO. 2010 1040ez SIMPLE and safe harbor 401(k) plan exception. 2010 1040ez Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. 2010 1040ez Installment percentage. 2010 1040ez Extended period for making contributions. 2010 1040ez ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. 2010 1040ez Caution: Form 5500-EZ not required. 2010 1040ez Form 5500. 2010 1040ez Electronic filing of Forms 5500 and 5500-SF. 2010 1040ez Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. 2010 1040ez dol. 2010 1040ez gov/ebsa/pdf/2013-5500. 2010 1040ez pdf www. 2010 1040ez dol. 2010 1040ez gov/ebsa/pdf/2013-5500-SF. 2010 1040ez pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 2010 1040ez 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2010 1040ez 1040 U. 2010 1040ez S. 2010 1040ez Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. 2010 1040ez For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. 2010 1040ez For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. 2010 1040ez R. 2010 1040ez 10 plans. 2010 1040ez A sole proprietor or a partnership can set up one of these plans. 2010 1040ez A common-law employee or a partner cannot set up one of these plans. 2010 1040ez The plans described here can also be set up and maintained by employers that are corporations. 2010 1040ez All the rules discussed here apply to corporations except where specifically limited to the self-employed. 2010 1040ez The plan must be for the exclusive benefit of employees or their beneficiaries. 2010 1040ez These qualified plans can include coverage for a self-employed individual. 2010 1040ez As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2010 1040ez The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2010 1040ez Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. 2010 1040ez You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. 2010 1040ez Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. 2010 1040ez It provides benefits to a participant largely based on the amount contributed to that participant's account. 2010 1040ez Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. 2010 1040ez A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. 2010 1040ez Profit-sharing plan. 2010 1040ez   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). 2010 1040ez A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. 2010 1040ez An employer may even make no contribution to the plan for a given year. 2010 1040ez   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. 2010 1040ez   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). 2010 1040ez Money purchase pension plan. 2010 1040ez   Contributions to a money purchase pension plan are fixed and are not based on your business profits. 2010 1040ez For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. 2010 1040ez This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. 2010 1040ez Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. 2010 1040ez Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. 2010 1040ez Actuarial assumptions and computations are required to figure these contributions. 2010 1040ez Generally, you will need continuing professional help to have a defined benefit plan. 2010 1040ez Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. 2010 1040ez Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. 2010 1040ez The following is a brief overview of important qualification rules that generally have not yet been discussed. 2010 1040ez It is not intended to be all-inclusive. 2010 1040ez See Setting Up a Qualified Plan , later. 2010 1040ez Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. 2010 1040ez A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. 2010 1040ez Plan assets must not be diverted. 2010 1040ez   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. 2010 1040ez As a general rule, the assets cannot be diverted to the employer. 2010 1040ez Minimum coverage requirement must be met. 2010 1040ez   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. 2010 1040ez 50 employees, or The greater of: 40% of all employees, or Two employees. 2010 1040ez If there is only one employee, the plan must benefit that employee. 2010 1040ez Contributions or benefits must not discriminate. 2010 1040ez   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. 2010 1040ez Contributions and benefits must not be more than certain limits. 2010 1040ez   Your plan must not provide for contributions or benefits that are more than certain limits. 2010 1040ez The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. 2010 1040ez These limits are discussed later in this chapter under Contributions. 2010 1040ez Minimum vesting standard must be met. 2010 1040ez   Your plan must satisfy certain requirements regarding when benefits vest. 2010 1040ez A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. 2010 1040ez A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. 2010 1040ez Special rules apply to forfeited benefit amounts. 2010 1040ez In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. 2010 1040ez   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. 2010 1040ez Forfeitures must be used instead to reduce employer contributions. 2010 1040ez Participation. 2010 1040ez   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. 2010 1040ez Has reached age 21. 2010 1040ez Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). 2010 1040ez A plan cannot exclude an employee because he or she has reached a specified age. 2010 1040ez Leased employee. 2010 1040ez   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. 2010 1040ez These rules include those in all the following areas. 2010 1040ez Nondiscrimination in coverage, contributions, and benefits. 2010 1040ez Minimum age and service requirements. 2010 1040ez Vesting. 2010 1040ez Limits on contributions and benefits. 2010 1040ez Top-heavy plan requirements. 2010 1040ez Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. 2010 1040ez Benefit payment must begin when required. 2010 1040ez   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. 2010 1040ez The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. 2010 1040ez The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. 2010 1040ez The plan year in which the participant separates from service. 2010 1040ez Early retirement. 2010 1040ez   Your plan can provide for payment of retirement benefits before the normal retirement age. 2010 1040ez If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. 2010 1040ez Satisfies the service requirement for the early retirement benefit. 2010 1040ez Separates from service with a nonforfeitable right to an accrued benefit. 2010 1040ez The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. 2010 1040ez Required minimum distributions. 2010 1040ez   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. 2010 1040ez See Required Distributions , under Distributions, later. 2010 1040ez Survivor benefits. 2010 1040ez   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. 2010 1040ez A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. 2010 1040ez A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. 2010 1040ez   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. 2010 1040ez The participant does not choose benefits in the form of a life annuity. 2010 1040ez The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. 2010 1040ez The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. 2010 1040ez Loan secured by benefits. 2010 1040ez   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. 2010 1040ez Waiver of survivor benefits. 2010 1040ez   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. 2010 1040ez The plan also must allow the participant to withdraw the waiver. 2010 1040ez The spouse's consent must be witnessed by a plan representative or notary public. 2010 1040ez Waiver of 30-day waiting period before annuity starting date. 2010 1040ez    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. 2010 1040ez   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. 2010 1040ez Involuntary cash-out of benefits not more than dollar limit. 2010 1040ez   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. 2010 1040ez   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. 2010 1040ez If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. 2010 1040ez   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. 2010 1040ez   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. 2010 1040ez A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. 2010 1040ez See Section 402(f) Notice under Distributions, later, for more details. 2010 1040ez Consolidation, merger, or transfer of assets or liabilities. 2010 1040ez   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. 2010 1040ez (if the plan had then terminated). 2010 1040ez Benefits must not be assigned or alienated. 2010 1040ez   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. 2010 1040ez Exception for certain loans. 2010 1040ez   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. 2010 1040ez A disqualified person is defined later in this chapter under Prohibited Transactions. 2010 1040ez Exception for QDRO. 2010 1040ez   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. 2010 1040ez   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. 2010 1040ez Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. 2010 1040ez No benefit reduction for social security increases. 2010 1040ez   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. 2010 1040ez This rule also applies to plans supplementing the benefits provided by other federal or state laws. 2010 1040ez Elective deferrals must be limited. 2010 1040ez   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. 2010 1040ez See Limit on Elective Deferrals later in this chapter. 2010 1040ez Top-heavy plan requirements. 2010 1040ez   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. 2010 1040ez   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. 2010 1040ez Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. 2010 1040ez   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. 2010 1040ez These qualification requirements for top-heavy plans are explained in section 416 and its regulations. 2010 1040ez SIMPLE and safe harbor 401(k) plan exception. 2010 1040ez   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. 2010 1040ez QACAs (discussed later) also are not subject to top-heavy requirements. 2010 1040ez Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. 2010 1040ez First you adopt a written plan. 2010 1040ez Then you invest the plan assets. 2010 1040ez You, the employer, are responsible for setting up and maintaining the plan. 2010 1040ez If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. 2010 1040ez If you have employees, see Participation, under Qualification Rules, earlier. 2010 1040ez Set-up deadline. 2010 1040ez   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). 2010 1040ez Credit for startup costs. 2010 1040ez   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. 2010 1040ez For more information, see Credit for startup costs under Reminders, earlier. 2010 1040ez Adopting a Written Plan You must adopt a written plan. 2010 1040ez The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. 2010 1040ez Or it can be an individually designed plan. 2010 1040ez Written plan requirement. 2010 1040ez   To qualify, the plan you set up must be in writing and must be communicated to your employees. 2010 1040ez The plan's provisions must be stated in the plan. 2010 1040ez It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. 2010 1040ez Master or prototype plans. 2010 1040ez   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. 2010 1040ez Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). 2010 1040ez Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. 2010 1040ez Under a prototype plan, a separate trust or custodial account is established for each employer. 2010 1040ez Plan providers. 2010 1040ez   The following organizations generally can provide IRS-approved master or prototype plans. 2010 1040ez Banks (including some savings and loan associations and federally insured credit unions). 2010 1040ez Trade or professional organizations. 2010 1040ez Insurance companies. 2010 1040ez Mutual funds. 2010 1040ez Individually designed plan. 2010 1040ez   If you prefer, you can set up an individually designed plan to meet specific needs. 2010 1040ez Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. 2010 1040ez You may need professional help for this. 2010 1040ez See Rev. 2010 1040ez Proc. 2010 1040ez 2014-6, 2014-1 I. 2010 1040ez R. 2010 1040ez B. 2010 1040ez 198, available at www. 2010 1040ez irs. 2010 1040ez gov/irb/2014-1_IRB/ar10. 2010 1040ez html, as annually updated, that may help you decide whether to apply for approval. 2010 1040ez Internal Revenue Bulletins are available on the IRS website at IRS. 2010 1040ez gov They are also available at most IRS offices and at certain libraries. 2010 1040ez User fee. 2010 1040ez   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. 2010 1040ez At least one of them must be a non-highly compensated employee participating in the plan. 2010 1040ez The fee does not apply to requests made by the later of the following dates. 2010 1040ez The end of the 5th plan year the plan is in effect. 2010 1040ez The end of any remedial amendment period for the plan that begins within the first 5 plan years. 2010 1040ez The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. 2010 1040ez   For more information about whether the user fee applies, see Rev. 2010 1040ez Proc. 2010 1040ez 2014-8, 2014-1 I. 2010 1040ez R. 2010 1040ez B. 2010 1040ez 242, available at www. 2010 1040ez irs. 2010 1040ez gov/irb/2014-1_IRB/ar12. 2010 1040ez html, as may be annually updated; Notice 2003-49, 2003-32 I. 2010 1040ez R. 2010 1040ez B. 2010 1040ez 294, available at www. 2010 1040ez irs. 2010 1040ez gov/irb/2003-32_IRB/ar13. 2010 1040ez html; and Notice 2011-86, 2011-45 I. 2010 1040ez R. 2010 1040ez B. 2010 1040ez 698, available at www. 2010 1040ez irs. 2010 1040ez gov/irb/2011-45_IRB/ar11. 2010 1040ez html. 2010 1040ez Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. 2010 1040ez You can establish a trust or custodial account to invest the funds. 2010 1040ez You, the trust, or the custodial account can buy an annuity contract from an insurance company. 2010 1040ez Life insurance can be included only if it is incidental to the retirement benefits. 2010 1040ez You set up a trust by a legal instrument (written document). 2010 1040ez You may need professional help to do this. 2010 1040ez You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. 2010 1040ez You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. 2010 1040ez If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. 2010 1040ez Other plan requirements. 2010 1040ez   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. 2010 1040ez Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. 2010 1040ez Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. 2010 1040ez For information on this funding requirement, see section 412 and its regulations. 2010 1040ez Quarterly installments of required contributions. 2010 1040ez   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. 2010 1040ez If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. 2010 1040ez Due dates. 2010 1040ez   The due dates for the installments are 15 days after the end of each quarter. 2010 1040ez For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). 2010 1040ez Installment percentage. 2010 1040ez   Each quarterly installment must be 25% of the required annual payment. 2010 1040ez Extended period for making contributions. 2010 1040ez   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. 2010 1040ez Contributions A qualified plan is generally funded by your contributions. 2010 1040ez However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. 2010 1040ez See Employee Contributions and Elective Deferrals later. 2010 1040ez Contributions deadline. 2010 1040ez   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. 2010 1040ez Self-employed individual. 2010 1040ez   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. 2010 1040ez Your net earnings must be from your personal services, not from your investments. 2010 1040ez If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. 2010 1040ez Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. 2010 1040ez There are also limits on the amount you can deduct. 2010 1040ez See Deduction Limits , later. 2010 1040ez Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. 2010 1040ez The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. 2010 1040ez Defined benefit plan. 2010 1040ez   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. 2010 1040ez 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. 2010 1040ez $205,000 ($210,000 for 2014). 2010 1040ez Defined contribution plan. 2010 1040ez   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. 2010 1040ez 100% of the participant's compensation. 2010 1040ez $51,000 ($52,000 for 2014). 2010 1040ez   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. 2010 1040ez Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. 2010 1040ez Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. 2010 1040ez Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. 2010 1040ez See Regulations sections 1. 2010 1040ez 401(k)-2 and 1. 2010 1040ez 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2010 1040ez When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. 2010 1040ez But you can apply them to the previous year if all the following requirements are met. 2010 1040ez You make them by the due date of your tax return for the previous year (plus extensions). 2010 1040ez The plan was established by the end of the previous year. 2010 1040ez The plan treats the contributions as though it had received them on the last day of the previous year. 2010 1040ez You do either of the following. 2010 1040ez You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. 2010 1040ez You deduct the contributions on your tax return for the previous year. 2010 1040ez A partnership shows contributions for partners on Form 1065. 2010 1040ez Employer's promissory note. 2010 1040ez   Your promissory note made out to the plan is not a payment that qualifies for the deduction. 2010 1040ez Also, issuing this note is a prohibited transaction subject to tax. 2010 1040ez See Prohibited Transactions , later. 2010 1040ez Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2010 1040ez The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2010 1040ez Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. 2010 1040ez Defined contribution plans. 2010 1040ez   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. 2010 1040ez If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. 2010 1040ez See Deduction Limit for Self-Employed Individuals , later. 2010 1040ez   When figuring the deduction limit, the following rules apply. 2010 1040ez Elective deferrals (discussed later) are not subject to the limit. 2010 1040ez Compensation includes elective deferrals. 2010 1040ez The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). 2010 1040ez Defined benefit plans. 2010 1040ez   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. 2010 1040ez Consequently, an actuary must figure your deduction limit. 2010 1040ez    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. 2010 1040ez Table 4–1. 2010 1040ez Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. 2010 1040ez Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. 2010 1040ez Compensation is your net earnings from self-employment, defined in chapter 1. 2010 1040ez This definition takes into account both the following items. 2010 1040ez The deduction for the deductible part of your self-employment tax. 2010 1040ez The deduction for contributions on your behalf to the plan. 2010 1040ez The deduction for your own contributions and your net earnings depend on each other. 2010 1040ez For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. 2010 1040ez To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. 2010 1040ez Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. 2010 1040ez Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. 2010 1040ez For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. 2010 1040ez Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. 2010 1040ez (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. 2010 1040ez ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. 2010 1040ez Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. 2010 1040ez For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. 2010 1040ez However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. 2010 1040ez See Deduction Limit for Self-Employed Individuals, earlier. 2010 1040ez The amount you carry over and deduct may be subject to the excise tax discussed next. 2010 1040ez Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. 2010 1040ez Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. 2010 1040ez In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. 2010 1040ez Special rule for self-employed individuals. 2010 1040ez   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. 2010 1040ez Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. 2010 1040ez See Minimum Funding Requirement , earlier. 2010 1040ez Reporting the tax. 2010 1040ez   You must report the tax on your nondeductible contributions on Form 5330. 2010 1040ez Form 5330 includes a computation of the tax. 2010 1040ez See the separate instructions for completing the form. 2010 1040ez Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. 2010 1040ez A plan with this type of arrangement is popularly known as a “401(k) plan. 2010 1040ez ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. 2010 1040ez ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. 2010 1040ez In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. 2010 1040ez A profit-sharing plan. 2010 1040ez A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. 2010 1040ez Partnership. 2010 1040ez   A partnership can have a 401(k) plan. 2010 1040ez Restriction on conditions of participation. 2010 1040ez   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. 2010 1040ez Matching contributions. 2010 1040ez   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. 2010 1040ez For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. 2010 1040ez Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. 2010 1040ez Nonelective contributions. 2010 1040ez   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. 2010 1040ez These are called nonelective contributions. 2010 1040ez Employee compensation limit. 2010 1040ez   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. 2010 1040ez This limit is $260,000 in 2014. 2010 1040ez SIMPLE 401(k) plan. 2010 1040ez   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. 2010 1040ez A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. 2010 1040ez For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. 2010 1040ez Distributions. 2010 1040ez   Certain rules apply to distributions from 401(k) plans. 2010 1040ez See Distributions From 401(k) Plans , later. 2010 1040ez Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. 2010 1040ez This limit applies without regard to community property laws. 2010 1040ez Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. 2010 1040ez For 2013 and 2014, the basic limit on elective deferrals is $17,500. 2010 1040ez This limit applies to all salary reduction contributions and elective deferrals. 2010 1040ez If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. 2010 1040ez Catch-up contributions. 2010 1040ez   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. 2010 1040ez The catch-up contribution limit for 2013 and 2014 is $5,500. 2010 1040ez Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). 2010 1040ez However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. 2010 1040ez The catch-up contribution limit. 2010 1040ez The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. 2010 1040ez Treatment of contributions. 2010 1040ez   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. 2010 1040ez Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. 2010 1040ez Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. 2010 1040ez Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. 2010 1040ez Forfeiture. 2010 1040ez   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. 2010 1040ez Reporting on Form W-2. 2010 1040ez   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. 2010 1040ez You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. 2010 1040ez You must also include them in box 12. 2010 1040ez Mark the “Retirement plan” checkbox in box 13. 2010 1040ez For more information, see the Form W-2 instructions. 2010 1040ez Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. 2010 1040ez Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. 2010 1040ez These contributions are elective deferrals. 2010 1040ez An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). 2010 1040ez For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. 2010 1040ez Eligible automatic contribution arrangement. 2010 1040ez   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. 2010 1040ez This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). 2010 1040ez There is no required deferral percentage. 2010 1040ez Withdrawals. 2010 1040ez   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. 2010 1040ez The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. 2010 1040ez The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. 2010 1040ez   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. 2010 1040ez The additional 10% tax on early distributions will not apply to the distribution. 2010 1040ez Notice requirement. 2010 1040ez   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. 2010 1040ez The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. 2010 1040ez The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. 2010 1040ez The notice also must explain how contributions will be invested in the absence of an investment election by the employee. 2010 1040ez Qualified automatic contribution arrangement. 2010 1040ez    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. 2010 1040ez It contains an automatic enrollment feature, and mandatory employer contributions are required. 2010 1040ez If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). 2010 1040ez Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. 2010 1040ez Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. 2010 1040ez In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). 2010 1040ez If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. 2010 1040ez It must be applied uniformly. 2010 1040ez It must not exceed 10%. 2010 1040ez It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. 2010 1040ez It must increase to at least 4% in the following plan year. 2010 1040ez It must increase to at least 5% in the following plan year. 2010 1040ez It must increase to at least 6% in subsequent plan years. 2010 1040ez Matching or nonelective contributions. 2010 1040ez   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. 2010 1040ez Matching contributions. 2010 1040ez You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. 2010 1040ez An amount equal to 100% of elective deferrals, up to 1% of compensation. 2010 1040ez An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. 2010 1040ez Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. 2010 1040ez The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2010 1040ez Nonelective contributions. 2010 1040ez You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. 2010 1040ez Vesting requirements. 2010 1040ez   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. 2010 1040ez These contributions are subject to special withdrawal restrictions, discussed later. 2010 1040ez Notice requirements. 2010 1040ez   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. 2010 1040ez The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. 2010 1040ez The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. 2010 1040ez Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. 2010 1040ez The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. 2010 1040ez Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. 2010 1040ez He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. 2010 1040ez The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. 2010 1040ez Excess withdrawn by April 15. 2010 1040ez   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. 2010 1040ez However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. 2010 1040ez The distribution is not subject to the additional 10% tax on early distributions. 2010 1040ez   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. 2010 1040ez   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. 2010 1040ez Excess not withdrawn by April 15. 2010 1040ez   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. 2010 1040ez In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. 2010 1040ez Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. 2010 1040ez Reporting corrective distributions on Form 1099-R. 2010 1040ez   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. 2010 1040ez For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. 2010 1040ez Tax on excess contributions of highly compensated employees. 2010 1040ez   The law provides tests to detect discrimination in a plan. 2010 1040ez If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. 2010 1040ez Report the tax on Form 5330. 2010 1040ez The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. 2010 1040ez Also, the ACP test does not apply to these plans if certain additional requirements are met. 2010 1040ez   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. 2010 1040ez Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. 2010 1040ez   See Regulations sections 1. 2010 1040ez 401(k)-2 and 1. 2010 1040ez 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2010 1040ez    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. 2010 1040ez Safe harbor 401(k) plan. 2010 1040ez If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. 2010 1040ez For your plan to be a safe harbor plan, you must meet the following conditions. 2010 1040ez Matching or nonelective contributions. 2010 1040ez You must make matching or nonelective contributions according to one of the following formulas. 2010 1040ez Matching contributions. 2010 1040ez You must make matching contributions according to the following rules. 2010 1040ez You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. 2010 1040ez You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. 2010 1040ez The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2010 1040ez Nonelective contributions. 2010 1040ez You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. 2010 1040ez These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. 2010 1040ez Notice requirement. 2010 1040ez You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. 2010 1040ez The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. 2010 1040ez Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. 2010 1040ez Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. 2010 1040ez However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. 2010 1040ez Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. 2010 1040ez Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. 2010 1040ez Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. 2010 1040ez An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. 2010 1040ez The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. 2010 1040ez Rollover. 2010 1040ez   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. 2010 1040ez For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. 2010 1040ez R. 2010 1040ez B. 2010 1040ez 872, available at www. 2010 1040ez irs. 2010 1040ez gov/irb/2010-51_IRB/ar11. 2010 1040ez html, and Notice 2013-74. 2010 1040ez A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. 2010 1040ez Rollover amounts do not apply toward the annual deferral limit. 2010 1040ez Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. 2010 1040ez See the Form W-2 and 1099-R instructions for detailed information. 2010 1040ez Distributions Amounts paid to plan participants from a qualified plan are called distributions. 2010 1040ez Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. 2010 1040ez Also, certain loans may be treated as distributions. 2010 1040ez See Loans Treated as Distributions in Publication 575. 2010 1040ez Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). 2010 1040ez These distribution rules apply individually to each qualified plan. 2010 1040ez You cannot satisfy the requirement for one plan by taking a distribution from another. 2010 1040ez The plan must provide that these rules override any inconsistent distribution options previously offered. 2010 1040ez Minimum distribution. 2010 1040ez   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. 2010 1040ez This minimum is figured by dividing the account balance by the applicable life expectancy. 2010 1040ez The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. 2010 1040ez For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. 2010 1040ez Required beginning date. 2010 1040ez   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. 2010 1040ez   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. 2010 1040ez Calendar year in which he or she reaches age 70½. 2010 1040ez Calendar year in which he or she retires from employment with the employer maintaining the plan. 2010 1040ez However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. 2010 1040ez   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. 2010 1040ez For more information, see Tax on Excess Accumulation in Publication 575. 2010 1040ez Distributions after the starting year. 2010 1040ez   The distribution required to be made by April 1 is treated as a distribution for the starting year. 2010 1040ez (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. 2010 1040ez ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. 2010 1040ez If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). 2010 1040ez Distributions after participant's death. 2010 1040ez   See Publication 575 for the special rules covering distributions made after the death of a participant. 2010 1040ez Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. 2010 1040ez The employee retires, dies, becomes disabled, or otherwise severs employment. 2010 1040ez The plan ends and no other defined contribution plan is established or continued. 2010 1040ez In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. 2010 1040ez For the rules on hardship distributions, including the limits on them, see Regulations section 1. 2010 1040ez 401(k)-1(d). 2010 1040ez The employee becomes eligible for a qualified reservist distribution (defined next). 2010 1040ez Certain distributions listed above may be subject to the tax on early distributions discussed later. 2010 1040ez Qualified reservist distributions. 2010 1040ez   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. 2010 1040ez All or part of a qualified reservist distribution can be recontributed to an IRA. 2010 1040ez The additional 10% tax on early distributions does not apply to a qualified reservist distribution. 2010 1040ez Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. 2010 1040ez Since most recipients have no cost basis, a distribution is generally fully taxable. 2010 1040ez An exception is a distribution that is properly rolled over as discussed under Rollover, next. 2010 1040ez The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. 2010 1040ez See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. 2010 1040ez Note. 2010 1040ez A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. 2010 1040ez Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. 2010 1040ez See Qualified distributions under Qualified Roth Contribution Program, earlier. 2010 1040ez Rollover. 2010 1040ez   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. 2010 1040ez However, it may be subject to withholding as discussed under Withholding requirement, later. 2010 1040ez A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. 2010 1040ez Eligible rollover distribution. 2010 1040ez   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. 2010 1040ez A required minimum distribution. 2010 1040ez See Required Distributions , earlier. 2010 1040ez Any of a series of substantially equal payments made at least once a year over any of the following periods. 2010 1040ez The employee's life or life expectancy. 2010 1040ez The joint lives or life expectancies of the employee and beneficiary. 2010 1040ez A period of 10 years or longer. 2010 1040ez A hardship distribution. 2010 1040ez The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. 2010 1040ez See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. 2010 1040ez Loans treated as distributions. 2010 1040ez Dividends on employer securities. 2010 1040ez The cost of any life insurance coverage provided under a qualified retirement plan. 2010 1040ez Similar items designated by the IRS in published guidance. 2010 1040ez See, for example, the Instructions for Forms 1099-R and 5498. 2010 1040ez Rollover of nontaxable amounts. 2010 1040ez   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. 2010 1040ez If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. 2010 1040ez If the rollover is to an IRA, the transfer can be made by any rollover method. 2010 1040ez Note. 2010 1040ez A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. 2010 1040ez If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). 2010 1040ez More information. 2010 1040ez   For more information about rollovers, see Rollovers in Pubs. 2010 1040ez 575 and 590. 2010 1040ez Withholding requirement. 2010 1040ez   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. 2010 1040ez Exceptions. 2010 1040ez   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. 2010 1040ez   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. 2010 1040ez Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). 2010 1040ez However, the participant can choose not to have tax withheld from these distributions. 2010 1040ez If the participant does not make this choice, the following withholding rules apply. 2010 1040ez For periodic distributions, withholding is based on their treatment as wages. 2010 1040ez For nonperiodic distributions, 10% of the taxable part is withheld. 2010 1040ez Estimated tax payments. 2010 1040ez   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. 2010 1040ez For more information, see Withholding Tax and Estimated Tax in Publication 575. 2010 1040ez Section 402(f) Notice. 2010 1040ez   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. 2010 1040ez That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. 2010 1040ez That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. 2010 1040ez That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. 2010 1040ez Certain other rules that may be applicable. 2010 1040ez   Notice 2009-68, 2009-39 I. 2010 1040ez R. 2010 1040ez B. 2010 1040ez 423, available at www. 2010 1040ez irs. 2010 1040ez gov/irb/2009-39_IRB/ar14. 2010 1040ez html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. 2010 1040ez If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. 2010 1040ez Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. 2010 1040ez Timing of notice. 2010 1040ez   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. 2010 1040ez Method of notice. 2010 1040ez   The written notice must be provided individually to each distributee of an eligible rollover distribution. 2010 1040ez Posting of the notice is not sufficient. 2010 1040ez However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. 2010 1040ez See Regulations section 1. 2010 1040ez 401(a)-21. 2010 1040ez Tax on failure to give notice. 2010 1040ez   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. 2010 1040ez The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. 2010 1040ez Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. 2010 1040ez This tax applies to the amount received that the employee must include in income. 2010 1040ez Exceptions. 2010 1040ez   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. 2010 1040ez Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. 2010 1040ez Made due to the employee having a qualifying disability. 2010 1040ez Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. 2010 1040ez (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. 2010 1040ez ) Made to an employee after separation from service if the separation occurred during o
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Understanding Your CP76 Notice

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Page Last Reviewed or Updated: 07-Mar-2014

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The 2010 1040ez

2010 1040ez Publication 596 - Main Content Table of Contents Chapter 1—Rules for EveryoneRule 1—Adjusted Gross Income (AGI) Limits Rule 2—You Must Have a Valid Social Security Number (SSN) Rule 3—Your Filing Status Cannot Be Married Filing Separately Rule 4—You Must Be a U. 2010 1040ez S. 2010 1040ez Citizen or Resident Alien All Year Rule 5—You Cannot File Form 2555 or Form 2555-EZ Rule 6—Your Investment Income Must Be $3,300 or Less Rule 7—You Must Have Earned Income Chapter 2—Rules If You Have a Qualifying ChildRule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer Chapter 3—Rules If You Do Not Have a Qualifying ChildRule 11—You Must Be at Least Age 25 but Under Age 65 Rule 12—You Cannot Be the Dependent of Another Person Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer Rule 14—You Must Have Lived in the United States More Than Half of the Year Chapter 4—Figuring and Claiming the EICRule 15—Earned Income Limits IRS Will Figure the EIC for You How To Figure the EIC Yourself Schedule EIC Chapter 5—Disallowance of the EICForm 8862 Are You Prohibited From Claiming the EIC for a Period of Years? Chapter 6—Detailed ExamplesExample 1—Sharon Rose Example 2—Cynthia and Jerry Grey Chapter 1—Rules for Everyone This chapter discusses Rules 1 through 7. 2010 1040ez You must meet all seven rules to qualify for the earned income credit. 2010 1040ez If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the publication. 2010 1040ez If you meet all seven rules in this chapter, then read either chapter 2 or chapter 3 (whichever applies) for more rules you must meet. 2010 1040ez Rule 1—Adjusted Gross Income (AGI) Limits Your adjusted gross income (AGI) must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2010 1040ez Adjusted gross income (AGI). 2010 1040ez   AGI is the amount on line 4 of Form 1040EZ, line 22 of Form 1040A, or line 38 of Form 1040. 2010 1040ez   If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. 2010 1040ez You do not need to read the rest of this publication. 2010 1040ez Example—AGI is more than limit. 2010 1040ez Your AGI is $38,550, you are single, and you have one qualifying child. 2010 1040ez You cannot claim the EIC because your AGI is not less than $37,870. 2010 1040ez However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. 2010 1040ez Community property. 2010 1040ez   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. 2010 1040ez This is different from the community property rules that apply under Rule 7. 2010 1040ez Rule 2—You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). 2010 1040ez Any qualifying child listed on Schedule EIC also must have a valid SSN. 2010 1040ez (See Rule 8 if you have a qualifying child. 2010 1040ez ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. 2010 1040ez An example of a federally funded benefit is Medicaid. 2010 1040ez If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. 2010 1040ez S. 2010 1040ez citizen or permanent resident, ask the SSA for a new social security card without the legend. 2010 1040ez If you get the new card after you have already filed your return, you can file an amended return on Form 1040X, Amended U. 2010 1040ez S. 2010 1040ez Individual Income Tax Return, to claim the EIC. 2010 1040ez U. 2010 1040ez S. 2010 1040ez citizen. 2010 1040ez   If you were a U. 2010 1040ez S. 2010 1040ez citizen when you received your SSN, you have a valid SSN. 2010 1040ez Valid for work only with INS authorization or DHS authorization. 2010 1040ez   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. 2010 1040ez SSN missing or incorrect. 2010 1040ez   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. 2010 1040ez Other taxpayer identification number. 2010 1040ez   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). 2010 1040ez ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. 2010 1040ez No SSN. 2010 1040ez   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2010 1040ez You cannot claim the EIC. 2010 1040ez Getting an SSN. 2010 1040ez   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5 with the SSA. 2010 1040ez You can get Form SS-5 online at www. 2010 1040ez socialsecurity. 2010 1040ez gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. 2010 1040ez Filing deadline approaching and still no SSN. 2010 1040ez   If the filing deadline is approaching and you still do not have an SSN, you have two choices. 2010 1040ez Request an automatic 6-month extension of time to file your return. 2010 1040ez You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. 2010 1040ez S. 2010 1040ez Individual Income Tax Return. 2010 1040ez For more information, see the instructions for Form 4868. 2010 1040ez File the return on time without claiming the EIC. 2010 1040ez After receiving the SSN, file an amended return, Form 1040X, claiming the EIC. 2010 1040ez Attach a filled-in Schedule EIC, Earned Income Credit, if you have a qualifying child. 2010 1040ez Rule 3—Your Filing Status Cannot Be “Married Filing Separately” If you are married, you usually must file a joint return to claim the EIC. 2010 1040ez Your filing status cannot be “Married filing separately. 2010 1040ez ” Spouse did not live with you. 2010 1040ez   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. 2010 1040ez In that case, you may be able to claim the EIC. 2010 1040ez For detailed information about filing as head of household, see Publication 501, Exemptions, Standard Deduction, and Filing Information. 2010 1040ez Rule 4—You Must Be a U. 2010 1040ez S. 2010 1040ez Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. 2010 1040ez You can use that filing status only if one spouse is a U. 2010 1040ez S. 2010 1040ez citizen or resident alien and you choose to treat the nonresident spouse as a U. 2010 1040ez S. 2010 1040ez resident. 2010 1040ez If you make this choice, you and your spouse are taxed on your worldwide income. 2010 1040ez If you need more information on making this choice, get Publication 519, U. 2010 1040ez S. 2010 1040ez Tax Guide for Aliens. 2010 1040ez If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). 2010 1040ez Rule 5—You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. 2010 1040ez You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. 2010 1040ez U. 2010 1040ez S. 2010 1040ez possessions are not foreign countries. 2010 1040ez See Publication 54, Tax Guide for U. 2010 1040ez S. 2010 1040ez Citizens and Resident Aliens Abroad, for more detailed information. 2010 1040ez Rule 6—Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. 2010 1040ez If your investment income is more than $3,300, you cannot claim the credit. 2010 1040ez Form 1040EZ. 2010 1040ez   If you file Form 1040EZ, your investment income is the total of the amount on line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. 2010 1040ez Form 1040A. 2010 1040ez   If you file Form 1040A, your investment income is the total of the amounts on lines 8a (taxable interest), 8b (tax-exempt interest), 9a (ordinary dividends), and 10 (capital gain distributions) on that form. 2010 1040ez Form 1040. 2010 1040ez   If you file Form 1040, use Worksheet 1 in this chapter to figure your investment income. 2010 1040ez    Worksheet 1. 2010 1040ez Investment Income If You Are Filing Form 1040 Use this worksheet to figure investment income for the earned income credit when you file Form 1040. 2010 1040ez Interest and Dividends         1. 2010 1040ez Enter any amount from Form 1040, line 8a 1. 2010 1040ez   2. 2010 1040ez Enter any amount from Form 1040, line 8b, plus any amount on Form 8814, line 1b 2. 2010 1040ez   3. 2010 1040ez Enter any amount from Form 1040, line 9a 3. 2010 1040ez   4. 2010 1040ez Enter the amount from Form 1040, line 21, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. 2010 1040ez (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line. 2010 1040ez ) 4. 2010 1040ez   Capital Gain Net Income         5. 2010 1040ez Enter the amount from Form 1040, line 13. 2010 1040ez If the amount on that line is a loss, enter -0- 5. 2010 1040ez       6. 2010 1040ez Enter any gain from Form 4797, Sales of Business Property, line 7. 2010 1040ez If the amount on that line is a loss, enter -0-. 2010 1040ez (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead. 2010 1040ez ) 6. 2010 1040ez       7. 2010 1040ez Substract line 6 of this worksheet from line 5 of this worksheet. 2010 1040ez (If the result is less than zero, enter -0-. 2010 1040ez ) 7. 2010 1040ez   Royalties and Rental Income From Personal Property         8. 2010 1040ez Enter any royalty income from Schedule E, line 23b, plus any income from the rental of personal property shown on Form 1040, line 21 8. 2010 1040ez       9. 2010 1040ez Enter any expenses from Schedule E, line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Form 1040, line 36 9. 2010 1040ez       10. 2010 1040ez Subtract the amount on line 9 of this worksheet from the amount on line 8. 2010 1040ez (If the result is less than zero, enter -0-. 2010 1040ez ) 10. 2010 1040ez   Passive Activities         11. 2010 1040ez Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. 2010 1040ez (g)), 34a (col. 2010 1040ez (d)), or 40). 2010 1040ez (See instructions below for lines 11 and 12. 2010 1040ez ) 11. 2010 1040ez       12. 2010 1040ez Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. 2010 1040ez (f)), 34b (col. 2010 1040ez (c)), or 40). 2010 1040ez (See instructions below for lines 11 and 12. 2010 1040ez ) 12. 2010 1040ez       13. 2010 1040ez Combine the amounts on lines 11 and 12 of this worksheet. 2010 1040ez (If the result is less than zero, enter -0-. 2010 1040ez ) 13. 2010 1040ez   14. 2010 1040ez Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. 2010 1040ez Enter the total. 2010 1040ez This is your investment income 14. 2010 1040ez   15. 2010 1040ez Is the amount on line 14 more than $3,300? ❑ Yes. 2010 1040ez You cannot take the credit. 2010 1040ez  ❑ No. 2010 1040ez Go to Step 3 of the Form 1040 instructions for lines 64a and 64b to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7, next). 2010 1040ez       Instructions for lines 11 and 12. 2010 1040ez In figuring the amount to enter on lines 11 and 12, do not take into account any royalty income (or loss) included on line 26 of Schedule E or any amount included in your earned income. 2010 1040ez To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. 2010 1040ez If any of the rental real estate income (or loss) included on Schedule E, line 26, is not from a passive activity, print “NPA” and the amount of that income (or loss) on the dotted line next to line 26. 2010 1040ez Worksheet 2. 2010 1040ez Worksheet for Line 4 of Worksheet 1 Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend. 2010 1040ez Note. 2010 1040ez Fill out a separate Worksheet 2 for each Form 8814. 2010 1040ez     1. 2010 1040ez Enter the amount from Form 8814, line 2a 1. 2010 1040ez   2. 2010 1040ez Enter the amount from Form 8814, line 2b 2. 2010 1040ez   3. 2010 1040ez Subtract line 2 from line 1 3. 2010 1040ez   4. 2010 1040ez Enter the amount from Form 8814, line 1a 4. 2010 1040ez   5. 2010 1040ez Add lines 3 and 4 5. 2010 1040ez   6. 2010 1040ez Enter the amount of the child's Alaska Permanent Fund dividend 6. 2010 1040ez   7. 2010 1040ez Divide line 6 by line 5. 2010 1040ez Enter the result as a decimal (rounded to at least three places) 7. 2010 1040ez   8. 2010 1040ez Enter the amount from Form 8814, line 12 8. 2010 1040ez   9. 2010 1040ez Multiply line 7 by line 8 9. 2010 1040ez   10. 2010 1040ez Subtract line 9 from line 8. 2010 1040ez Enter the result on line 4 of Worksheet 1 10. 2010 1040ez     (If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2. 2010 1040ez )     Example—completing Worksheet 2. 2010 1040ez Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified dividends. 2010 1040ez You choose to report this income on your return. 2010 1040ez You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. 2010 1040ez After completing lines 4 through 11, you enter $400 on line 12 of Form 8814 and line 21 of Form 1040. 2010 1040ez On Worksheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0. 2010 1040ez 500 on line 7, $400 on line 8, $200 on line 9, and $200 on line 10. 2010 1040ez You then enter $200 on line 4 of Worksheet 1. 2010 1040ez Rule 7—You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. 2010 1040ez If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. 2010 1040ez If you are an employee, earned income includes all the taxable income you get from your employer. 2010 1040ez Rule 15 has information that will help you figure the amount of your earned income. 2010 1040ez If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the Form 1040 instructions. 2010 1040ez Earned Income Earned income includes all of the following types of income. 2010 1040ez Wages, salaries, tips, and other taxable employee pay. 2010 1040ez Employee pay is earned income only if it is taxable. 2010 1040ez Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. 2010 1040ez But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained later in this chapter. 2010 1040ez Net earnings from self-employment. 2010 1040ez Gross income received as a statutory employee. 2010 1040ez Wages, salaries, and tips. 2010 1040ez    Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. 2010 1040ez You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). 2010 1040ez Nontaxable combat pay election. 2010 1040ez   You can elect to include your nontaxable combat pay in earned income for the earned income credit. 2010 1040ez The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. 2010 1040ez Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. 2010 1040ez For details, see Nontaxable combat pay in chapter 4. 2010 1040ez Net earnings from self-employment. 2010 1040ez   You may have net earnings from self-employment if: You own your own business, or You are a minister or member of a religious order. 2010 1040ez Minister's housing. 2010 1040ez   The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment. 2010 1040ez For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029 , below). 2010 1040ez Statutory employee. 2010 1040ez   You are a statutory employee if you receive a Form W-2 on which the “Statutory employee” box (box 13) is checked. 2010 1040ez You report your income and expenses as a statutory employee on Schedule C or C-EZ (Form 1040). 2010 1040ez Strike benefits. 2010 1040ez   Strike benefits paid by a union to its members are earned income. 2010 1040ez Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. 2010 1040ez Each approved form exempts certain income from social security taxes. 2010 1040ez Each form is discussed here in terms of what is or is not earned income for the EIC. 2010 1040ez Form 4361. 2010 1040ez   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. 2010 1040ez This includes wages, salaries, tips, and other taxable employee compensation. 2010 1040ez A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. 2010 1040ez Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. 2010 1040ez Examples include fees for performing marriages and honoraria for delivering speeches. 2010 1040ez Form 4029. 2010 1040ez   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. 2010 1040ez However, amounts you received as a self-employed individual do not count as earned income. 2010 1040ez Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. 2010 1040ez Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. 2010 1040ez Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. 2010 1040ez You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. 2010 1040ez Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. 2010 1040ez Report taxable pension payments on Form 1040, lines 16a and 16b, or Form 1040A, lines 12a and 12b. 2010 1040ez Disability insurance payments. 2010 1040ez   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. 2010 1040ez It does not matter whether you have reached minimum retirement age. 2010 1040ez If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. 2010 1040ez ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. 2010 1040ez Do not include any of these items in your earned income. 2010 1040ez Earnings while an inmate. 2010 1040ez   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. 2010 1040ez This includes amounts for work performed while in a work release program or while in a halfway house. 2010 1040ez Workfare payments. 2010 1040ez   Nontaxable workfare payments are not earned income for the EIC. 2010 1040ez These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. 2010 1040ez Community property. 2010 1040ez   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. 2010 1040ez That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. 2010 1040ez Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. 2010 1040ez Nevada, Washington, and California domestic partners. 2010 1040ez   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. 2010 1040ez Your earned income for the EIC does not include any amount earned by your partner. 2010 1040ez Your earned income includes the entire amount you earned. 2010 1040ez For details, see Publication 555. 2010 1040ez Conservation Reserve Program (CRP) payments. 2010 1040ez   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. 2010 1040ez Nontaxable military pay. 2010 1040ez   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. 2010 1040ez Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). 2010 1040ez See Publication 3, Armed Forces' Tax Guide, for more information. 2010 1040ez    Combat pay. 2010 1040ez You can elect to include your nontaxable combat pay in earned income for the EIC. 2010 1040ez See Nontaxable combat pay in chapter 4. 2010 1040ez Chapter 2—Rules If You Have a Qualifying Child If you have met all the rules in chapter 1, use this chapter to see if you have a qualifying child. 2010 1040ez This chapter discusses Rules 8 through 10. 2010 1040ez You must meet all three of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit with a qualifying child. 2010 1040ez You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. 2010 1040ez (You cannot file Form 1040EZ. 2010 1040ez ) You also must complete Schedule EIC and attach it to your return. 2010 1040ez If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. 2010 1040ez No qualifying child. 2010 1040ez   If you do not meet Rule 8, you do not have a qualifying child. 2010 1040ez Read chapter 3 to find out if you can get the earned income credit without a qualifying child. 2010 1040ez Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. 2010 1040ez The fours tests are: Relationship, Age, Residency, and Joint return. 2010 1040ez The four tests are illustrated in Figure 1. 2010 1040ez The paragraphs that follow contain more information about each test. 2010 1040ez Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). 2010 1040ez The following definitions clarify the relationship test. 2010 1040ez Adopted child. 2010 1040ez   An adopted child is always treated as your own child. 2010 1040ez The term “adopted child” includes a child who was lawfully placed with you for legal adoption. 2010 1040ez Foster child. 2010 1040ez   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. 2010 1040ez (An authorized placement agency includes a state or local government agency. 2010 1040ez It also includes a tax-exempt organization licensed by a state. 2010 1040ez In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. 2010 1040ez ) Example. 2010 1040ez Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. 2010 1040ez Debbie is your foster child. 2010 1040ez Figure 1. 2010 1040ez Tests for Qualifying Child Please click here for the text description of the image. 2010 1040ez Conditions for Qualifying Child Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly, or Permanently and totally disabled at any time during 2013, regardless of age. 2010 1040ez The following examples and definitions clarify the age test. 2010 1040ez Example 1—child not under age 19. 2010 1040ez Your son turned 19 on December 10. 2010 1040ez Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. 2010 1040ez Example 2—child not younger than you or your spouse. 2010 1040ez Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. 2010 1040ez He is not disabled. 2010 1040ez Both you and your spouse are 21 years old, and you file a joint return. 2010 1040ez Your brother is not your qualifying child because he is not younger than you or your spouse. 2010 1040ez Example 3—child younger than your spouse but not younger than you. 2010 1040ez The facts are the same as in Example 2 except that your spouse is 25 years old. 2010 1040ez Because your brother is younger than your spouse, he is your qualifying child, even though he is not younger than you. 2010 1040ez Student defined. 2010 1040ez   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. 2010 1040ez   The 5 calendar months need not be consecutive. 2010 1040ez   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. 2010 1040ez School defined. 2010 1040ez   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. 2010 1040ez However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. 2010 1040ez Vocational high school students. 2010 1040ez   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. 2010 1040ez Permanently and totally disabled. 2010 1040ez   Your child is permanently and totally disabled if both of the following apply. 2010 1040ez He or she cannot engage in any substantial gainful activity because of a physical or mental condition. 2010 1040ez A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. 2010 1040ez Residency Test Your child must have lived with you in the United States for more than half of 2013. 2010 1040ez The following definitions clarify the residency test. 2010 1040ez United States. 2010 1040ez   This means the 50 states and the District of Columbia. 2010 1040ez It does not include Puerto Rico or U. 2010 1040ez S. 2010 1040ez possessions such as Guam. 2010 1040ez Homeless shelter. 2010 1040ez   Your home can be any location where you regularly live. 2010 1040ez You do not need a traditional home. 2010 1040ez For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. 2010 1040ez Military personnel stationed outside the United States. 2010 1040ez   U. 2010 1040ez S. 2010 1040ez military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. 2010 1040ez Extended active duty. 2010 1040ez   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. 2010 1040ez Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. 2010 1040ez Birth or death of child. 2010 1040ez    child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. 2010 1040ez Temporary absences. 2010 1040ez   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. 2010 1040ez Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. 2010 1040ez Kidnapped child. 2010 1040ez   A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. 2010 1040ez The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. 2010 1040ez This treatment applies for all years until the child is returned. 2010 1040ez However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. 2010 1040ez   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. 2010 1040ez Joint Return Test To meet this test, the child cannot file a joint return for the year. 2010 1040ez Exception. 2010 1040ez   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. 2010 1040ez Example 1—child files joint return. 2010 1040ez You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. 2010 1040ez He earned $25,000 for the year. 2010 1040ez The couple files a joint return. 2010 1040ez Because your daughter and her husband file a joint return, she is not your qualifying child. 2010 1040ez Example 2—child files joint return to get refund of tax withheld. 2010 1040ez Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. 2010 1040ez They do not have a child. 2010 1040ez Neither is required to file a tax return. 2010 1040ez Taxes were taken out of their pay, so they file a joint return only to get a refund of the withheld taxes. 2010 1040ez The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. 2010 1040ez Example 3—child files joint return to claim American opportunity credit. 2010 1040ez The facts are the same as in Example 2 except no taxes were taken out of your son's pay. 2010 1040ez He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. 2010 1040ez Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to claim a refund of income tax withheld or estimated tax paid. 2010 1040ez The exception to the joint return test does not apply, so your son is not your qualifying child. 2010 1040ez Married child. 2010 1040ez   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) described later. 2010 1040ez    Social security number. 2010 1040ez Your qualifying child must have a valid social security number (SSN), unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. 2010 1040ez You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. 2010 1040ez   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. 2010 1040ez For more information about SSNs, see Rule 2. 2010 1040ez Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. 2010 1040ez However, only one of these persons can actually treat the child as a qualifying child. 2010 1040ez Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). 2010 1040ez The exemption for the child. 2010 1040ez The child tax credit. 2010 1040ez Head of household filing status. 2010 1040ez The credit for child and dependent care expenses. 2010 1040ez The exclusion for dependent care benefits. 2010 1040ez The EIC. 2010 1040ez The other person cannot take any of these benefits based on this qualifying child. 2010 1040ez In other words, you and the other person cannot agree to divide these tax benefits between you. 2010 1040ez The other person cannot take any of these tax benefits unless he or she has a different qualifying child. 2010 1040ez The tiebreaker rules, which follow, explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. 2010 1040ez However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. 2010 1040ez Tiebreaker rules. 2010 1040ez   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. 2010 1040ez If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. 2010 1040ez If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. 2010 1040ez If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. 2010 1040ez If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. 2010 1040ez If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. 2010 1040ez If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. 2010 1040ez If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. 2010 1040ez See Example 8. 2010 1040ez   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. 2010 1040ez See Examples 1 through 13. 2010 1040ez   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in chapter 3 for people who do not have a qualifying child. 2010 1040ez If the other person cannot claim the EIC. 2010 1040ez   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. 2010 1040ez See Examples 6 and 7. 2010 1040ez But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier in this chapter. 2010 1040ez Examples. 2010 1040ez    The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. 2010 1040ez Example 1—child lived with parent and grandparent. 2010 1040ez You and your 2-year-old son Jimmy lived with your mother all year. 2010 1040ez You are 25 years old, unmarried, and your AGI is $9,000. 2010 1040ez Your only income was $9,000 from a part-time job. 2010 1040ez Your mother's only income was $20,000 from her job, and her AGI is $20,000. 2010 1040ez Jimmy's father did not live with you or Jimmy. 2010 1040ez The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. 2010 1040ez Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. 2010 1040ez However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier in this chapter for which that person qualifies). 2010 1040ez He is not a qualifying child of anyone else, including his father. 2010 1040ez If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). 2010 1040ez Example 2—parent has higher AGI than grandparent. 2010 1040ez The facts are the same as in Example 1 except your AGI is $25,000. 2010 1040ez Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. 2010 1040ez Only you can claim him. 2010 1040ez Example 3—two persons claim same child. 2010 1040ez The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. 2010 1040ez In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. 2010 1040ez The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. 2010 1040ez Example 4—qualifying children split between two persons. 2010 1040ez The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. 2010 1040ez Only one of you can claim each child. 2010 1040ez However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. 2010 1040ez For example, if you claim one child, your mother can claim the other two. 2010 1040ez Example 5—taxpayer who is a qualifying child. 2010 1040ez The facts are the same as in Example 1 except that you are only 18 years old. 2010 1040ez This means you are a qualifying child of your mother. 2010 1040ez Because of Rule 10, discussed next, you cannot claim the EIC and cannot claim your son as a qualifying child. 2010 1040ez Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. 2010 1040ez If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. 2010 1040ez Example 6—grandparent with too much earned income to claim EIC. 2010 1040ez The facts are the same as in Example 1 except that your mother earned $50,000 from her job. 2010 1040ez Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. 2010 1040ez Example 7—parent with too much earned income to claim EIC. 2010 1040ez The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. 2010 1040ez Your earned income is too high for you to claim the EIC. 2010 1040ez But your mother cannot claim the EIC either, because her AGI is not higher than yours. 2010 1040ez Example 8—child lived with both parents and grandparent. 2010 1040ez The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have AGI of $30,000 on a joint return. 2010 1040ez If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. 2010 1040ez Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. 2010 1040ez In other words, each parent's AGI can be treated as $15,000. 2010 1040ez Example 9—separated parents. 2010 1040ez You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. 2010 1040ez In August and September, Joey lived with you. 2010 1040ez For the rest of the year, Joey lived with your husband, who is Joey's father. 2010 1040ez Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. 2010 1040ez At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the Special rule for divorced or separated parents (or parents who live apart) does not apply. 2010 1040ez You and your husband will file separate returns. 2010 1040ez Your husband agrees to let you treat Joey as a qualifying child. 2010 1040ez This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. 2010 1040ez However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. 2010 1040ez See Rule 3. 2010 1040ez Example 10—separated parents claim same child. 2010 1040ez The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. 2010 1040ez In this case, only your husband will be allowed to treat Joey as a qualifying child. 2010 1040ez This is because, during 2013, the boy lived with him longer than with you. 2010 1040ez You cannot claim the EIC (either with or without a qualifying child). 2010 1040ez However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. 2010 1040ez See Rule 3. 2010 1040ez Example 11—unmarried parents. 2010 1040ez You, your 5-year-old son, and your son's father lived together all year. 2010 1040ez You and your son's father are not married. 2010 1040ez Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. 2010 1040ez Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. 2010 1040ez Neither of you had any other income. 2010 1040ez Your son's father agrees to let you treat the child as a qualifying child. 2010 1040ez This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. 2010 1040ez Example 12—unmarried parents claim same child. 2010 1040ez The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. 2010 1040ez In this case, only your son's father will be allowed to treat your son as a qualifying child. 2010 1040ez This is because his AGI, $14,000, is more than your AGI, $12,000. 2010 1040ez You cannot claim the EIC (either with or without a qualifying child). 2010 1040ez Example 13—child did not live with a parent. 2010 1040ez You and your 7-year-old niece, your sister's child, lived with your mother all year. 2010 1040ez You are 25 years old, and your AGI is $9,300. 2010 1040ez Your only income was from a part-time job. 2010 1040ez Your mother's AGI is $15,000. 2010 1040ez Her only income was from her job. 2010 1040ez Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. 2010 1040ez Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. 2010 1040ez However, only your mother can treat her as a qualifying child. 2010 1040ez This is because your mother's AGI, $15,000, is more than your AGI, $9,300. 2010 1040ez Special rule for divorced or separated parents (or parents who live apart). 2010 1040ez   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. 2010 1040ez The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all time during the last 6 months of 2013, whether or not they are or were married. 2010 1040ez The child received over half of his or her support for the year from the parents. 2010 1040ez The child is in the custody of one or both parents for more than half of 2013. 2010 1040ez Either of the following statements is true. 2010 1040ez The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. 2010 1040ez If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. 2010 1040ez A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. 2010 1040ez For details, see Publication 501. 2010 1040ez Also see Applying Rule 9 to divorced or separated parents (or parents who live apart), next. 2010 1040ez Applying Rule 9 to divorced or separated parents (or parents who live apart). 2010 1040ez   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. 2010 1040ez However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. 2010 1040ez If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. 2010 1040ez Example 1. 2010 1040ez You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. 2010 1040ez Your AGI is $10,000. 2010 1040ez Your mother’s AGI is $25,000. 2010 1040ez Your son's father did not live with you or your son. 2010 1040ez Under the Special rule for divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. 2010 1040ez However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. 2010 1040ez You and your mother did not have any child care expenses or dependent care benefits. 2010 1040ez If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. 2010 1040ez Example 2. 2010 1040ez The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. 2010 1040ez Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. 2010 1040ez Example 3. 2010 1040ez The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. 2010 1040ez Your mother also claims him as a qualifying child for head of household filing status. 2010 1040ez You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. 2010 1040ez The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. 2010 1040ez Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. 2010 1040ez ) if all of the following statements are true. 2010 1040ez You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. 2010 1040ez Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. 2010 1040ez You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. 2010 1040ez You lived with that person in the United States for more than half of the year. 2010 1040ez You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). 2010 1040ez For more details about the tests to be a qualifying child, see Rule 8. 2010 1040ez If you are a qualifying child of another taxpayer, you cannot claim the EIC. 2010 1040ez This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. 2010 1040ez Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). 2010 1040ez Example. 2010 1040ez You and your daughter lived with your mother all year. 2010 1040ez You are 22 years old, unmarried, and attended a trade school full time. 2010 1040ez You had a part-time job and earned $5,700. 2010 1040ez You had no other income. 2010 1040ez Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. 2010 1040ez She can claim the EIC if she meets all the other requirements. 2010 1040ez Because you are your mother's qualifying child, you cannot claim the EIC. 2010 1040ez This is so even if your mother cannot or does not claim the EIC. 2010 1040ez Child of person not required to file a return. 2010 1040ez   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you met the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. 2010 1040ez Example 1—return not required. 2010 1040ez The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. 2010 1040ez As a result, you are not your mother's qualifying child. 2010 1040ez You can claim the EIC if you meet all the other requirements to do so. 2010 1040ez Example 2—return filed to get refund of tax withheld. 2010 1040ez The facts are the same as in Example 1 except your mother had wages of $1,500 and had income tax withheld from her wages. 2010 1040ez She files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. 2010 1040ez As a result, you are not your mother's qualifying child. 2010 1040ez You can claim the EIC if you meet all the other requirements to do so. 2010 1040ez Example 3—return filed to get EIC. 2010 1040ez The facts are the same as in Example 2 except your mother claimed the EIC on her return. 2010 1040ez Since she filed the return to get the EIC, she is not filing it only to get a refund of income tax withheld. 2010 1040ez As a result, you are your mother's qualifying child. 2010 1040ez You cannot claim the EIC. 2010 1040ez Chapter 3—Rules If You Do Not Have a Qualifying Child Use this chapter if you do not have a qualifying child and have met all the rules in chapter 1. 2010 1040ez This chapter discusses Rules 11 through 14. 2010 1040ez You must meet all four of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit without a qualifying child. 2010 1040ez You can file Form 1040, Form 1040A, or Form 1040EZ to claim the EIC without a qualifying child. 2010 1040ez If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. 2010 1040ez If you have a qualifying child. 2010 1040ez   If you meet Rule 8, you have a qualifying child. 2010 1040ez If you meet Rule 8 and do not claim the EIC with a qualifying child, you cannot claim the EIC without a qualifying child. 2010 1040ez Rule 11—You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. 2010 1040ez If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. 2010 1040ez It does not matter which spouse meets the age test, as long as one of the spouses does. 2010 1040ez You meet the age test if you were born after December 31, 1948, and before January 2, 1989. 2010 1040ez If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. 2010 1040ez If neither you nor your spouse meets the age test, you cannot claim the EIC. 2010 1040ez Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2010 1040ez Death of spouse. 2010 1040ez   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. 2010 1040ez Example 1. 2010 1040ez You are age 28 and unmarried. 2010 1040ez You meet the age test. 2010 1040ez Example 2—spouse meets age test. 2010 1040ez You are married and filing a joint return. 2010 1040ez You are age 23 and your spouse is age 27. 2010 1040ez You meet the age test because your spouse is at least age 25 but under age 65. 2010 1040ez Example 3—spouse dies in 2013. 2010 1040ez You are married and filing a joint return with your spouse who died in August 2013. 2010 1040ez You are age 67. 2010 1040ez Your spouse would have become age 65 in November 2013. 2010 1040ez Because your spouse was under age 65 when she died, you meet the age test. 2010 1040ez Rule 12—You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. 2010 1040ez If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. 2010 1040ez If you are not sure whether someone else can claim you as a dependent, get Publication 501 and read the rules for claiming a dependent. 2010 1040ez If someone else can claim you as a dependent on his or her return, but does not, you still cannot claim the credit. 2010 1040ez Example 1. 2010 1040ez In 2013, you were age 25, single, and living at home with your parents. 2010 1040ez You worked and were not a student. 2010 1040ez You earned $7,500. 2010 1040ez Your parents cannot claim you as a dependent. 2010 1040ez When you file your return, you claim an exemption for yourself by not checking the You box on line 5 of your Form 1040EZ and by entering $10,000 on that line. 2010 1040ez You meet this rule. 2010 1040ez You can claim the EIC if you meet all the other requirements. 2010 1040ez Example 2. 2010 1040ez The facts are the same as in Example 1, except that you earned $2,000. 2010 1040ez Your parents can claim you as a dependent but decide not to. 2010 1040ez You do not meet this rule. 2010 1040ez You cannot claim the credit because your parents could have claimed you as a dependent. 2010 1040ez Joint returns. 2010 1040ez   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. 2010 1040ez   However, another person may be able to claim you as a dependent if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. 2010 1040ez But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. 2010 1040ez Example 1—return filed to get refund of tax withheld. 2010 1040ez You are 26 years old. 2010 1040ez You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. 2010 1040ez Neither you nor your wife is required to file a tax return. 2010 1040ez You do not have a child. 2010 1040ez Taxes were taken out of your pay so you file a joint return only to get a refund of the withheld taxes. 2010 1040ez Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. 2010 1040ez They can claim exemptions for you and your wife if all the other tests to do so are met. 2010 1040ez Example 2—return filed to get EIC. 2010 1040ez The facts are the same as in Example 1except no taxes were taken out of your pay. 2010 1040ez Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. 2010 1040ez Because claiming the EIC is your reason for filing the return, you are not filing it only to claim a refund of income tax withheld or estimated tax paid. 2010 1040ez Your parents cannot claim an exemption for either you or your wife. 2010 1040ez Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. 2010 1040ez ) if all of the following statements are true. 2010 1040ez You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. 2010 1040ez Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. 2010 1040ez You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. 2010 1040ez You lived with that person in the United States for more than half of the year. 2010 1040ez You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). 2010 1040ez For more details about the tests to be a qualifying child, see Rule 8. 2010 1040ez If you are a qualifying child of another taxpayer, you cannot claim the EIC. 2010 1040ez This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. 2010 1040ez Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2010 1040ez Example. 2010 1040ez You lived with your mother all year. 2010 1040ez You are age 26, unmarried, and permanently and totally disabled. 2010 1040ez Your only income was from a community center where you went three days a week to answer telephones. 2010 1040ez You earned $5,000 for the year and provided more than half of your own support. 2010 1040ez Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. 2010 1040ez She can claim the EIC if she meets all the other requirements. 2010 1040ez Because you are a qualifying child of your mother, you cannot claim the EIC. 2010 1040ez This is so even if your mother cannot or does not claim the EIC. 2010 1040ez Joint returns. 2010 1040ez   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. 2010 1040ez   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. 2010 1040ez But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. 2010 1040ez Child of person not required to file a return. 2010 1040ez   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. 2010 1040ez Example 1—return not required. 2010 1040ez You lived all year with your father. 2010 1040ez You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. 2010 1040ez You have no other income, no children, and provided more than half of your own support. 2010 1040ez Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. 2010 1040ez As a result, you are not your father's qualifying child. 2010 1040ez You can claim the EIC if you meet all the other requirements to do so. 2010 1040ez Example 2—return filed to get refund of tax withheld. 2010 1040ez The facts are the same as in Example 1 except your father had wages of $1,500 and had income tax withheld from his wages. 2010 1040ez He files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. 2010 1040ez As a result, you are not your father's qualifying child. 2010 1040ez You can claim the EIC if you meet all the other requirements to do so. 2010 1040ez Example 3—return filed to get EIC. 2010 1040ez The facts are the same as in Example 2 except your father claimed the EIC on his return. 2010 1040ez Since he filed the return to get the EIC, he is not filing it only to get a refund of income tax withheld. 2010 1040ez As a result, you are your father's qualifying child. 2010 1040ez You cannot claim the EIC. 2010 1040ez Rule 14—You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. 2010 1040ez If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). 2010 1040ez United States. 2010 1040ez   This means the 50 states and the District of Columbia. 2010 1040ez It does not include Puerto Rico or U. 2010 1040ez S. 2010 1040ez possessions such as Guam. 2010 1040ez Homeless shelter. 2010 1040ez   Your home can be any location where you regularly live. 2010 1040ez You do not need a traditional home. 2010 1040ez If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. 2010 1040ez Military personnel stationed outside the United States. 2010 1040ez   U. 2010 1040ez S. 2010 1040ez military personnel stationed outside the United States on extended active duty (defined in chapter 2) are considered to live in the United States during that duty period for purposes of the EIC. 2010 1040ez Chapter 4—Figuring and Claiming the EIC You must meet one more rule to claim the EIC. 2010 1040ez You need to know the amount of your earned income to see if you meet the rule in this chapter. 2010 1040ez You also need to know that amount to figure your EIC. 2010 1040ez Rule 15—Earned Income Limits Your earned income must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2010 1040ez Earned Income Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. 2010 1040ez Employee pay is earned income only if it is taxable. 2010 1040ez Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. 2010 1040ez But there is an exception for nontaxable combat pay, which you can choose to include in earned income. 2010 1040ez Earned income is explained in detail in Rule 7 in chapter 1. 2010 1040ez Figuring earned income. 2010 1040ez   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. 2010 1040ez   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. 2010 1040ez   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). 2010 1040ez You will then reduce that amount by any amount included on that line and described in the following list. 2010 1040ez Scholarship or fellowship grants not reported on a Form W-2. 2010 1040ez A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. 2010 1040ez Inmate's income. 2010 1040ez Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. 2010 1040ez This includes amounts received for work performed while in a work release program or while in a halfway house. 2010 1040ez If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). 2010 1040ez Pension or annuity from deferred compensation plans. 2010 1040ez A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. 2010 1040ez If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). 2010 1040ez This amount may be reported in box 11 of your Form W-2. 2010 1040ez If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity. 2010 1040ez Clergy. 2010 1040ez   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also re