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2012 Tax Form 1040ez

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2012 Tax Form 1040ez

2012 tax form 1040ez 3. 2012 tax form 1040ez   Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. 2012 tax form 1040ez They are the American opportunity credit and the lifetime learning credit. 2012 tax form 1040ez This chapter discusses the lifetime learning credit. 2012 tax form 1040ez The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . 2012 tax form 1040ez This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. 2012 tax form 1040ez What is the tax benefit of the lifetime learning credit. 2012 tax form 1040ez   For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. 2012 tax form 1040ez There is no limit on the number of years the lifetime learning credit can be claimed for each student. 2012 tax form 1040ez   A tax credit reduces the amount of income tax you may have to pay. 2012 tax form 1040ez Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. 2012 tax form 1040ez The lifetime learning credit is a nonrefundable credit. 2012 tax form 1040ez This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. 2012 tax form 1040ez   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. 2012 tax form 1040ez Can you claim more than one education credit this year. 2012 tax form 1040ez   For each student, you can elect for any year only one of the credits. 2012 tax form 1040ez For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. 2012 tax form 1040ez   If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. 2012 tax form 1040ez   If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. 2012 tax form 1040ez This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. 2012 tax form 1040ez Differences between the American opportunity and lifetime learning credits. 2012 tax form 1040ez   There are several differences between these two credits. 2012 tax form 1040ez For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. 2012 tax form 1040ez However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. 2012 tax form 1040ez The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. 2012 tax form 1040ez Overview of the lifetime learning credit. 2012 tax form 1040ez   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. 2012 tax form 1040ez The details are discussed in this chapter. 2012 tax form 1040ez Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. 2012 tax form 1040ez Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. 2012 tax form 1040ez You pay qualified education expenses of higher education. 2012 tax form 1040ez You pay the education expenses for an eligible student. 2012 tax form 1040ez The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. 2012 tax form 1040ez Table 3-1. 2012 tax form 1040ez Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. 2012 tax form 1040ez Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. 2012 tax form 1040ez “Qualified education expenses” are defined later under Qualified Education Expenses . 2012 tax form 1040ez “Eligible students” are defined later under Who Is an Eligible Student . 2012 tax form 1040ez A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . 2012 tax form 1040ez You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. 2012 tax form 1040ez Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. 2012 tax form 1040ez Your filing status is married filing separately. 2012 tax form 1040ez You are listed as a dependent on another person's tax return (such as your parents'). 2012 tax form 1040ez See Who Can Claim a Dependent's Expenses , later. 2012 tax form 1040ez Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). 2012 tax form 1040ez MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . 2012 tax form 1040ez You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. 2012 tax form 1040ez More information on nonresident aliens can be found in Publication 519. 2012 tax form 1040ez You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. 2012 tax form 1040ez What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. 2012 tax form 1040ez Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. 2012 tax form 1040ez For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. 2012 tax form 1040ez Academic period. 2012 tax form 1040ez   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 2012 tax form 1040ez In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 2012 tax form 1040ez Paid with borrowed funds. 2012 tax form 1040ez   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. 2012 tax form 1040ez You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. 2012 tax form 1040ez Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. 2012 tax form 1040ez Student withdraws from class(es). 2012 tax form 1040ez   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. 2012 tax form 1040ez Qualified Education Expenses For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. 2012 tax form 1040ez The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. 2012 tax form 1040ez Eligible educational institution. 2012 tax form 1040ez   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. 2012 tax form 1040ez S. 2012 tax form 1040ez Department of Education. 2012 tax form 1040ez It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2012 tax form 1040ez The educational institution should be able to tell you if it is an eligible educational institution. 2012 tax form 1040ez   Certain educational institutions located outside the United States also participate in the U. 2012 tax form 1040ez S. 2012 tax form 1040ez Department of Education's Federal Student Aid (FSA) programs. 2012 tax form 1040ez Related expenses. 2012 tax form 1040ez   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. 2012 tax form 1040ez Prepaid expenses. 2012 tax form 1040ez   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. 2012 tax form 1040ez See Academic period , earlier. 2012 tax form 1040ez For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). 2012 tax form 1040ez You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). 2012 tax form 1040ez In the following examples, assume that each student is an eligible student at an eligible educational institution. 2012 tax form 1040ez Example 1. 2012 tax form 1040ez   Jackson is a sophomore in University V's degree program in dentistry. 2012 tax form 1040ez This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. 2012 tax form 1040ez Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. 2012 tax form 1040ez Example 2. 2012 tax form 1040ez   Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. 2012 tax form 1040ez The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. 2012 tax form 1040ez Charles bought his books from a friend, so what he paid for them is not a qualified education expense. 2012 tax form 1040ez Donna bought hers at College W's bookstore. 2012 tax form 1040ez Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. 2012 tax form 1040ez Example 3. 2012 tax form 1040ez   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. 2012 tax form 1040ez This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. 2012 tax form 1040ez No portion of the fee covers personal expenses. 2012 tax form 1040ez Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. 2012 tax form 1040ez Therefore, it is a qualified expense. 2012 tax form 1040ez No Double Benefit Allowed You cannot do any of the following: Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses. 2012 tax form 1040ez Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. 2012 tax form 1040ez Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. 2012 tax form 1040ez Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). 2012 tax form 1040ez See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. 2012 tax form 1040ez Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. 2012 tax form 1040ez See Adjustments to Qualified Education Expenses, next. 2012 tax form 1040ez This image is too large to be displayed in the current screen. 2012 tax form 1040ez Please click the link to view the image. 2012 tax form 1040ez Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. 2012 tax form 1040ez The result is the amount of adjusted qualified education expenses for each student. 2012 tax form 1040ez Tax-free educational assistance. 2012 tax form 1040ez   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. 2012 tax form 1040ez See Academic period , earlier. 2012 tax form 1040ez   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. 2012 tax form 1040ez This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). 2012 tax form 1040ez   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. 2012 tax form 1040ez If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. 2012 tax form 1040ez   Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 2012 tax form 1040ez Generally, any scholarship or fellowship is treated as tax free. 2012 tax form 1040ez However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. 2012 tax form 1040ez The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 2012 tax form 1040ez The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 2012 tax form 1040ez You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. 2012 tax form 1040ez For examples, see Coordination with Pell grants and other scholarships, later. 2012 tax form 1040ez Refunds. 2012 tax form 1040ez   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. 2012 tax form 1040ez Some tax-free educational assistance received after 2013 may be treated as a refund. 2012 tax form 1040ez See Tax-free educational assistance , earlier. 2012 tax form 1040ez Refunds received in 2013. 2012 tax form 1040ez   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. 2012 tax form 1040ez Refunds received after 2013 but before your income tax return is filed. 2012 tax form 1040ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. 2012 tax form 1040ez Refunds received after 2013 and after your income tax return is filed. 2012 tax form 1040ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. 2012 tax form 1040ez See Credit recapture, next. 2012 tax form 1040ez Credit recapture. 2012 tax form 1040ez    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. 2012 tax form 1040ez You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. 2012 tax form 1040ez You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). 2012 tax form 1040ez Include that amount as an additional tax for the year the refund or tax-free assistance was received. 2012 tax form 1040ez Example. 2012 tax form 1040ez   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. 2012 tax form 1040ez You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. 2012 tax form 1040ez You claimed no other tax credits. 2012 tax form 1040ez After you filed your return, your child withdrew from two courses and you received a refund of $2,900. 2012 tax form 1040ez You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. 2012 tax form 1040ez The refigured credit is $1,280 and your tax liability increased by $580. 2012 tax form 1040ez See instructions for your 2014 income tax return to determine where to include this tax. 2012 tax form 1040ez If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. 2012 tax form 1040ez Amounts that do not reduce qualified education expenses. 2012 tax form 1040ez   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. 2012 tax form 1040ez   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. 2012 tax form 1040ez The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 2012 tax form 1040ez The use of the money is not restricted. 2012 tax form 1040ez For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. 2012 tax form 1040ez Coordination with Pell grants and other scholarships. 2012 tax form 1040ez   In some cases, you may be able to reduce your tax liability by including scholarships in income. 2012 tax form 1040ez If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. 2012 tax form 1040ez The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. 2012 tax form 1040ez Example 1—No scholarship. 2012 tax form 1040ez Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. 2012 tax form 1040ez Her AGI and her MAGI, for purposes of the credit, are $27,000. 2012 tax form 1040ez Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. 2012 tax form 1040ez She claims no credits other than the lifetime learning credit. 2012 tax form 1040ez In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. 2012 tax form 1040ez Judy and the college meet all requirements for the lifetime learning tax credit. 2012 tax form 1040ez She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. 2012 tax form 1040ez She claims a $900 lifetime learning credit and her tax after credits is $1,256. 2012 tax form 1040ez Example 2—Scholarship excluded from income. 2012 tax form 1040ez The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. 2012 tax form 1040ez Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. 2012 tax form 1040ez If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. 2012 tax form 1040ez Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. 2012 tax form 1040ez Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. 2012 tax form 1040ez Example 3—Scholarship included in income. 2012 tax form 1040ez The facts are the same as in Example 2—Scholarship excluded from income. 2012 tax form 1040ez If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. 2012 tax form 1040ez Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. 2012 tax form 1040ez She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. 2012 tax form 1040ez Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. 2012 tax form 1040ez Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. 2012 tax form 1040ez This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. 2012 tax form 1040ez Sports, games, hobbies, and noncredit courses. 2012 tax form 1040ez   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. 2012 tax form 1040ez However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. 2012 tax form 1040ez Comprehensive or bundled fees. 2012 tax form 1040ez   Some eligible educational institutions combine all of their fees for an academic period into one amount. 2012 tax form 1040ez If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. 2012 tax form 1040ez The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. 2012 tax form 1040ez See Figuring the Credit , later, for more information about Form 1098-T. 2012 tax form 1040ez Who Is an Eligible Student For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). 2012 tax form 1040ez Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year. 2012 tax form 1040ez For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. 2012 tax form 1040ez You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. 2012 tax form 1040ez IF you. 2012 tax form 1040ez . 2012 tax form 1040ez . 2012 tax form 1040ez THEN only. 2012 tax form 1040ez . 2012 tax form 1040ez . 2012 tax form 1040ez claim an exemption on your tax return for a dependent who is an eligible student you can claim the lifetime learning credit based on that dependent's expenses. 2012 tax form 1040ez The dependent cannot claim the credit. 2012 tax form 1040ez do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the lifetime learning credit. 2012 tax form 1040ez You cannot claim the credit based on this dependent's expenses. 2012 tax form 1040ez Expenses paid by dependent. 2012 tax form 1040ez   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. 2012 tax form 1040ez Include these expenses when figuring the amount of your lifetime learning credit. 2012 tax form 1040ez    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. 2012 tax form 1040ez Expenses paid by you. 2012 tax form 1040ez   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. 2012 tax form 1040ez If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. 2012 tax form 1040ez Expenses paid by others. 2012 tax form 1040ez   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. 2012 tax form 1040ez In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. 2012 tax form 1040ez If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. 2012 tax form 1040ez Example. 2012 tax form 1040ez In 2013, Ms. 2012 tax form 1040ez Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. 2012 tax form 1040ez For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. 2012 tax form 1040ez Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. 2012 tax form 1040ez If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. 2012 tax form 1040ez If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. 2012 tax form 1040ez Tuition reduction. 2012 tax form 1040ez   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. 2012 tax form 1040ez If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. 2012 tax form 1040ez For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 2012 tax form 1040ez Figuring the Credit The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. 2012 tax form 1040ez The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). 2012 tax form 1040ez However, that amount may be reduced based on your MAGI. 2012 tax form 1040ez See Effect of the Amount of Your Income on the Amount of Your Credit , later. 2012 tax form 1040ez Example. 2012 tax form 1040ez Bruce and Toni Harper are married and file a joint tax return. 2012 tax form 1040ez For 2013, their MAGI is $75,000. 2012 tax form 1040ez Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. 2012 tax form 1040ez She already has a bachelor's degree in history and wants to become a nurse. 2012 tax form 1040ez In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. 2012 tax form 1040ez Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. 2012 tax form 1040ez Form 1098-T. 2012 tax form 1040ez   To help you figure your lifetime learning credit, the student should receive Form 1098-T. 2012 tax form 1040ez Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. 2012 tax form 1040ez An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. 2012 tax form 1040ez However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. 2012 tax form 1040ez When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. 2012 tax form 1040ez   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. 2012 tax form 1040ez    The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. 2012 tax form 1040ez Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). 2012 tax form 1040ez You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). 2012 tax form 1040ez Modified adjusted gross income (MAGI). 2012 tax form 1040ez   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. 2012 tax form 1040ez MAGI when using Form 1040A. 2012 tax form 1040ez   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. 2012 tax form 1040ez MAGI when using Form 1040. 2012 tax form 1040ez   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2012 tax form 1040ez You can use Worksheet 3-1 to figure your MAGI. 2012 tax form 1040ez Worksheet 3-1. 2012 tax form 1040ez MAGI for the Lifetime Learning Credit 1. 2012 tax form 1040ez Enter your adjusted gross income  (Form 1040, line 38)   1. 2012 tax form 1040ez   2. 2012 tax form 1040ez Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. 2012 tax form 1040ez       3. 2012 tax form 1040ez Enter your foreign housing deduction (Form 2555, line 50)   3. 2012 tax form 1040ez       4. 2012 tax form 1040ez Enter the amount of income from Puerto Rico you are excluding   4. 2012 tax form 1040ez       5. 2012 tax form 1040ez Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. 2012 tax form 1040ez       6. 2012 tax form 1040ez Add the amounts on lines 2, 3, 4, and 5   6. 2012 tax form 1040ez   7. 2012 tax form 1040ez Add the amounts on lines 1 and 6. 2012 tax form 1040ez  This is your modified adjusted  gross income. 2012 tax form 1040ez Enter this amount  on Form 8863, line 14   7. 2012 tax form 1040ez   Phaseout. 2012 tax form 1040ez   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. 2012 tax form 1040ez The same method is shown in the following example. 2012 tax form 1040ez Example. 2012 tax form 1040ez You are filing a joint return with a MAGI of $112,000. 2012 tax form 1040ez In 2013, you paid $6,600 of qualified education expenses. 2012 tax form 1040ez You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). 2012 tax form 1040ez The result is a $1,320 (20% x $6,600) tentative credit. 2012 tax form 1040ez Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. 2012 tax form 1040ez The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. 2012 tax form 1040ez The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). 2012 tax form 1040ez The result is the amount of your phased out (reduced) lifetime learning credit ($990). 2012 tax form 1040ez   $1,320 × $127,000 − $112,000  $20,000 = $990   Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. 2012 tax form 1040ez Enter the credit on Form 1040, line 49, or Form 1040A, line 31. 2012 tax form 1040ez Note. 2012 tax form 1040ez In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. 2012 tax form 1040ez Prev  Up  Next   Home   More Online Publications
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The 2012 Tax Form 1040ez

2012 tax form 1040ez 3. 2012 tax form 1040ez   Limit on Annual Additions Table of Contents Ministers and church employees. 2012 tax form 1040ez Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. 2012 tax form 1040ez This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. 2012 tax form 1040ez The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. 2012 tax form 1040ez More than one 403(b) account. 2012 tax form 1040ez If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. 2012 tax form 1040ez Ministers and church employees. 2012 tax form 1040ez   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. 2012 tax form 1040ez For more information, see chapter 5. 2012 tax form 1040ez Participation in a qualified plan. 2012 tax form 1040ez If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. 2012 tax form 1040ez You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. 2012 tax form 1040ez Includible Compensation for Your Most Recent Year of Service Definition. 2012 tax form 1040ez   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. 2012 tax form 1040ez When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. 2012 tax form 1040ez This can happen if your tax year is not the same as your employer's annual work period. 2012 tax form 1040ez When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. 2012 tax form 1040ez Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. 2012 tax form 1040ez Tax year different from employer's annual work period. 2012 tax form 1040ez   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. 2012 tax form 1040ez Example. 2012 tax form 1040ez A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). 2012 tax form 1040ez To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. 2012 tax form 1040ez Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. 2012 tax form 1040ez A full year of service is equal to full-time employment for your employer's annual work period. 2012 tax form 1040ez After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. 2012 tax form 1040ez Part-time or employed only part of the year. 2012 tax form 1040ez   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. 2012 tax form 1040ez To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. 2012 tax form 1040ez Example. 2012 tax form 1040ez You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). 2012 tax form 1040ez Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). 2012 tax form 1040ez Not yet employed for 1 year. 2012 tax form 1040ez   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. 2012 tax form 1040ez Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. 2012 tax form 1040ez Includible compensation is not the same as income included on your tax return. 2012 tax form 1040ez Compensation is a combination of income and benefits received in exchange for services provided to your employer. 2012 tax form 1040ez Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. 2012 tax form 1040ez Includible compensation includes the following amounts. 2012 tax form 1040ez Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). 2012 tax form 1040ez Amounts contributed or deferred by your employer under a section 125 cafeteria plan. 2012 tax form 1040ez Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). 2012 tax form 1040ez  Note. 2012 tax form 1040ez For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. 2012 tax form 1040ez Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. 2012 tax form 1040ez Income otherwise excluded under the foreign earned income exclusion. 2012 tax form 1040ez Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. 2012 tax form 1040ez Includible compensation does not include the following items. 2012 tax form 1040ez Your employer's contributions to your 403(b) account. 2012 tax form 1040ez Compensation earned while your employer was not an eligible employer. 2012 tax form 1040ez Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. 2012 tax form 1040ez The cost of incidental life insurance. 2012 tax form 1040ez See Cost of Incidental Life Insurance, later. 2012 tax form 1040ez If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. 2012 tax form 1040ez Contributions after retirement. 2012 tax form 1040ez   Nonelective contributions may be made for an employee for up to 5 years after retirement. 2012 tax form 1040ez These contributions would be based on includible compensation for the last year of service before retirement. 2012 tax form 1040ez Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. 2012 tax form 1040ez If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. 2012 tax form 1040ez If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. 2012 tax form 1040ez If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. 2012 tax form 1040ez Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. 2012 tax form 1040ez Not all annuity contracts include life insurance. 2012 tax form 1040ez Contact your plan administrator to determine if your contract includes incidental life insurance. 2012 tax form 1040ez If it does, you will need to figure the cost of life insurance each year the policy is in effect. 2012 tax form 1040ez Figuring the cost of incidental life insurance. 2012 tax form 1040ez If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. 2012 tax form 1040ez To determine the amount of the life insurance premiums, you will need to know the following information. 2012 tax form 1040ez The value of your life insurance contract, which is the amount payable upon your death. 2012 tax form 1040ez The cash value of your life insurance contract at the end of the tax year. 2012 tax form 1040ez Your age on your birthday nearest the beginning of the policy year. 2012 tax form 1040ez Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. 2012 tax form 1040ez You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. 2012 tax form 1040ez Example. 2012 tax form 1040ez Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. 2012 tax form 1040ez Your cash value in the contract at the end of the first year is zero. 2012 tax form 1040ez Your current life insurance protection for the first year is $10,000 ($10,000 − 0). 2012 tax form 1040ez The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). 2012 tax form 1040ez The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . 2012 tax form 1040ez The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. 2012 tax form 1040ez Figure 3-1. 2012 tax form 1040ez Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. 2012 tax form 1040ez 70   35 $0. 2012 tax form 1040ez 99   70 $20. 2012 tax form 1040ez 62 1 0. 2012 tax form 1040ez 41   36 1. 2012 tax form 1040ez 01   71 22. 2012 tax form 1040ez 72 2 0. 2012 tax form 1040ez 27   37 1. 2012 tax form 1040ez 04   72 25. 2012 tax form 1040ez 07 3 0. 2012 tax form 1040ez 19   38 1. 2012 tax form 1040ez 06   73 27. 2012 tax form 1040ez 57 4 0. 2012 tax form 1040ez 13   39 1. 2012 tax form 1040ez 07   74 30. 2012 tax form 1040ez 18 5 0. 2012 tax form 1040ez 13   40 1. 2012 tax form 1040ez 10   75 33. 2012 tax form 1040ez 05 6 0. 2012 tax form 1040ez 14   41 1. 2012 tax form 1040ez 13   76 36. 2012 tax form 1040ez 33 7 0. 2012 tax form 1040ez 15   42 1. 2012 tax form 1040ez 20   77 40. 2012 tax form 1040ez 17 8 0. 2012 tax form 1040ez 16   43 1. 2012 tax form 1040ez 29   78 44. 2012 tax form 1040ez 33 9 0. 2012 tax form 1040ez 16   44 1. 2012 tax form 1040ez 40   79 49. 2012 tax form 1040ez 23 10 0. 2012 tax form 1040ez 16   45 1. 2012 tax form 1040ez 53   80 54. 2012 tax form 1040ez 56 11 0. 2012 tax form 1040ez 19   46 1. 2012 tax form 1040ez 67   81 60. 2012 tax form 1040ez 51 12 0. 2012 tax form 1040ez 24   47 1. 2012 tax form 1040ez 83   82 66. 2012 tax form 1040ez 74 13 0. 2012 tax form 1040ez 28   48 1. 2012 tax form 1040ez 98   83 73. 2012 tax form 1040ez 07 14 0. 2012 tax form 1040ez 33   49 2. 2012 tax form 1040ez 13   84 80. 2012 tax form 1040ez 35 15 0. 2012 tax form 1040ez 38   50 2. 2012 tax form 1040ez 30   85 88. 2012 tax form 1040ez 76 16 0. 2012 tax form 1040ez 52   51 2. 2012 tax form 1040ez 52   86 99. 2012 tax form 1040ez 16 17 0. 2012 tax form 1040ez 57   52 2. 2012 tax form 1040ez 81   87 110. 2012 tax form 1040ez 40 18 0. 2012 tax form 1040ez 59   53 3. 2012 tax form 1040ez 20   88 121. 2012 tax form 1040ez 85 19 0. 2012 tax form 1040ez 61   54 3. 2012 tax form 1040ez 65   89 133. 2012 tax form 1040ez 40 20 0. 2012 tax form 1040ez 62   55 4. 2012 tax form 1040ez 15   90 144. 2012 tax form 1040ez 30 21 0. 2012 tax form 1040ez 62   56 4. 2012 tax form 1040ez 68   91 155. 2012 tax form 1040ez 80 22 0. 2012 tax form 1040ez 64   57 5. 2012 tax form 1040ez 20   92 168. 2012 tax form 1040ez 75 23 0. 2012 tax form 1040ez 66   58 5. 2012 tax form 1040ez 66   93 186. 2012 tax form 1040ez 44 24 0. 2012 tax form 1040ez 68   59 6. 2012 tax form 1040ez 06   94 206. 2012 tax form 1040ez 70 25 0. 2012 tax form 1040ez 71   60 6. 2012 tax form 1040ez 51   95 228. 2012 tax form 1040ez 35 26 0. 2012 tax form 1040ez 73   61 7. 2012 tax form 1040ez 11   96 250. 2012 tax form 1040ez 01 27 0. 2012 tax form 1040ez 76   62 7. 2012 tax form 1040ez 96   97 265. 2012 tax form 1040ez 09 28 0. 2012 tax form 1040ez 80   63 9. 2012 tax form 1040ez 08   98 270. 2012 tax form 1040ez 11 29 0. 2012 tax form 1040ez 83   64 10. 2012 tax form 1040ez 41   99 281. 2012 tax form 1040ez 05 30 0. 2012 tax form 1040ez 87   65 11. 2012 tax form 1040ez 90       31 0. 2012 tax form 1040ez 90   66 13. 2012 tax form 1040ez 51       32 0. 2012 tax form 1040ez 93   67 15. 2012 tax form 1040ez 20       33 0. 2012 tax form 1040ez 96   68 16. 2012 tax form 1040ez 92       34 0. 2012 tax form 1040ez 98   69 18. 2012 tax form 1040ez 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. 2012 tax form 1040ez Example 1. 2012 tax form 1040ez Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. 2012 tax form 1040ez The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. 2012 tax form 1040ez Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. 2012 tax form 1040ez Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. 2012 tax form 1040ez When figuring her includible compensation for this year, Lynne will subtract $28. 2012 tax form 1040ez Table 3-1. 2012 tax form 1040ez Worksheet A. 2012 tax form 1040ez Cost of Incidental Life Insurance Note. 2012 tax form 1040ez Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. 2012 tax form 1040ez This amount will be used to figure includible compensation for your most recent year of service. 2012 tax form 1040ez 1. 2012 tax form 1040ez Enter the value of the contract (amount payable upon your death) 1. 2012 tax form 1040ez $20,000. 2012 tax form 1040ez 00 2. 2012 tax form 1040ez Enter the cash value in the contract at the end of the year 2. 2012 tax form 1040ez 0. 2012 tax form 1040ez 00 3. 2012 tax form 1040ez Subtract line 2 from line 1. 2012 tax form 1040ez This is the value of your current life insurance protection 3. 2012 tax form 1040ez $20,000. 2012 tax form 1040ez 00 4. 2012 tax form 1040ez Enter your age on your birthday nearest the beginning of the policy year 4. 2012 tax form 1040ez 44 5. 2012 tax form 1040ez Enter the 1-year term premium for $1,000 of life insurance based on your age. 2012 tax form 1040ez (From Figure 3-1) 5. 2012 tax form 1040ez $1. 2012 tax form 1040ez 40 6. 2012 tax form 1040ez Divide line 3 by $1,000 6. 2012 tax form 1040ez 20 7. 2012 tax form 1040ez Multiply line 6 by line 5. 2012 tax form 1040ez This is the cost of your incidental life insurance 7. 2012 tax form 1040ez $28. 2012 tax form 1040ez 00 Example 2. 2012 tax form 1040ez Lynne's cash value in the contract at the end of the second year is $1,000. 2012 tax form 1040ez In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. 2012 tax form 1040ez In year two, Lynne's employer will include $29. 2012 tax form 1040ez 07 in her current year's income. 2012 tax form 1040ez Lynne will subtract this amount when figuring her includible compensation. 2012 tax form 1040ez Table 3-2. 2012 tax form 1040ez Worksheet A. 2012 tax form 1040ez Cost of Incidental Life Insurance Note. 2012 tax form 1040ez Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. 2012 tax form 1040ez This amount will be used to figure includible compensation for your most recent year of service. 2012 tax form 1040ez 1. 2012 tax form 1040ez Enter the value of the contract (amount payable upon your death) 1. 2012 tax form 1040ez $20,000. 2012 tax form 1040ez 00 2. 2012 tax form 1040ez Enter the cash value in the contract at the end of the year 2. 2012 tax form 1040ez $1,000. 2012 tax form 1040ez 00 3. 2012 tax form 1040ez Subtract line 2 from line 1. 2012 tax form 1040ez This is the value of your current life insurance protection 3. 2012 tax form 1040ez $19,000. 2012 tax form 1040ez 00 4. 2012 tax form 1040ez Enter your age on your birthday nearest the beginning of the policy year 4. 2012 tax form 1040ez 45 5. 2012 tax form 1040ez Enter the 1-year term premium for $1,000 of life insurance based on your age. 2012 tax form 1040ez (From Figure 3-1) 5. 2012 tax form 1040ez $1. 2012 tax form 1040ez 53 6. 2012 tax form 1040ez Divide line 3 by $1,000 6. 2012 tax form 1040ez 19 7. 2012 tax form 1040ez Multiply line 6 by line 5. 2012 tax form 1040ez This is the cost of your incidental life insurance 7. 2012 tax form 1040ez $29. 2012 tax form 1040ez 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. 2012 tax form 1040ez Example. 2012 tax form 1040ez Floyd has been periodically working full-time for a local hospital since September 2011. 2012 tax form 1040ez He needs to figure his limit on annual additions for 2014. 2012 tax form 1040ez The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. 2012 tax form 1040ez During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. 2012 tax form 1040ez Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. 2012 tax form 1040ez Floyd has never worked abroad and there is no life insurance provided under the plan. 2012 tax form 1040ez Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. 2012 tax form 1040ez Table 3-3. 2012 tax form 1040ez Floyd's Compensation Note. 2012 tax form 1040ez This table shows information Floyd will use to figure includible compensation for his most recent year of service. 2012 tax form 1040ez   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. 2012 tax form 1040ez Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. 2012 tax form 1040ez If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. 2012 tax form 1040ez He figures his most recent year of service shown in the following list. 2012 tax form 1040ez Time he will work in 2014 is 6/12 of a year. 2012 tax form 1040ez Time worked in 2013 is 4/12 of a year. 2012 tax form 1040ez All of this time will be used to determine Floyd's most recent year of service. 2012 tax form 1040ez Time worked in 2012 is 4/12 of a year. 2012 tax form 1040ez Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. 2012 tax form 1040ez Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. 2012 tax form 1040ez Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). 2012 tax form 1040ez His includible compensation for his most recent year of service is figured as shown in Table 3-4. 2012 tax form 1040ez After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. 2012 tax form 1040ez Table 3-4. 2012 tax form 1040ez Worksheet B. 2012 tax form 1040ez Includible Compensation for Your Most Recent Year of Service1 Note. 2012 tax form 1040ez Use this worksheet to figure includible compensation for your most recent year of service. 2012 tax form 1040ez 1. 2012 tax form 1040ez Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. 2012 tax form 1040ez $66,000 2. 2012 tax form 1040ez Enter elective deferrals excluded from your gross income for your most recent year of service2 2. 2012 tax form 1040ez 4,4753 3. 2012 tax form 1040ez Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. 2012 tax form 1040ez -0- 4. 2012 tax form 1040ez Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. 2012 tax form 1040ez -0- 5. 2012 tax form 1040ez Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. 2012 tax form 1040ez -0- 6. 2012 tax form 1040ez Enter your foreign earned income exclusion for your most recent year of service 6. 2012 tax form 1040ez -0- 7. 2012 tax form 1040ez Add lines 1, 2, 3, 4, 5, and 6 7. 2012 tax form 1040ez 70,475 8. 2012 tax form 1040ez Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. 2012 tax form 1040ez -0- 9. 2012 tax form 1040ez Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. 2012 tax form 1040ez -0- 10. 2012 tax form 1040ez Add lines 8 and 9 10. 2012 tax form 1040ez -0- 11. 2012 tax form 1040ez Subtract line 10 from line 7. 2012 tax form 1040ez This is your includible compensation for your most recent year of service 11. 2012 tax form 1040ez 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. 2012 tax form 1040ez 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. 2012 tax form 1040ez  3$4,475 ($2,000 + $1,650 + $825). 2012 tax form 1040ez Prev  Up  Next   Home   More Online Publications