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Amended Federal Income Tax Return

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Amended Federal Income Tax Return

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Page Last Reviewed or Updated: 04-Mar-2014

The Amended Federal Income Tax Return

Amended federal income tax return 8. Amended federal income tax return   Qualified Tuition Program (QTP) Table of Contents Introduction What Is a Qualified Tuition ProgramDesignated beneficiary. Amended federal income tax return Half-time student. Amended federal income tax return How Much Can You Contribute Are Distributions TaxableFiguring the Taxable Portion of a Distribution Additional Tax on Taxable Distributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Introduction Qualified tuition programs (QTPs) are also called “529 plans. Amended federal income tax return ” States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses at a postsecondary institution. Amended federal income tax return Eligible educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. Amended federal income tax return If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. Amended federal income tax return You cannot deduct either payments or contributions to a QTP. Amended federal income tax return For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it. Amended federal income tax return What is the tax benefit of a QTP. Amended federal income tax return   No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses. Amended federal income tax return See Are Distributions Taxable , later, for more information. Amended federal income tax return    Even if a QTP is used to finance a student's education, the student or the student's parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. Amended federal income tax return See Coordination With American Opportunity and Lifetime Learning Credits, later. Amended federal income tax return What Is a Qualified Tuition Program A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified education expenses at an eligible educational institution. Amended federal income tax return QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eligible educational institutions. Amended federal income tax return The program must meet certain requirements. Amended federal income tax return Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP. Amended federal income tax return Qualified education expenses. Amended federal income tax return   These are expenses related to enrollment or attendance at an Eligible educational institution (defined later). Amended federal income tax return As shown in the following list, to be qualified, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time. Amended federal income tax return See Half-time student , later. Amended federal income tax return The following expenses must be required for enrollment or attendance of a Designated beneficiary (defined later) at an eligible educational institution. Amended federal income tax return Tuition and fees. Amended federal income tax return Books, supplies, and equipment. Amended federal income tax return Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution. Amended federal income tax return Expenses for room and board must be incurred by students who are enrolled at least half-time. Amended federal income tax return The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Amended federal income tax return The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Amended federal income tax return The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Amended federal income tax return You will need to contact the eligible educational institution for qualified room and board costs. Amended federal income tax return    For tax years after 2010, the purchase of computer technology or equipment is only a qualified education expense if the computer technology or equipment is required for enrollment or attendance at an eligible institution. Amended federal income tax return Designated beneficiary. Amended federal income tax return   The designated beneficiary is generally the student (or future student) for whom the QTP is intended to provide benefits. Amended federal income tax return The designated beneficiary can be changed after participation in the QTP begins. Amended federal income tax return If a state or local government or certain tax-exempt organizations purchase an interest in a QTP as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship. Amended federal income tax return Half-time student. Amended federal income tax return   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic workload for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Amended federal income tax return Eligible educational institution. Amended federal income tax return   For purposes of a QTP, this is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Amended federal income tax return S. Amended federal income tax return Department of Education. Amended federal income tax return It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Amended federal income tax return The educational institution should be able to tell you if it is an eligible educational institution. Amended federal income tax return   Certain educational institutions located outside the United States also participate in the U. Amended federal income tax return S. Amended federal income tax return Department of Education's Federal Student Aid (FSA) programs. Amended federal income tax return   How Much Can You Contribute Contributions to a QTP on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. Amended federal income tax return There are no income restrictions on the individual contributors. Amended federal income tax return You can contribute to both a QTP and a Coverdell ESA in the same year for the same designated beneficiary. Amended federal income tax return   Are Distributions Taxable The part of a distribution representing the amount paid or contributed to a QTP does not have to be included in income. Amended federal income tax return This is a return of the investment in the plan. Amended federal income tax return The designated beneficiary generally does not have to include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified education expenses (defined under Figuring the Taxable Portion of a Distribution , later). Amended federal income tax return Earnings and return of investment. Amended federal income tax return    You will receive a Form 1099-Q, from each of the programs from which you received a QTP distribution in 2013. Amended federal income tax return The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). Amended federal income tax return Form 1099-Q should be sent to you by January 31, 2014. Amended federal income tax return Figuring the Taxable Portion of a Distribution To determine if total distributions for the year are more or less than the amount of qualified education expenses, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses. Amended federal income tax return Adjusted qualified education expenses. Amended federal income tax return   This amount is the total qualified education expenses reduced by any tax-free educational assistance. Amended federal income tax return 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), Veterans' educational assistance (see Veterans' Benefits 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 ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Amended federal income tax return Taxable earnings. Amended federal income tax return   Use the following steps to figure the taxable part. Amended federal income tax return Multiply the total distributed earnings shown in box 2 of Form 1099-Q by a fraction. Amended federal income tax return The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year. Amended federal income tax return Subtract the amount figured in (1) from the total distributed earnings. Amended federal income tax return The result is the amount the beneficiary must include in income. Amended federal income tax return Report it on Form 1040 or Form 1040NR, line 21. Amended federal income tax return Example 1. Amended federal income tax return In 2007, Sara Clarke's parents opened a savings account for her with a QTP maintained by their state government. Amended federal income tax return Over the years they contributed $18,000 to the account. Amended federal income tax return The total balance in the account was $27,000 on the date the distribution was made. Amended federal income tax return In the summer of 2013, Sara enrolled in college and had $8,300 of qualified education expenses for the rest of the year. Amended federal income tax return She paid her college expenses from the following sources. Amended federal income tax return   Gift from parents $1,600     Partial tuition scholarship (tax-free) 3,100     QTP distribution 5,300           Before Sara can determine the taxable part of her QTP distribution, she must reduce her total qualified education expenses by any tax-free educational assistance. Amended federal income tax return   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Equals: Adjusted qualified  education expenses (AQEE) $5,200   Since the remaining expenses ($5,200) are less than the QTP distribution, part of the earnings will be taxable. Amended federal income tax return Sara's Form 1099-Q shows that $950 of the QTP distribution is earnings. Amended federal income tax return Sara figures the taxable part of the distributed earnings as follows. Amended federal income tax return   1. Amended federal income tax return $950 (earnings) × $5,200 AQEE  $5,300 distribution           =$932 (tax-free earnings)     2. Amended federal income tax return $950 (earnings)−$932 (tax-free earnings)     =$18 (taxable earnings)  Sara must include $18 in income (Form 1040, line 21) as distributed QTP earnings not used for adjusted qualified education expenses. Amended federal income tax return Coordination With American Opportunity and Lifetime Learning Credits An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. Amended federal income tax return This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit. Amended federal income tax return Example 2. Amended federal income tax return Assume the same facts as in Example 1 , except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses). Amended federal income tax return   Total qualified education expenses $8,300     Minus: Tax-free educational assistance −3,100     Minus: Expenses taken into account  in figuring American opportunity credit −4,000     Equals: Adjusted qualified  education expenses (AQEE) $1,200           The taxable part of the distribution is figured as follows. Amended federal income tax return   1. Amended federal income tax return $950 (earnings) × $1,200 AQEE  $5,300 distribution           =$215 (tax-free earnings)     2. Amended federal income tax return $950 (earnings)−$215 (tax-free earnings)     =$735 (taxable earnings)       Sara must include $735 in income (Form 1040, line 21). Amended federal income tax return This represents distributed earnings not used for adjusted qualified education expenses. Amended federal income tax return Coordination With Coverdell ESA Distributions If a designated beneficiary receives distributions from both a QTP and a Coverdell ESA in the same year, and the total of these distributions is more than the beneficiary's adjusted qualified higher education expenses, the expenses must be allocated between the distributions. Amended federal income tax return For purposes of this allocation, disregard any qualified elementary and secondary education expenses. Amended federal income tax return Example 3. Amended federal income tax return Assume the same facts as in Example 2 , except that instead of receiving a $5,300 distribution from her QTP, Sara received $4,600 from that account and $700 from her Coverdell ESA. Amended federal income tax return In this case, Sara must allocate her $1,200 of adjusted qualified higher education expenses (AQHEE) between the two distributions. Amended federal income tax return   $1,200 AQHEE × $700 ESA distribution  $5,300 total distribution = $158 AQHEE (ESA)     $1,200 AQHEE × $4,600 QTP distribution  $5,300 total distribution = $1,042 AQHEE (QTP)   Sara then figures the taxable portion of her Coverdell ESA distribution based on qualified higher education expenses of $158, and the taxable portion of her QTP distribution based on the other $1,042. Amended federal income tax return Note. Amended federal income tax return If you are required to allocate your expenses between Coverdell ESA and QTP distributions, and you have adjusted qualified elementary and secondary education expenses, see the examples in chapter 7, Coverdell Education Savings Account under Coordination With Qualified Tuition Program (QTP) Distributions . Amended federal income tax return Coordination With Tuition and Fees Deduction. Amended federal income tax return   A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits. Amended federal income tax return Losses on QTP Investments If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. Amended federal income tax return You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Amended federal income tax return Your basis is the total amount of contributions to that QTP account. Amended federal income tax return You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. Amended federal income tax return If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc. Amended federal income tax return ) from all such accounts in order to determine your taxable earnings for the year. Amended federal income tax return By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts. Amended federal income tax return Example 1. Amended federal income tax return In 2013, Taylor received a final distribution of $1,000 from QTP #1. Amended federal income tax return His unrecovered basis in that account before the distribution was $3,000. Amended federal income tax return If Taylor itemizes his deductions, he can claim the $2,000 loss on Schedule A (Form 1040). Amended federal income tax return Example 2. Amended federal income tax return Assume the same facts as in Example 1 , except that Taylor also had a distribution of $9,000 from QTP #2, giving him total distributions for 2013 of $10,000. Amended federal income tax return His total basis in these distributions was $4,500 ($3,000 for QTP #1 and $1,500 for QTP #2). Amended federal income tax return Taylor's adjusted qualified education expenses for 2013 totaled $6,000. Amended federal income tax return In order to figure his taxable earnings, Taylor combines the two accounts and determines his taxable earnings as follows. Amended federal income tax return   1. Amended federal income tax return $10,000 (total distribution)−$4,500 (basis portion of distribution)     = $5,500 (earnings included in distribution)   2. Amended federal income tax return $5,500 (earnings) x $6,000 AQEE  $10,000 distribution           =$3,300 (tax-free earnings)     3. Amended federal income tax return $5,500 (earnings)−$3,300 (tax-free earnings)     =$2,200 (taxable earnings)                 Taylor must include $2,200 in income on Form 1040, line 21. Amended federal income tax return Because Taylor's accounts must be combined, he cannot deduct his $2,000 loss (QTP #1) on Schedule A (Form 1040). Amended federal income tax return Instead, the $2,000 loss reduces the total earnings that were distributed, thereby reducing his taxable earnings. Amended federal income tax return Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Amended federal income tax return Exceptions. Amended federal income tax return   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. Amended federal income tax return Made because the designated beneficiary is disabled. Amended federal income tax return A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. Amended federal income tax return A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. Amended federal income tax return Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Amended federal income tax return Made on account of the attendance of the designated beneficiary at a U. Amended federal income tax return S. Amended federal income tax return military academy (such as the USNA at Annapolis). Amended federal income tax return This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. Amended federal income tax return S. Amended federal income tax return Code) attributable to such attendance. Amended federal income tax return Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier. Amended federal income tax return ) Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Amended federal income tax return Figuring the additional tax. Amended federal income tax return    Use Part II of Form 5329, to figure any additional tax. Amended federal income tax return Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Amended federal income tax return Rollovers and Other Transfers Assets can be rolled over or transferred from one QTP to another. Amended federal income tax return In addition, the designated beneficiary can be changed without transferring accounts. Amended federal income tax return Rollovers Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). Amended federal income tax return An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution. Amended federal income tax return Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. Amended federal income tax return These are not taxable distributions. Amended federal income tax return Members of the beneficiary's family. Amended federal income tax return   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. Amended federal income tax return Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Amended federal income tax return Brother, sister, stepbrother, or stepsister. Amended federal income tax return Father or mother or ancestor of either. Amended federal income tax return Stepfather or stepmother. Amended federal income tax return Son or daughter of a brother or sister. Amended federal income tax return Brother or sister of father or mother. Amended federal income tax return Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Amended federal income tax return The spouse of any individual listed above. Amended federal income tax return First cousin. Amended federal income tax return Example. Amended federal income tax return When Aaron graduated from college last year he had $5,000 left in his QTP. Amended federal income tax return He wanted to give this money to his younger brother, who was in junior high school. Amended federal income tax return In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his brother's QTP within 60 days of the distribution. Amended federal income tax return If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary. Amended federal income tax return Changing the Designated Beneficiary There are no income tax consequences if the designated beneficiary of an account is changed to a member of the beneficiary's family. Amended federal income tax return See Members of the beneficiary's family , earlier. Amended federal income tax return Example. Amended federal income tax return Assume the same situation as in the last example. Amended federal income tax return Instead of closing his QTP and paying the distribution into his brother's QTP, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his brother. Amended federal income tax return Prev  Up  Next   Home   More Online Publications