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Back taxes help 25. Back taxes help   Nonbusiness Casualty and Theft Losses Table of Contents What's New Introduction Useful Items - You may want to see: CasualtyFamily pet. Back taxes help Progressive deterioration. Back taxes help Damage from corrosive drywall. Back taxes help Theft Loss on Deposits Proof of Loss Figuring a LossDecrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Single Casualty on Multiple Properties Deduction Limits$100 Rule 10% Rule When To Report Gains and LossesDisaster Area Loss How To Report Gains and Losses What's New New Section C of Form 4684 for Ponzi-type investment schemes. Back taxes help  Section C of Form 4684 is new for 2013. Back taxes help You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. Back taxes help Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Back taxes help You do not need to complete Appendix A. Back taxes help For details, see Losses from Ponzi-type investment schemes , in this chapter. Back taxes help Introduction This chapter explains the tax treatment of personal (not business or investment related) casualty losses, theft losses, and losses on deposits. Back taxes help The chapter also explains the following  topics. Back taxes help How to figure the amount of your loss. Back taxes help How to treat insurance and other reimbursements you receive. Back taxes help The deduction limits. Back taxes help When and how to report a casualty or theft. Back taxes help Forms to file. Back taxes help    When you have a casualty or theft, you have to file Form 4684. Back taxes help You will also have to file one or more of the following forms. Back taxes help Schedule A (Form 1040), Itemized Deductions Schedule D (Form 1040), Capital Gains and Losses Condemnations. Back taxes help   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Disposition of Assets. Back taxes help Workbook for casualties and thefts. Back taxes help    Publication 584 is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Back taxes help It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Back taxes help Business or investment-related losses. Back taxes help   For information on a casualty or theft loss of business or income-producing property, see Publication 547, Casualties, Disasters, and Thefts. Back taxes help Useful Items - You may want to see: Publication 544 Sales and Other Dispositions  of Assets 547 Casualties, Disasters, and   Thefts 584 Casualty, Disaster, and Theft   Loss Workbook (Personal-Use  Property) Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Back taxes help A sudden event is one that is swift, not gradual or progressive. Back taxes help An unexpected event is one that is ordinarily unanticipated and unintended. Back taxes help An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Back taxes help Deductible losses. Back taxes help   Deductible casualty losses can result from a number of different causes, including the following. Back taxes help Car accidents (but see Nondeductible losses , next, for exceptions). Back taxes help Earthquakes. Back taxes help Fires (but see Nondeductible losses , next, for exceptions). Back taxes help Floods. Back taxes help Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses in Publication 547. Back taxes help Mine cave-ins. Back taxes help Shipwrecks. Back taxes help Sonic booms. Back taxes help Storms, including hurricanes and tornadoes. Back taxes help Terrorist attacks. Back taxes help Vandalism. Back taxes help Volcanic eruptions. Back taxes help Nondeductible losses. Back taxes help   A casualty loss is not deductible if the damage or destruction is caused by the following. Back taxes help Accidentally breaking articles such as glassware or china under normal conditions. Back taxes help A family pet (explained below). Back taxes help A fire if you willfully set it or pay someone else to set it. Back taxes help A car accident if your willful negligence or willful act caused it. Back taxes help The same is true if the willful act or willful negligence of someone acting for you caused the accident. Back taxes help Progressive deterioration (explained later). Back taxes help Family pet. Back taxes help   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed earlier under Casualty are met. Back taxes help Example. Back taxes help Your antique oriental rug was damaged by your new puppy before it was housebroken. Back taxes help Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. Back taxes help Progressive deterioration. Back taxes help    Loss of property due to progressive deterioration is not deductible as a casualty loss. Back taxes help This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Back taxes help The following are examples of damage due to progressive deterioration. Back taxes help The steady weakening of a building due to normal wind and weather conditions. Back taxes help The deterioration and damage to a water heater that bursts. Back taxes help However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. Back taxes help Most losses of property caused by droughts. Back taxes help To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. Back taxes help Termite or moth damage. Back taxes help The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. Back taxes help However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. Back taxes help Damage from corrosive drywall. Back taxes help   Under a special procedure, you may be able to claim a casualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall. Back taxes help For details, see Publication 547. Back taxes help Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. Back taxes help The taking of property must be illegal under the laws of the state where it occurred and it must have been done with criminal intent. Back taxes help You do not need to show a conviction for theft. Back taxes help Theft includes the taking of money or property by the following means. Back taxes help Blackmail. Back taxes help Burglary. Back taxes help Embezzlement. Back taxes help Extortion. Back taxes help Kidnapping for ransom. Back taxes help Larceny. Back taxes help Robbery. Back taxes help The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Back taxes help Decline in market value of stock. Back taxes help   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. Back taxes help However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. Back taxes help You report a capital loss on Schedule D (Form 1040). Back taxes help For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Back taxes help Mislaid or lost property. Back taxes help   The simple disappearance of money or property is not a theft. Back taxes help However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Back taxes help Sudden, unexpected, and unusual events are defined earlier. Back taxes help Example. Back taxes help A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Back taxes help The diamond falls from the ring and is never found. Back taxes help The loss of the diamond is a casualty. Back taxes help Losses from Ponzi-type investment schemes. Back taxes help   If you had a loss from a Ponzi-type investment scheme, see: Revenue Ruling 2009-9, 2009-14 I. Back taxes help R. Back taxes help B. Back taxes help 735 (available at www. Back taxes help irs. Back taxes help gov/irb/2009-14_IRB/ar07. Back taxes help html). Back taxes help Revenue Procedure 2009-20, 2009-14 I. Back taxes help R. Back taxes help B. Back taxes help 749 (available at www. Back taxes help irs. Back taxes help gov/irb/2009-14_IRB/ar11. Back taxes help html). Back taxes help Revenue Procedure 2011-58, 2011-50 I. Back taxes help R. Back taxes help B. Back taxes help 849 (available at www. Back taxes help irs. Back taxes help gov/irb/2011-50_IRB/ar11. Back taxes help html). Back taxes help If you qualify to use Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, and you choose to follow the procedures in the guidance, first fill out Section C of Form 4684 to determine the amount to enter on Section B, line 28. Back taxes help Skip lines 19 to 27. Back taxes help Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Back taxes help You do not need to complete Appendix A. Back taxes help For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. Back taxes help   If you choose not to use the procedures in Revenue Procedure 2009-20, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. Back taxes help Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. Back taxes help If you incurred this type of loss, you can choose one of the following ways to deduct the loss. Back taxes help As a casualty loss. Back taxes help As an ordinary loss. Back taxes help As a nonbusiness bad debt. Back taxes help Casualty loss or ordinary loss. Back taxes help   You can choose to deduct a loss on deposits as a casualty loss or as an ordinary loss for any year in which you can reasonably estimate how much of your deposits you have lost in an insolvent or bankrupt financial institution. Back taxes help The choice is generally made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. Back taxes help If you treat the loss as a casualty or ordinary loss, you cannot treat the same amount of the loss as a nonbusiness bad debt when it actually becomes worthless. Back taxes help However, you can take a nonbusiness bad debt deduction for any amount of loss that is more than the estimated amount you deducted as a casualty or ordinary loss. Back taxes help Once you make this choice, you cannot change it without permission from the Internal Revenue Service. Back taxes help   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Back taxes help The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Back taxes help Your loss is subject to the 2%-of-adjusted-gross-income limit. Back taxes help You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. Back taxes help Nonbusiness bad debt. Back taxes help   If you do not choose to deduct the loss as a casualty loss or as an ordinary loss, you must wait until the year the actual loss is determined and deduct the loss as a nonbusiness bad debt in that year. Back taxes help How to report. Back taxes help   The kind of deduction you choose for your loss on deposits determines how you report your loss. Back taxes help If you choose: Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040). Back taxes help Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction. Back taxes help Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040). Back taxes help More information. Back taxes help   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684 or Deposit in Insolvent or Bankrupt Financial Institution in Publication 550. Back taxes help Proof of Loss To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. Back taxes help You also must be able to support the amount you take as a deduction. Back taxes help Casualty loss proof. Back taxes help   For a casualty loss, your records should show all the following. Back taxes help The type of casualty (car accident, fire, storm, etc. Back taxes help ) and when it occurred. Back taxes help That the loss was a direct result of the casualty. Back taxes help That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage. Back taxes help Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Back taxes help Theft loss proof. Back taxes help   For a theft loss, your records should show all the following. Back taxes help When you discovered that your property was missing. Back taxes help That your property was stolen. Back taxes help That you were the owner of the property. Back taxes help Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Back taxes help It is important that you have records that will prove your deduction. Back taxes help If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. Back taxes help Figuring a Loss Figure the amount of your loss using the following steps. Back taxes help Determine your adjusted basis in the property before the casualty or theft. Back taxes help Determine the decrease in fair market value of the property as a result of the casualty or theft. Back taxes help From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Back taxes help For personal-use property and property used in performing services as an employee, apply the deduction limits, discussed later, to determine the amount of your deductible loss. Back taxes help Gain from reimbursement. Back taxes help   If your reimbursement is more than your adjusted basis in the property, you have a gain. Back taxes help This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. Back taxes help If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. Back taxes help See Publication 547 for more information on how to treat a gain from a reimbursement for a casualty or theft. Back taxes help Leased property. Back taxes help   If you are liable for casualty damage to property you lease, your loss is the amount you must pay to repair the property minus any insurance or other reimbursement you receive or expect to receive. Back taxes help Decrease in Fair Market Value Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts. Back taxes help The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property's fair market value immediately before and immediately after the casualty or theft. Back taxes help FMV of stolen property. Back taxes help   The FMV of property immediately after a theft is considered to be zero, since you no longer have the property. Back taxes help Example. Back taxes help Several years ago, you purchased silver dollars at face value for $150. Back taxes help This is your adjusted basis in the property. Back taxes help Your silver dollars were stolen this year. Back taxes help The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Back taxes help Your theft loss is $150. Back taxes help Recovered stolen property. Back taxes help   Recovered stolen property is your property that was stolen and later returned to you. Back taxes help If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property's adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. Back taxes help Use this amount to refigure your total loss for the year in which the loss was deducted. Back taxes help   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. Back taxes help But report the difference only up to the amount of the loss that reduced your tax. Back taxes help For more information on the amount to report, see Recoveries in chapter 12. Back taxes help Figuring Decrease in FMV— Items To Consider To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Back taxes help However, other measures can also be used to establish certain decreases. Back taxes help Appraisal. Back taxes help   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. Back taxes help The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Back taxes help This information is needed to limit any deduction to the actual loss resulting from damage to the property. Back taxes help   Several factors are important in evaluating the accuracy of an appraisal, including the following. Back taxes help The appraiser's familiarity with your property before and after the casualty or theft. Back taxes help The appraiser's knowledge of sales of comparable property in the area. Back taxes help The appraiser's knowledge of conditions in the area of the casualty. Back taxes help The appraiser's method of appraisal. Back taxes help    You may be able to use an appraisal that you used to get a federal loan (or a federal loan guarantee) as the result of a federally declared disaster to establish the amount of your disaster loss. Back taxes help For more information on disasters, see Disaster Area Losses, in Pub. Back taxes help 547. Back taxes help Cost of cleaning up or making repairs. Back taxes help   The cost of repairing damaged property is not part of a casualty loss. Back taxes help Neither is the cost of cleaning up after a casualty. Back taxes help But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Back taxes help The repairs are actually made. Back taxes help The repairs are necessary to bring the property back to its condition before the casualty. Back taxes help The amount spent for repairs is not excessive. Back taxes help The repairs take care of the damage only. Back taxes help The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Back taxes help Landscaping. Back taxes help   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. Back taxes help You may be able to measure your loss by what you spend on the following. Back taxes help Removing destroyed or damaged trees and shrubs minus any salvage you receive. Back taxes help Pruning and other measures taken to preserve damaged trees and shrubs. Back taxes help Replanting necessary to restore the property to its approximate value before the casualty. Back taxes help Car value. Back taxes help    Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. Back taxes help You can use the book's retail values and modify them by such factors as mileage and the condition of your car to figure its value. Back taxes help The prices are not official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. Back taxes help If your car is not listed in the books, determine its value from other sources. Back taxes help A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. Back taxes help Figuring Decrease in FMV— Items Not To Consider You generally should not consider the following items when attempting to establish the decrease in FMV of your property. Back taxes help Cost of protection. Back taxes help   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. Back taxes help The amount you spend on insurance or to board up your house against a storm is not part of your loss. Back taxes help   If you make permanent improvements to your property to protect it against a casualty or theft, add the cost of these improvements to your basis in the property. Back taxes help An example would be the cost of a dike to prevent flooding. Back taxes help Exception. Back taxes help   You cannot increase your basis in the property by, or deduct as a business expense, any expenditures you made with respect to qualified disaster mitigation payments. Back taxes help See Disaster Area Losses in Publication 547. Back taxes help Incidental expenses. Back taxes help   Any incidental expenses you have due to a casualty or theft, such as expenses for the treatment of personal injuries, for temporary housing, or for a rental car, are not part of your casualty or theft loss. Back taxes help Replacement cost. Back taxes help   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. Back taxes help Sentimental value. Back taxes help   Do not consider sentimental value when determining your loss. Back taxes help If a family portrait, heirloom, or keepsake is damaged, destroyed, or stolen, you must base your loss on its FMV, as limited by your adjusted basis in the property. Back taxes help Decline in market value of property in or near casualty area. Back taxes help   A decrease in the value of your property because it is in or near an area that suffered a casualty, or that might again suffer a casualty, is not to be taken into consideration. Back taxes help You have a loss only for actual casualty damage to your property. Back taxes help However, if your home is in a federally declared disaster area, see Disaster Area Losses in Publication 547. Back taxes help Costs of photographs and appraisals. Back taxes help    Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. Back taxes help Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. Back taxes help    Appraisals are used to figure the decrease in FMV because of a casualty or theft. Back taxes help See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. Back taxes help   The costs of photographs and appraisals used as evidence of the value and condition of property damaged as a result of a casualty are not a part of the loss. Back taxes help You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). Back taxes help For information about miscellaneous deductions, see chapter 28. Back taxes help Adjusted Basis Adjusted basis is your basis in the property (usually cost) increased or decreased by various events, such as improvements and casualty losses. Back taxes help For more information, see chapter 13. Back taxes help Insurance and Other Reimbursements If you receive an insurance payment or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Back taxes help You do not have a casualty or theft loss to the extent you are reimbursed. Back taxes help If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Back taxes help You must reduce your loss even if you do not receive payment until a later tax year. Back taxes help See Reimbursement Received After Deducting Loss , later. Back taxes help Failure to file a claim for reimbursement. Back taxes help   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Back taxes help Otherwise, you cannot deduct this loss as a casualty or theft loss. Back taxes help However, this rule does not apply to the portion of the loss not covered by insurance (for example, a deductible). Back taxes help Example. Back taxes help You have a car insurance policy with a $1,000 deductible. Back taxes help Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the deduction limits discussed later). Back taxes help This is true even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. Back taxes help Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. Back taxes help Other types of reimbursements are discussed next. Back taxes help Also see the Instructions for Form 4684. Back taxes help Employer's emergency disaster fund. Back taxes help   If you receive money from your employer's emergency disaster fund and you must use that money to rehabilitate or replace property on which you are claiming a casualty loss deduction, you must take that money into consideration in computing the casualty loss deduction. Back taxes help Take into consideration only the amount you used to replace your destroyed or damaged property. Back taxes help Example. Back taxes help Your home was extensively damaged by a tornado. Back taxes help Your loss after reimbursement from your insurance company was $10,000. Back taxes help Your employer set up a disaster relief fund for its employees. Back taxes help Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. Back taxes help You received $4,000 from the fund and spent the entire amount on repairs to your home. Back taxes help In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. Back taxes help Your casualty loss before applying the deduction limits discussed later is $6,000. Back taxes help Cash gifts. Back taxes help   If you receive excludable cash gifts as a disaster victim and there are no limits on how you can use the money, you do not reduce your casualty loss by these excludable cash gifts. Back taxes help This applies even if you use the money to pay for repairs to property damaged in the disaster. Back taxes help Example. Back taxes help Your home was damaged by a hurricane. Back taxes help Relatives and neighbors made cash gifts to you that were excludable from your income. Back taxes help You used part of the cash gifts to pay for repairs to your home. Back taxes help There were no limits or restrictions on how you could use the cash gifts. Back taxes help Because it was an excludable gift, the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. Back taxes help Insurance payments for living expenses. Back taxes help   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. Back taxes help You lose the use of your main home because of a casualty. Back taxes help Government authorities do not allow you access to your main home because of a casualty or threat of one. Back taxes help Inclusion in income. Back taxes help   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. Back taxes help Report this amount on Form 1040, line 21. Back taxes help However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. Back taxes help See Qualified disaster relief payments, under Disaster Area Losses in Publication 547. Back taxes help   A temporary increase in your living expenses is the difference between the actual living expenses you and your family incurred during the period you could not use your home and your normal living expenses for that period. Back taxes help Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. Back taxes help Generally, these expenses include the amounts you pay for the following. Back taxes help Rent for suitable housing. Back taxes help Transportation. Back taxes help Food. Back taxes help Utilities. Back taxes help Miscellaneous services. Back taxes help Normal living expenses consist of these same expenses that you would have incurred but did not because of the casualty or the threat of one. Back taxes help Example. Back taxes help As a result of a fire, you vacated your apartment for a month and moved to a motel. Back taxes help You normally pay $525 a month for rent. Back taxes help None was charged for the month the apartment was vacated. Back taxes help Your motel rent for this month was $1,200. Back taxes help You normally pay $200 a month for food. Back taxes help Your food expenses for the month you lived in the motel were $400. Back taxes help You received $1,100 from your insurance company to cover your living expenses. Back taxes help You determine the payment you must include in income as follows. Back taxes help 1) Insurance payment for living expenses $1,100 2) Actual expenses during the month you are unable to use your home because of fire 1,600   3) Normal living expenses 725   4) Temporary increase in living  expenses: Subtract line 3 from line 2 875 5) Amount of payment includible  in income: Subtract line 4  from line 1 $ 225 Tax year of inclusion. Back taxes help   You include the taxable part of the insurance payment in income for the year you regain the use of your main home or, if later, for the year you receive the taxable part of the insurance payment. Back taxes help Example. Back taxes help Your main home was destroyed by a tornado in August 2011. Back taxes help You regained use of your home in November 2012. Back taxes help The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. Back taxes help You include this amount in income on your 2012 Form 1040. Back taxes help If, in 2013, you receive further payments to cover the living expenses you had in 2011 and 2012, you must include those payments in income on your 2013 Form 1040. Back taxes help Disaster relief. Back taxes help   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss unless they are replacements for lost or destroyed property. Back taxes help Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Back taxes help For more information, see Disaster Area Losses in Publication 547. Back taxes help Disaster unemployment assistance payments are unemployment benefits that are taxable. Back taxes help Generally, disaster relief grants and qualified disaster mitigation payments made under the Robert T. Back taxes help Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not includible in your income. Back taxes help See Disaster Area Losses in Publication 547. Back taxes help Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you receive your actual reimbursement. Back taxes help This section explains the adjustment you may have to make. Back taxes help Actual reimbursement less than expected. Back taxes help   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. Back taxes help Example. Back taxes help Your personal car had an FMV of $2,000 when it was destroyed in a collision with another car in 2012. Back taxes help The accident was due to the negligence of the other driver. Back taxes help At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. Back taxes help You did not have a deductible loss in 2012. Back taxes help In January 2013, the court awarded you a judgment of $2,000. Back taxes help However, in July it became apparent that you will be unable to collect any amount from the other driver. Back taxes help You can deduct the loss in 2013 subject to the limits discussed later. Back taxes help Actual reimbursement more than expected. Back taxes help   If you later receive more reimbursement than you expected after you claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Back taxes help However, if any part of the original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Back taxes help You do not refigure your tax for the year you claimed the deduction. Back taxes help For more information, see Recoveries in chapter 12. Back taxes help If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. Back taxes help If you have already taken a deduction for a loss and you receive the reimbursement in a later year, you may have to include the gain in your income for the later year. Back taxes help Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. Back taxes help See Figuring a Gain in Publication 547 for more information on how to treat a gain from the reimbursement of a casualty or theft. Back taxes help Actual reimbursement same as expected. Back taxes help   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. Back taxes help Example. Back taxes help In December 2013, you had a collision while driving your personal car. Back taxes help Repairs to the car cost $950. Back taxes help You had $100 deductible collision insurance. Back taxes help Your insurance company agreed to reimburse you for the rest of the damage. Back taxes help Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. Back taxes help Due to the $100 rule (discussed later under Deduction Limits ), you cannot deduct the $100 you paid as the deductible. Back taxes help When you receive the $850 from the insurance company in 2014, do not report it as income. Back taxes help Single Casualty on Multiple Properties Personal property. Back taxes help   Personal property is any property that is not real property. Back taxes help If your personal property is stolen or is damaged or destroyed by a casualty, you must figure your loss separately for each item of property. Back taxes help Then combine these separate losses to figure the total loss from that casualty or theft. Back taxes help Example. Back taxes help A fire in your home destroyed an upholstered chair, an oriental rug, and an antique table. Back taxes help You did not have fire insurance to cover your loss. Back taxes help (This was the only casualty or theft you had during the year. Back taxes help ) You paid $750 for the chair and you established that it had an FMV of $500 just before the fire. Back taxes help The rug cost $3,000 and had an FMV of $2,500 just before the fire. Back taxes help You bought the table at an auction for $100 before discovering it was an antique. Back taxes help It had been appraised at $900 before the fire. Back taxes help You figure your loss on each of these items as follows:     Chair Rug Table 1) Basis (cost) $750 $3,000 $100 2) FMV before fire $500 $2,500 $900 3) FMV after fire –0– –0– –0– 4) Decrease in FMV $500 $2,500 $900 5) Loss (smaller of (1) or  (4)) $500 $2,500 $100           6) Total loss     $3,100 Real property. Back taxes help   In figuring a casualty loss on personal-use real property, treat the entire property (including any improvements, such as buildings, trees, and shrubs) as one item. Back taxes help Figure the loss using the smaller of the adjusted basis or the decrease in FMV of the entire property. Back taxes help Example. Back taxes help You bought your home a few years ago. Back taxes help You paid $160,000 ($20,000 for the land and $140,000 for the house). Back taxes help You also spent $2,000 for landscaping. Back taxes help This year a fire destroyed your home. Back taxes help The fire also damaged the shrubbery and trees in your yard. Back taxes help The fire was your only casualty or theft loss this year. Back taxes help Competent appraisers valued the property as a whole at $200,000 before the fire, but only $30,000 after the fire. Back taxes help (The loss to your household furnishings is not shown in this example. Back taxes help It would be figured separately on each item, as explained earlier under Personal property . Back taxes help ) Shortly after the fire, the insurance company paid you $155,000 for the loss. Back taxes help You figure your casualty loss as follows: 1) Adjusted basis of the entire property (land, building, and landscaping) $162,000 2) FMV of entire property before fire $200,000 3) FMV of entire property after fire 30,000 4) Decrease in FMV of entire  property $170,000 5) Loss (smaller of (1) or (4)) $162,000 6) Subtract insurance 155,000 7) Amount of loss after reimbursement $7,000 Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. Back taxes help If the loss was to property for your personal use or your family's use, there are two limits on the amount you can deduct for your casualty or theft loss. Back taxes help You must reduce each casualty or theft loss by $100 ($100 rule). Back taxes help You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule). Back taxes help You make these reductions on Form 4684. Back taxes help These rules are explained next and Table 25-1 summarizes how to apply the $100 rule and the 10% rule in various situations. Back taxes help For more detailed explanations and examples, see Publication 547. Back taxes help Table 25-1. Back taxes help How To Apply the Deduction Limits for Personal-Use Property   $100 Rule 10% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. Back taxes help Apply this rule after you have figured the amount of your loss. Back taxes help You must reduce your total casualty or theft loss by 10% of your adjusted gross income. Back taxes help Apply this rule after you reduce each loss by $100 (the $100 rule). Back taxes help Single Event Apply this rule only once, even if many pieces of property are affected. Back taxes help Apply this rule only once, even if many pieces of property are affected. Back taxes help More Than One Event Apply to the loss from each event. Back taxes help Apply to the total of all your losses from all events. Back taxes help More Than One Person— With Loss From the Same Event (other than a married couple filing jointly) Apply separately to each person. Back taxes help Apply separately to each person. Back taxes help Married Couple—With Loss From the Same Event Filing Jointly Apply as if you were one person. Back taxes help Apply as if you were one person. Back taxes help Filing Separately Apply separately to each spouse. Back taxes help Apply separately to each spouse. Back taxes help More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. Back taxes help Apply separately to each owner of jointly owned property. Back taxes help Property used partly for business and partly for personal purposes. Back taxes help   When property is used partly for personal purposes and partly for business or income-producing purposes, the casualty or theft loss deduction must be figured separately for the personal-use part and for the business or income-producing part. Back taxes help You must figure each loss separately because the $100 rule and the 10% rule apply only to the loss on the personal-use part of the property. Back taxes help $100 Rule After you have figured your casualty or theft loss on personal-use property, you must reduce that loss by $100. Back taxes help This reduction applies to each total casualty or theft loss. Back taxes help It does not matter how many pieces of property are involved in an event. Back taxes help Only a single $100 reduction applies. Back taxes help Example. Back taxes help A hailstorm damages your home and your car. Back taxes help Determine the amount of loss, as discussed earlier, for each of these items. Back taxes help Since the losses are due to a single event, you combine the losses and reduce the combined amount by $100. Back taxes help Single event. Back taxes help   Generally, events closely related in origin cause a single casualty. Back taxes help It is a single casualty when the damage is from two or more closely related causes, such as wind and flood damage caused by the same storm. Back taxes help 10% Rule You must reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Back taxes help Apply this rule after you reduce each loss by $100. Back taxes help For more information, see the Form 4684 instructions. Back taxes help If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. Back taxes help Example 1. Back taxes help In June, you discovered that your house had been burglarized. Back taxes help Your loss after insurance reimbursement was $2,000. Back taxes help Your adjusted gross income for the year you discovered the theft is $29,500. Back taxes help You first apply the $100 rule and then the 10% rule. Back taxes help Figure your theft loss deduction as follows. Back taxes help 1) Loss after insurance $2,000 2) Subtract $100 100 3) Loss after $100 rule $1,900 4) Subtract 10% × $29,500 AGI 2,950 5) Theft loss deduction –0– You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950). Back taxes help Example 2. Back taxes help In March, you had a car accident that totally destroyed your car. Back taxes help You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Back taxes help Your loss on the car was $1,800. Back taxes help In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Back taxes help Your loss on the basement items after reimbursement was $2,100. Back taxes help Your adjusted gross income for the year that the accident and fire occurred is $25,000. Back taxes help You figure your casualty loss deduction as follows. Back taxes help       Base-     Car ment 1) Loss $1,800 $2,100 2) Subtract $100 per incident 100 100 3) Loss after $100 rule $1,700 $2,000 4) Total loss $3,700 5) Subtract 10% × $25,000 AGI 2,500 6) Casualty loss deduction $1,200 Gains and losses. Back taxes help   If you had both gains and losses from casualties or thefts to personal-use property, you must compare your total gains to your total losses. Back taxes help Do this after you have reduced each loss by any reimbursements and by $100, but before you have reduced the losses by 10% of your adjusted gross income. Back taxes help Casualty or theft gains do not include gains you choose to postpone. Back taxes help See Publication 547 for information on the postponement of gain. Back taxes help Losses more than gains. Back taxes help   If your losses are more than your recognized gains, subtract your gains from your losses and reduce the result by 10% of your adjusted gross income. Back taxes help The rest, if any, is your deductible loss from personal-use property. Back taxes help Gains more than losses. Back taxes help   If your recognized gains are more than your losses, subtract your losses from your gains. Back taxes help The difference is treated as capital gain and must be reported on Schedule D (Form 1040). Back taxes help The 10% rule does not apply to your gains. Back taxes help When To Report Gains and Losses Gains. Back taxes help   If you receive an insurance or other reimbursement that is more than your adjusted basis in the destroyed or stolen property, you have a gain from the casualty or theft. Back taxes help You must include this gain in your income in the year you receive the reimbursement, unless you choose to postpone reporting the gain as explained in Publication 547. Back taxes help If you have a loss, see Table 25-2 . Back taxes help Table 25-2. Back taxes help When To Deduct a Loss IF you have a loss. Back taxes help . Back taxes help . Back taxes help THEN deduct it in the year. Back taxes help . Back taxes help . Back taxes help from a casualty, the loss occurred. Back taxes help in a federally declared disaster area, the disaster occurred or the year immediately before the disaster. Back taxes help from a theft, the theft was discovered. Back taxes help on a deposit treated as a:   • casualty or any ordinary loss, a reasonable estimate can be made. Back taxes help • bad debt, deposits are totally worthless. Back taxes help Losses. Back taxes help   Generally, you can deduct a casualty loss that is not reimbursable only in the tax year in which the casualty occurred. Back taxes help This is true even if you do not repair or replace the damaged property until a later year. Back taxes help   You can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Back taxes help   If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. Back taxes help Loss on deposits. Back taxes help   If your loss is a loss on deposits in an insolvent or bankrupt financial institution, see Loss on Deposits , earlier. Back taxes help Disaster Area Loss You generally must deduct a casualty loss in the year it occurred. Back taxes help However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct the loss on your tax return or amended return for either of the following years. Back taxes help The year the disaster occurred. Back taxes help The year immediately preceding the year the disaster occurred. Back taxes help Gains. Back taxes help    Special rules apply if you choose to postpone reporting gain on property damaged or destroyed in a federally declared disaster area. Back taxes help For those special rules, see Publication 547. Back taxes help Postponed tax deadlines. Back taxes help   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Back taxes help The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Back taxes help   If any tax deadline is postponed, the IRS will publicize the postponement in your area by publishing a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Back taxes help Go to www. Back taxes help irs. Back taxes help gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Back taxes help Who is eligible. Back taxes help   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Back taxes help Any individual whose main home is located in a covered disaster area (defined next). Back taxes help Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Back taxes help Any individual who is a relief worker affiliated with a recognized government or philanthropic organization who is assisting in a covered disaster area. Back taxes help Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Back taxes help The main home or principal place of business does not have to be located in the covered disaster area. Back taxes help Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Back taxes help The spouse on a joint return with a taxpayer who is eligible for postponements. Back taxes help Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose records necessary to meet a postponed tax deadline are located in the covered disaster area. Back taxes help Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Back taxes help Any other person determined by the IRS to be affected by a federally declared disaster. Back taxes help Covered disaster area. Back taxes help   This is an area of a federally declared disaster in which the IRS has decided to postpone tax deadlines for up to 1 year. Back taxes help Abatement of interest and penalties. Back taxes help   The IRS may abate the interest and penalties on underpaid income tax for the length of any postponement of tax deadlines. Back taxes help More information. Back taxes help   For more information, see Disaster Area Losses in Publication 547. Back taxes help How To Report Gains and Losses Use Form 4684 to report a gain or a deductible loss from a casualty or theft. Back taxes help If you have more than one casualty or theft, use a separate Form 4684 to determine your gain or loss for each event. Back taxes help Combine the gains and losses on one Form 4684. Back taxes help Follow the form instructions as to which lines to fill out. Back taxes help In addition, you must use the appropriate schedule to report a gain or loss. Back taxes help The schedule you use depends on whether you have a gain or loss. Back taxes help If you have a: Report it on: Gain Schedule D (Form 1040) Loss Schedule A (Form 1040) Adjustments to basis. Back taxes help   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive, and by any deductible loss. Back taxes help Amounts you spend to restore your property after a casualty increase your adjusted basis. Back taxes help See Adjusted Basis in chapter 13 for more information. Back taxes help Net operating loss (NOL). Back taxes help    If your casualty or theft loss deduction causes your deductions for the year to be more than your income for the year, you may have an NOL. Back taxes help You can use an NOL to lower your tax in an earlier year, allowing you to get a refund for tax you have already paid. Back taxes help Or, you can use it to lower your tax in a later year. Back taxes help You do not have to be in business to have an NOL from a casualty or theft loss. Back taxes help For more information, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Back taxes help Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Alabama

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

 

City  Address  Days/Hours of Service  Telephone* 
Birmingham  801 Tom Martin Dr.
Birmingham, AL 35211 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(205) 912-5333 
Dothan  202 W. Adams St.
Dothan, AL 36303 

Monday-Friday - 8:30 a.m.-4:30 p.m. 
(Closed for lunch 12:00 noon - 1:00 p.m.)
 

Services Provided

(334) 702-3470 
Florence  204 S. Walnut St.
Florence, AL 35630 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.) 


Services Provided

(256) 764-6731 
Huntsville  5123 Research Dr. N.W.
Huntsville, AL 35805

Monday-Friday - 8:30 a.m.-4:30 p.m.
 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(256) 539-0642 
Mobile  1110 Montlimar Dr.
Mobile, AL 36609 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(251) 341-5946 
Montgomery  1285 Carmichael Way.
Montgomery, AL 36106 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(334) 264-2453 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.
 

The Taxpayer Advocate Service: Call (205) 912-5631 in Birmingham, or 1-877-777-4778 elsewhere, or see Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
801 Tom Martin, Room 150, Stop 30
Birmingham, AL 35211

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

 

Page Last Reviewed or Updated: 28-Mar-2014

The Back Taxes Help

Back taxes help 5. Back taxes help   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. Back taxes help Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. Back taxes help   If you are a U. Back taxes help S. Back taxes help citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. Back taxes help S. Back taxes help law. Back taxes help This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. Back taxes help This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Back taxes help If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. Back taxes help For details, see Publication 54, Tax Guide for U. Back taxes help S. Back taxes help Citizens and Resident Aliens Abroad. Back taxes help Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. Back taxes help The following topics are included. Back taxes help Bonuses and awards. Back taxes help Special rules for certain employees. Back taxes help Sickness and injury benefits. Back taxes help The chapter explains what income is included in the employee's gross income and what is not included. Back taxes help Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. Back taxes help Form W-2. Back taxes help    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. Back taxes help Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. Back taxes help   If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Back taxes help These wages must be included on line 7 of Form 1040. Back taxes help See Form 8919 for more information. Back taxes help Childcare providers. Back taxes help    If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Back taxes help If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Back taxes help You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Back taxes help Babysitting. Back taxes help   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Back taxes help Miscellaneous Compensation This section discusses different types of employee compensation. Back taxes help Advance commissions and other earnings. Back taxes help   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Back taxes help    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Back taxes help If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. Back taxes help See Repayments in chapter 12. Back taxes help Allowances and reimbursements. Back taxes help    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. Back taxes help If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Back taxes help Back pay awards. Back taxes help    Include in income amounts you are awarded in a settlement or judgment for back pay. Back taxes help These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Back taxes help They should be reported to you by your employer on Form W-2. Back taxes help Bonuses and awards. Back taxes help   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Back taxes help These include prizes such as vacation trips for meeting sales goals. Back taxes help If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Back taxes help However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Back taxes help Employee achievement award. Back taxes help   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Back taxes help However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Back taxes help Your employer can tell you whether your award is a qualified plan award. Back taxes help Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Back taxes help   However, the exclusion does not apply to the following awards: A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Back taxes help A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Back taxes help Example. Back taxes help Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Back taxes help Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Back taxes help However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income. Back taxes help Differential wage payments. Back taxes help   This is any payment made to you by an employer for any period during which you are, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages you would have received from the employer during that period. Back taxes help These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Back taxes help The payments are reported as wages on Form W-2. Back taxes help Government cost-of-living allowances. Back taxes help   Most payments received by U. Back taxes help S. Back taxes help Government civilian employees for working abroad are taxable. Back taxes help However, certain cost-of-living allowances are tax free. Back taxes help Publication 516, U. Back taxes help S. Back taxes help Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Back taxes help Nonqualified deferred compensation plans. Back taxes help   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Back taxes help This amount is shown on Form W-2, box 12, using code Y. Back taxes help This amount is not included in your income. Back taxes help   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Back taxes help This amount is included in your wages shown on Form W-2, box 1. Back taxes help It is also shown on Form W-2, box 12, using code Z. Back taxes help Note received for services. Back taxes help    If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Back taxes help When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Back taxes help Do not include that part again in your income. Back taxes help Include the rest of the payment in your income in the year of payment. Back taxes help   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Back taxes help Severance pay. Back taxes help   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Back taxes help Accrued leave payment. Back taxes help    If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Back taxes help   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Back taxes help You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Back taxes help Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2. Back taxes help Outplacement services. Back taxes help   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Back taxes help    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Back taxes help Sick pay. Back taxes help   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Back taxes help In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. Back taxes help A state sickness or disability fund. Back taxes help An association of employers or employees. Back taxes help An insurance company, if your employer paid for the plan. Back taxes help However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Back taxes help For more information, see Publication 525. Back taxes help Social security and Medicare taxes paid by employer. Back taxes help   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Back taxes help The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Back taxes help However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Back taxes help Stock appreciation rights. Back taxes help   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Back taxes help When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Back taxes help You include the cash payment in your income in the year you use the right. Back taxes help Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Back taxes help Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Back taxes help Accounting period. Back taxes help   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Back taxes help Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Back taxes help The general rule: benefits are reported for a full calendar year (January 1–December 31). Back taxes help The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Back taxes help For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Back taxes help  Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Back taxes help   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Back taxes help Form W-2. Back taxes help   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Back taxes help Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Back taxes help However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Back taxes help Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Back taxes help Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . Back taxes help For information on the items covered in this section, other than Long-term care coverage, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Back taxes help Long-term care coverage. Back taxes help    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Back taxes help However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Back taxes help This amount will be reported as wages in box 1 of your Form W-2. Back taxes help   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. Back taxes help Archer MSA contributions. Back taxes help    Contributions by your employer to your Archer MSA generally are not included in your income. Back taxes help Their total will be reported in box 12 of Form W-2 with code R. Back taxes help You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Back taxes help File the form with your return. Back taxes help Health flexible spending arrangement (health FSA). Back taxes help   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Back taxes help Note. Back taxes help Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Back taxes help The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Back taxes help For more information, see Notice 2012-40, 2012-26 I. Back taxes help R. Back taxes help B. Back taxes help 1046, available at www. Back taxes help irs. Back taxes help gov/irb/2012-26 IRB/ar09. Back taxes help html. Back taxes help Health reimbursement arrangement (HRA). Back taxes help   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Back taxes help Health savings accounts (HSA). Back taxes help   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Back taxes help Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Back taxes help Contributions made by your employer are not included in your income. Back taxes help Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Back taxes help Distributions not used for qualified medical expenses are included in your income. Back taxes help See Publication 969 for the requirements of an HSA. Back taxes help   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Back taxes help The contributions are treated as a distribution of money and are not included in the partner's gross income. Back taxes help Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Back taxes help In both situations, the partner can deduct the contribution made to the partner's HSA. Back taxes help   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Back taxes help The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Back taxes help Qualified HSA funding distribution. Back taxes help   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Back taxes help See Publication 590 for the requirements for these qualified HSA funding distributions. Back taxes help Failure to maintain eligibility. Back taxes help   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Back taxes help If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Back taxes help This income is also subject to an additional 10% tax. Back taxes help Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Back taxes help See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Back taxes help Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Back taxes help They also are included as social security and Medicare wages in boxes 3 and 5. Back taxes help However, they are not included as wages in box 1. Back taxes help To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Back taxes help File the form with your return. Back taxes help De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Back taxes help In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Back taxes help Holiday gifts. Back taxes help   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Back taxes help However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Back taxes help Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Back taxes help For more information, see Publication 970, Tax Benefits for Education. Back taxes help Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Back taxes help However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Back taxes help For exceptions, see Entire cost excluded , and Entire cost taxed , later. Back taxes help If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Back taxes help Also, it is shown separately in box 12 with code C. Back taxes help Group-term life insurance. Back taxes help   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Back taxes help Permanent benefits. Back taxes help   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Back taxes help Your employer should be able to tell you the amount to include in your income. Back taxes help Accidental death benefits. Back taxes help   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Back taxes help Former employer. Back taxes help   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Back taxes help Also, it is shown separately in box 12 with code C. Back taxes help Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Back taxes help You must pay these taxes with your income tax return. Back taxes help Include them on line 60, Form 1040, and follow the instructions for line 60. Back taxes help For more information, see the Instructions for Form 1040. Back taxes help Two or more employers. Back taxes help   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Back taxes help If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Back taxes help You must figure how much to include in your income. Back taxes help Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Back taxes help Figuring the taxable cost. Back taxes help   Use the following worksheet to figure the amount to include in your income. Back taxes help     Worksheet 5-1. Back taxes help Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Back taxes help Enter the total amount of your insurance coverage from your employer(s) 1. Back taxes help   2. Back taxes help Limit on exclusion for employer-provided group-term life insurance coverage 2. Back taxes help 50,000 3. Back taxes help Subtract line 2 from line 1 3. Back taxes help   4. Back taxes help Divide line 3 by $1,000. Back taxes help Figure to the nearest tenth 4. Back taxes help   5. Back taxes help Go to Table 5-1. Back taxes help Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Back taxes help   6. Back taxes help Multiply line 4 by line 5 6. Back taxes help   7. Back taxes help Enter the number of full months of coverage at this cost. Back taxes help 7. Back taxes help   8. Back taxes help Multiply line 6 by line 7 8. Back taxes help   9. Back taxes help Enter the premiums you paid per month 9. Back taxes help       10. Back taxes help Enter the number of months you paid the premiums 10. Back taxes help       11. Back taxes help Multiply line 9 by line 10. Back taxes help 11. Back taxes help   12. Back taxes help Subtract line 11 from line 8. Back taxes help Include this amount in your income as wages 12. Back taxes help      Table 5-1. Back taxes help Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. Back taxes help 05 25 through 29 . Back taxes help 06 30 through 34 . Back taxes help 08 35 through 39 . Back taxes help 09 40 through 44 . Back taxes help 10 45 through 49 . Back taxes help 15 50 through 54 . Back taxes help 23 55 through 59 . Back taxes help 43 60 through 64 . Back taxes help 66 65 through 69 1. Back taxes help 27 70 and older 2. Back taxes help 06 Example. Back taxes help You are 51 years old and work for employers A and B. Back taxes help Both employers provide group-term life insurance coverage for you for the entire year. Back taxes help Your coverage is $35,000 with employer A and $45,000 with employer B. Back taxes help You pay premiums of $4. Back taxes help 15 a month under the employer B group plan. Back taxes help You figure the amount to include in your income as shown in Worksheet 5-1. Back taxes help Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. Back taxes help Worksheet 5-1. Back taxes help Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. Back taxes help Enter the total amount of your insurance coverage from your employer(s) 1. Back taxes help 80,000 2. Back taxes help Limit on exclusion for employer-provided group-term life insurance coverage 2. Back taxes help 50,000 3. Back taxes help Subtract line 2 from line 1 3. Back taxes help 30,000 4. Back taxes help Divide line 3 by $1,000. Back taxes help Figure to the nearest tenth 4. Back taxes help 30. Back taxes help 0 5. Back taxes help Go to Table 5-1. Back taxes help Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Back taxes help . Back taxes help 23 6. Back taxes help Multiply line 4 by line 5 6. Back taxes help 6. Back taxes help 90 7. Back taxes help Enter the number of full months of coverage at this cost. Back taxes help 7. Back taxes help 12 8. Back taxes help Multiply line 6 by line 7 8. Back taxes help 82. Back taxes help 80 9. Back taxes help Enter the premiums you paid per month 9. Back taxes help 4. Back taxes help 15     10. Back taxes help Enter the number of months you paid the premiums 10. Back taxes help 12     11. Back taxes help Multiply line 9 by line 10. Back taxes help 11. Back taxes help 49. Back taxes help 80 12. Back taxes help Subtract line 11 from line 8. Back taxes help Include this amount in your income as wages 12. Back taxes help 33. Back taxes help 00 Entire cost excluded. Back taxes help   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Back taxes help You are permanently and totally disabled and have ended your employment. Back taxes help Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Back taxes help A charitable organization (defined in chapter 24) to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Back taxes help (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Back taxes help ) The plan existed on January 1, 1984, and You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Back taxes help Entire cost taxed. Back taxes help   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Back taxes help You are a key employee and your employer's plan discriminates in favor of key employees. Back taxes help Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Back taxes help Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Back taxes help You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Back taxes help Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Back taxes help A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Back taxes help Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Back taxes help However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Back taxes help Exclusion limit. Back taxes help   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Back taxes help   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Back taxes help   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Back taxes help   If the benefits have a value that is more than these limits, the excess must be included in your income. Back taxes help You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Back taxes help Commuter highway vehicle. Back taxes help   This is a highway vehicle that seats at least six adults (not including the driver). Back taxes help At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Back taxes help Transit pass. Back taxes help   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Back taxes help Qualified parking. Back taxes help   This is parking provided to an employee at or near the employer's place of business. Back taxes help It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Back taxes help It does not include parking at or near the employee's home. Back taxes help Qualified bicycle commuting. Back taxes help   This is reimbursement based on the number of qualified bicycle commuting months for the year. Back taxes help A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Back taxes help The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Back taxes help Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Back taxes help (Your employer can tell you whether your retirement plan is qualified. Back taxes help ) However, the cost of life insurance coverage included in the plan may have to be included. Back taxes help See Group-Term Life Insurance , earlier, under Fringe Benefits. Back taxes help If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Back taxes help However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Back taxes help For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. Back taxes help S. Back taxes help Civil Service Retirement Benefits, if you are a federal employee or retiree). Back taxes help Elective deferrals. Back taxes help   If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Back taxes help The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Back taxes help An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Back taxes help However, it is included in wages subject to social security and Medicare taxes. Back taxes help   Elective deferrals include elective contributions to the following retirement plans. Back taxes help Cash or deferred arrangements (section 401(k) plans). Back taxes help The Thrift Savings Plan for federal employees. Back taxes help Salary reduction simplified employee pension plans (SARSEP). Back taxes help Savings incentive match plans for employees (SIMPLE plans). Back taxes help Tax-sheltered annuity plans (403(b) plans). Back taxes help Section 501(c)(18)(D) plans. Back taxes help Section 457 plans. Back taxes help Qualified automatic contribution arrangements. Back taxes help   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Back taxes help You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Back taxes help The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Back taxes help   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Back taxes help Overall limit on deferrals. Back taxes help   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3) and (5) above. Back taxes help The limit for SIMPLE plans is $12,000. Back taxes help The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. Back taxes help The limit for section 457 plans is the lesser of your includible compensation or $17,500. Back taxes help Amounts deferred under specific plan limits are part of the overall limit on deferrals. Back taxes help Designated Roth contributions. Back taxes help   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Back taxes help Designated Roth contributions are treated as elective deferrals, except that they are included in income. Back taxes help Excess deferrals. Back taxes help   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Back taxes help However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Back taxes help   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. Back taxes help See Publication 525 for a discussion of the tax treatment of excess deferrals. Back taxes help Catch-up contributions. Back taxes help   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. Back taxes help Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option. Back taxes help However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. Back taxes help Your employer can tell you which kind of option you hold. Back taxes help For more information, see Publication 525. Back taxes help Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. Back taxes help However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. Back taxes help (You can choose to include the value of the property in your income in the year it is transferred to you. Back taxes help ) For more information, see Restricted Property in Publication 525. Back taxes help Dividends received on restricted stock. Back taxes help   Dividends you receive on restricted stock are treated as compensation and not as dividend income. Back taxes help Your employer should include these payments on your Form W-2. Back taxes help Stock you chose to include in income. Back taxes help   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. Back taxes help Report them on your return as dividends. Back taxes help For a discussion of dividends, see chapter 8. Back taxes help    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. Back taxes help Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. Back taxes help Clergy Generally, if you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Back taxes help , in addition to your salary. Back taxes help If the offering is made to the religious institution, it is not taxable to you. Back taxes help If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. Back taxes help However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Back taxes help See chapter 24. Back taxes help Pension. Back taxes help    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. Back taxes help It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Back taxes help Housing. Back taxes help    Special rules for housing apply to members of the clergy. Back taxes help Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. Back taxes help However, the exclusion cannot be more than the reasonable pay for your service. Back taxes help If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. Back taxes help The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. Back taxes help However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. Back taxes help For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Back taxes help Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. Back taxes help Services performed for the order. Back taxes help   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. Back taxes help   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. Back taxes help Any wages you earn as an agent of an order that you turn over to the order are not included in your income. Back taxes help Example. Back taxes help You are a member of a church order and have taken a vow of poverty. Back taxes help You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. Back taxes help You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. Back taxes help However, you remain under the general direction and control of the order. Back taxes help You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. Back taxes help Services performed outside the order. Back taxes help   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. Back taxes help They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. Back taxes help If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. Back taxes help Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. Back taxes help Example. Back taxes help Mark Brown is a member of a religious order and has taken a vow of poverty. Back taxes help He renounces all claims to his earnings and turns over his earnings to the order. Back taxes help Mark is a schoolteacher. Back taxes help He was instructed by the superiors of the order to get a job with a private tax-exempt school. Back taxes help Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. Back taxes help Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. Back taxes help The wages Mark earns working for the school are included in his income. Back taxes help Foreign Employer Special rules apply if you work for a foreign employer. Back taxes help U. Back taxes help S. Back taxes help citizen. Back taxes help   If you are a U. Back taxes help S. Back taxes help citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. Back taxes help Social security and Medicare taxes. Back taxes help   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. Back taxes help However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. Back taxes help This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. Back taxes help Employees of international organizations or foreign governments. Back taxes help   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Back taxes help   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. Back taxes help You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Back taxes help Your work is like the work done by employees of the United States in foreign countries. Back taxes help The foreign government gives an equal exemption to employees of the United States in its country. Back taxes help Waiver of alien status. Back taxes help   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. Back taxes help See Foreign Employer in Publication 525. Back taxes help Employment abroad. Back taxes help   For information on the tax treatment of income earned abroad, see Publication 54. Back taxes help Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. Back taxes help Allowances generally are not taxed. Back taxes help For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. Back taxes help Differential wage payments. Back taxes help   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. Back taxes help These wages are subject to income tax withholding and are reported on a Form W-2. Back taxes help See the discussion under Miscellaneous Compensation , earlier. Back taxes help Military retirement pay. Back taxes help   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Back taxes help Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. Back taxes help   For more detailed discussion of survivor annuities, see chapter 10. Back taxes help Disability. Back taxes help   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. Back taxes help Veterans' benefits. Back taxes help   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). Back taxes help The following amounts paid to veterans or their families are not taxable. Back taxes help Education, training, and subsistence allowances. Back taxes help Disability compensation and pension payments for disabilities paid either to veterans or their families. Back taxes help Grants for homes designed for wheelchair living. Back taxes help Grants for motor vehicles for veterans who lost their sight or the use of their limbs. Back taxes help Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. Back taxes help Interest on insurance dividends you leave on deposit with the VA. Back taxes help Benefits under a dependent-care assistance program. Back taxes help The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. Back taxes help Payments made under the compensated work therapy program. Back taxes help Any bonus payment by a state or political subdivision because of service in a combat zone. Back taxes help Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. Back taxes help Peace Corps. Back taxes help   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. Back taxes help Taxable allowances. Back taxes help   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. Back taxes help Living allowances designated by the Director of the Peace Corps as basic compensation. Back taxes help These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. Back taxes help Leave allowances. Back taxes help Readjustment allowances or termination payments. Back taxes help These are considered received by you when credited to your account. Back taxes help Example. Back taxes help Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. Back taxes help Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. Back taxes help Volunteers in Service to America (VISTA). Back taxes help   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. Back taxes help National Senior Services Corps programs. Back taxes help   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. Back taxes help Retired Senior Volunteer Program (RSVP). Back taxes help Foster Grandparent Program. Back taxes help Senior Companion Program. Back taxes help Service Corps of Retired Executives (SCORE). Back taxes help   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. Back taxes help Volunteer tax counseling. Back taxes help   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). Back taxes help   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. Back taxes help See chapter 24. Back taxes help Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. Back taxes help In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Back taxes help If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Back taxes help However, certain payments may not be taxable to you. Back taxes help Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. Back taxes help In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. Back taxes help Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. Back taxes help Cost paid by you. Back taxes help   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Back taxes help If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Back taxes help See Reimbursement in a later year in chapter 21. Back taxes help Cafeteria plans. Back taxes help   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. Back taxes help If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. Back taxes help Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Back taxes help You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. Back taxes help Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Back taxes help You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Back taxes help For information on this credit and the definition of permanent and total disability, see chapter 33. Back taxes help Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Back taxes help Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Back taxes help The rules for reporting pensions are explained in How To Report in chapter 10. Back taxes help For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. Back taxes help Retirement and profit-sharing plans. Back taxes help   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Back taxes help The payments must be reported as a pension or annuity. Back taxes help For more information on pensions, see chapter 10. Back taxes help Accrued leave payment. Back taxes help   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Back taxes help The payment is not a disability payment. Back taxes help Include it in your income in the tax year you receive it. Back taxes help Military and Government Disability Pensions Certain military and government disability pensions are not taxable. Back taxes help Service-connected disability. Back taxes help   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. Back taxes help The armed forces of any country. Back taxes help The National Oceanic and Atmospheric Administration. Back taxes help The Public Health Service. Back taxes help The Foreign Service. Back taxes help Conditions for exclusion. Back taxes help   Do not include the disability payments in your income if any of the following conditions apply. Back taxes help You were entitled to receive a disability payment before September 25, 1975. Back taxes help You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. Back taxes help You receive the disability payments for a combat-related injury. Back taxes help This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. Back taxes help You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. Back taxes help Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. Back taxes help Pension based on years of service. Back taxes help   If you receive a disability pension based on years of service, in most cases you must include it in your income. Back taxes help However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. Back taxes help You must include the rest of your pension in your income. Back taxes help Retroactive VA determination. Back taxes help   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. Back taxes help You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. Back taxes help You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. Back taxes help The letter must show the amount withheld and the effective date of the benefit. Back taxes help   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. Back taxes help However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. Back taxes help Special statute of limitations. Back taxes help   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. Back taxes help However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. Back taxes help This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. Back taxes help Example. Back taxes help You retired in 2007 and receive a pension based on your years of service. Back taxes help On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. Back taxes help Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. Back taxes help However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. Back taxes help You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. Back taxes help Terrorist attack or military action. Back taxes help   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. Back taxes help Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. Back taxes help Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. Back taxes help To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. Back taxes help A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. Back taxes help The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Back taxes help Qualified long-term care services. Back taxes help   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. Back taxes help Chronically ill individual. Back taxes help   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. Back taxes help Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Back taxes help An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Back taxes help Limit on exclusion. Back taxes help   You generally can exclude from gross income up to $320 a day for 2013. Back taxes help See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. Back taxes help Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Back taxes help The exemption also applies to your survivors. Back taxes help The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Back taxes help If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Back taxes help For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Back taxes help Return to work. Back taxes help    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Back taxes help Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Back taxes help Railroad sick pay. Back taxes help    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. Back taxes help However, do not include them in your income if they are for an on-the-job injury. Back taxes help   If you received income because of a disability, see Disability Pensions , earlier. Back taxes help Federal Employees' Compensation Act (FECA). Back taxes help   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Back taxes help However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Back taxes help Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. Back taxes help Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Back taxes help    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Back taxes help For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. Back taxes help    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. Back taxes help It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). Back taxes help If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. Back taxes help Do not deduct it separately. Back taxes help Other compensation. Back taxes help   Many other amounts you receive as compensation for sickness or injury are not taxable. Back taxes help These include the following amounts. Back taxes help Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. Back taxes help Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Back taxes help Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Back taxes help Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. Back taxes help This compensation must be based only on the injury and not on the period of your absence from work. Back taxes help These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Back taxes help Reimbursement for medical care. Back taxes help    A reimbursement for medical care is generally not taxable. Back taxes help However, it may reduce your medical expense deduction. Back taxes help For more information, see chapter 21. Back taxes help Prev  Up  Next   Home   More Online Publications