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Freefile Com

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Freefile Com

Freefile com Index Symbols 1099-C, Persons who each receive a Form 1099-C showing the full amount of debt. Freefile com 501(c)(3) organizations, Section 501(c)(3) organization. Freefile com A Abandonments, Abandonments Canceled debt, Canceled debt. Freefile com Assistance (see Tax help) B Bankruptcy, Bankruptcy Reduction of tax attributes, Bankruptcy and Insolvency Business Real property indebtedness, Qualified Real Property Business Indebtedness C Canceled debt, Canceled Debts, Persons who each receive a Form 1099-C showing the full amount of debt. Freefile com Exceptions Deductible debt, Deductible Debt Gifts, Gifts, Bequests, Devises, and Inheritances Price reduced after purchase, Price Reduced After Purchase Student loans, Student Loans Exclusions Bankruptcy, Bankruptcy Insolvency, Insolvency Qualified farm indebtedness, Qualified Farm Indebtedness Qualified principal residence indebtedness, Qualified Principal Residence Indebtedness Qualified real property business indebtedness, Qualified Real Property Business Indebtedness Co-owners, Persons who each receive a Form 1099-C showing the full amount of debt. Freefile com D Debts Stockholder's, Stockholder debt Definitions Adjusted tax attributes, Adjusted tax attributes. Freefile com Main home, Main home. Freefile com Qualified acquisition indebtedness, Definition of qualified acquisition indebtedness. Freefile com Qualified farm indebtedness, Qualified Farm Indebtedness Qualified principal residence indebtedness, Qualified Principal Residence Indebtedness Qualified real property business indebtedness, Qualified Real Property Business Indebtedness E Educational loans, Student Loans Exceptions Home Affordable Modification Program, Home Affordable Modification Program F Farm indebtedness, Qualified Farm Indebtedness Reduction of tax attributes, Qualified Farm Indebtedness Foreclosures, Foreclosures and Repossessions Form 1099-A, Forms 1099-A and 1099-C. Freefile com , Forms 1099-A and 1099-C. Freefile com 1099-C, Forms 1099-A and 1099-C. Freefile com , Forms 1099-A and 1099-C. Freefile com Free tax services, Free help with your tax return. Freefile com G Gifts, Gifts, Bequests, Devises, and Inheritances H Help (see Tax help) Home Affordable Modification Program, Home Affordable Modification Program I Income from, Canceled Debts Income from canceled debt, Canceled Debts Insolvency, Insolvency Reduction of tax attributes, Bankruptcy and Insolvency L Limits Excluded farm debt, Exclusion limit. Freefile com Excluded principal residence indebtedness, Exclusion limit. Freefile com Qualified real property business indebtedness, Exclusion limit. Freefile com Loans Student, Student Loans M Missing children, photographs of, Reminder Mortgage Debt Relief Act (see Qualified Principal Residence Indebtedness) P Principal residence indebtedness, Qualified Principal Residence Indebtedness Publications (see Tax help) Q Qualified farm indebtedness, Qualified Farm Indebtedness Reduction of tax attributes, Qualified Farm Indebtedness Qualified principal residence indebtedness, Qualified Principal Residence Indebtedness Reduction of tax attributes, Qualified Principal Residence Indebtedness Qualified real property business indebtedness, Qualified Real Property Business Indebtedness Reduction of tax attributes, Qualified Real Property Business Indebtedness R Real property business indebtedness, Qualified Real Property Business Indebtedness Recapture Basis reductions, Recapture of basis reductions. Freefile com Repossessions, Foreclosures and Repossessions S Stockholder debts, Stockholder debt Student loans, Student Loans Suggestions for publication, Comments and suggestions. Freefile com T Tax attributes, reduction of Bankruptcy, Bankruptcy and Insolvency Insolvency, Bankruptcy and Insolvency Qualified farm indebtedness, Qualified Farm Indebtedness Qualified principal residence indebtedness, Qualified Principal Residence Indebtedness Qualified real property business indebtedness, Qualified Real Property Business Indebtedness Tax help, How To Get Tax Help TTY/TDD information, How To Get Tax Help Prev  Up     Home   More Online Publications
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The Freefile Com

Freefile com 2. Freefile com   Taxable and Nontaxable Income Table of Contents Compensation for Services Retirement Plan DistributionsIndividual Retirement Arrangements (IRAs) Pensions and Annuities Social Security and Equivalent Railroad Retirement BenefitsAre Any of Your Benefits Taxable? How Much Is Taxable? How To Report Your Benefits Lump-Sum Election Repayments More Than Gross Benefits Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Life Insurance ProceedsInstallments for life. Freefile com Surviving spouse. Freefile com Endowment Contract Proceeds Accelerated Death Benefits Sale of HomeMaximum Amount of Exclusion Ownership and Use Tests Married Persons Business Use or Rental of Home Reporting the Sale Reverse Mortgages Other ItemsWelfare benefits. Freefile com Payments from a state fund for victims of crime. Freefile com Home Affordable Modification Program (HAMP). Freefile com Mortgage assistance payments. Freefile com Payments to reduce cost of winter energy use. Freefile com Nutrition Program for the Elderly. Freefile com Reemployment Trade Adjustment Assistance (RTAA). Freefile com Generally, income is taxable unless it is specifically exempt (not taxed) by law. Freefile com Your taxable income may include compensation for services, interest, dividends, rents, royalties, income from partnerships, estate or trust income, gain from sales or exchanges of property, and business income of all kinds. Freefile com Under special provisions of the law, certain items are partially or fully exempt from tax. Freefile com Provisions that are of special interest to older taxpayers are discussed in this chapter. Freefile com Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. Freefile com In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Freefile com You need not receive the compensation in cash for it to be taxable. Freefile com Payments you receive in the form of goods or services generally must be included in gross income at their fair market value. Freefile com Volunteer work. Freefile com   Do not include in your gross income amounts you receive for supportive services or reimbursements for out-of-pocket expenses under any of the following volunteer programs. Freefile com Retired Senior Volunteer Program (RSVP). Freefile com Foster Grandparent Program. Freefile com Senior Companion Program. Freefile com Service Corps of Retired Executives (SCORE). Freefile com Unemployment compensation. Freefile com   You must include in income all unemployment compensation you or your spouse (if married filing jointly) received. Freefile com More information. Freefile com   See Publication 525, Taxable and Nontaxable Income, for more detailed information on specific types of income. Freefile com Retirement Plan Distributions This section summarizes the tax treatment of amounts you receive from traditional individual retirement arrangements (IRA), employee pensions or annuities, and disability pensions or annuities. Freefile com A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Freefile com A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free distributions. Freefile com A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. Freefile com More detailed information can be found in Publication 590, Individual Retirement Arrangements (IRAs), and Publication 575, Pension and Annuity Income. Freefile com Individual Retirement Arrangements (IRAs) In general, distributions from a traditional IRA are taxable in the year you receive them. Freefile com Exceptions to the general rule are rollovers, tax-free withdrawals of contributions, and the return of nondeductible contributions. Freefile com These are discussed in Publication 590. Freefile com If you made nondeductible contributions to a traditional IRA, you must file Form 8606, Nondeductible IRAs. Freefile com If you do not file Form 8606 with your return, you may have to pay a $50 penalty. Freefile com Also, when you receive distributions from your traditional IRA, the amounts will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Freefile com Early distributions. Freefile com   Generally, early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age  59½. Freefile com You must include early distributions of taxable amounts in your gross income. Freefile com These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. Freefile com For purposes of the additional 10% tax, an IRA is a qualified retirement plan. Freefile com For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. Freefile com After age 59½ and before age 70½. Freefile com   After you reach age 59½, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. Freefile com Even though you can receive distributions after you reach age 59½, distributions are not required until you reach  age 70½. Freefile com Required distributions. Freefile com   If you are the owner of a traditional IRA, you generally must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Freefile com See When Must You Withdraw Assets? (Required Minimum Distributions) in Publication 590. Freefile com If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you may have to pay a 50% excise tax for that year on the amount not distributed as required. Freefile com For purposes of the 50% excise tax, an IRA is a qualified retirement plan. Freefile com For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. Freefile com See also Excess Accumulations (Insufficient Distributions) in Publication 590. Freefile com Pensions and Annuities Generally, if you did not pay any part of the cost of your employee pension or annuity, and your employer did not withhold part of the cost of the contract from your pay while you worked, the amounts you receive each year are fully taxable. Freefile com However, see Insurance Premiums for Retired Public Safety Officers , later. Freefile com If you paid part of the cost of your pension or annuity plan (see Cost , later), you can exclude part of each annuity payment from income as a recovery of your cost (investment in the contract). Freefile com This tax-free part of the payment is figured when your annuity starts and remains the same each year, even if the amount of the payment changes. Freefile com The rest of each payment is taxable. Freefile com However, see Insurance Premiums for Retired Public Safety Officers , later. Freefile com You figure the tax-free part of the payment using one of the following methods. Freefile com Simplified Method. Freefile com You generally must use this method if your annuity is paid under a qualified plan (a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract). Freefile com You cannot use this method if your annuity is paid under a nonqualified plan. Freefile com General Rule. Freefile com You must use this method if your annuity is paid under a nonqualified plan. Freefile com You generally cannot use this method if your annuity is paid under a qualified plan. Freefile com Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. Freefile com You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Freefile com Exclusion limit. Freefile com   If your annuity starting date is after 1986, the total amount of annuity income you can exclude over the years as a recovery of the cost cannot exceed your total cost. Freefile com Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. Freefile com This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. Freefile com   If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Freefile com If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. Freefile com The total exclusion may be more than your cost. Freefile com Cost. Freefile com   Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). Freefile com Your total cost in the plan includes everything that you paid. Freefile com It also includes amounts your employer contributed that were taxable to you when paid. Freefile com However, see Foreign employment contributions , later. Freefile com   From this total cost, subtract any refunded premiums, rebates, dividends, unrepaid loans, or other tax-free amounts you received by the later of the annuity starting date or the date on which you received your first payment. Freefile com   The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan's obligations became fixed. Freefile com    The amount of your contributions to the plan may be shown in box 9b of any Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Freefile com , that you receive. Freefile com Foreign employment contributions. Freefile com   If you worked abroad, certain amounts your employer paid into your retirement plan that were not includible in your gross income may be considered part of your cost. Freefile com For details, see Foreign employment contributions in Publication 575. Freefile com Withholding. Freefile com   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable part of amounts paid to you. Freefile com However, you can choose not to have tax withheld on the payments you receive, unless they are eligible rollover distributions. Freefile com (These are distributions that are eligible for rollover treatment but are not paid directly to another qualified retirement plan or to a traditional IRA. Freefile com ) See Withholding Tax and Estimated Tax and Rollovers in Publication 575 for more information. Freefile com   For payments other than eligible rollover distributions, you can tell the payer how much to withhold by filing a Form W-4P, Withholding Certificate for Pension or Annuity Payments. Freefile com Simplified Method. Freefile com   Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. Freefile com For an annuity that is payable over the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Freefile com For any other annuity, this number is the number of monthly annuity payments under the contract. Freefile com Who must use the Simplified Method. Freefile com   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you receive your pension or annuity payments from a qualified plan or annuity, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments (defined next). Freefile com   In addition, if your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use the Simplified Method for payments from a qualified plan, unless you were at least 75 years old and entitled to at least 5 years of guaranteed payments. Freefile com If you chose to use the Simplified Method, you must continue to use it each year that you recover part of your cost. Freefile com Guaranteed payments. Freefile com   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. Freefile com If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. Freefile com Who cannot use the Simplified Method. Freefile com   You cannot use the Simplified Method and must use the General Rule if you receive pension or annuity payments from: A nonqualified plan, such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan, or A qualified plan if you are age 75 or older on your annuity starting date and you are entitled to at least 5 years of guaranteed payments (defined above). Freefile com   In addition, you had to use the General Rule for either circumstance described above if your annuity starting date is after July 1, 1986, and before November 19, 1996. Freefile com If you did not have to use the General Rule, you could have chosen to use it. Freefile com You also had to use the General Rule for payments from a qualified plan if your annuity starting date is before July 2, 1986, and you did not qualify to use the Three-Year Rule. Freefile com   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. Freefile com   Unless your annuity starting date was before 1987, once you have recovered all of your non-taxable investment, all of each remaining payment you receive is fully taxable. Freefile com Once your remaining payments are fully taxable, there is no longer a concern with the General Rule or Simplified Method. Freefile com   Complete information on the General Rule, including the actuarial tables you need, is contained in Publication 939, General Rule for Pensions and Annuities. Freefile com How to use the Simplified Method. Freefile com   Complete the Simplified Method Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions or in Publication 575 to figure your taxable annuity for 2013. Freefile com Be sure to keep the completed worksheet; it will help you figure your taxable annuity next year. Freefile com   To complete line 3 of the worksheet, you must determine the total number of expected monthly payments for your annuity. Freefile com How you do this depends on whether the annuity is for a single life, multiple lives, or a fixed period. Freefile com For this purpose, treat an annuity that is payable over the life of an annuitant as payable for that annuitant's life even if the annuity has a fixed-period feature or also provides a temporary annuity payable to the annuitant's child under age 25. Freefile com    You do not need to complete line 3 of the worksheet or make the computation on line 4 if you received annuity payments last year and used last year's worksheet to figure your taxable annuity. Freefile com Instead, enter the amount from line 4 of last year's worksheet on line 4 of this year's worksheet. Freefile com Single-life annuity. Freefile com   If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. Freefile com Enter on line 3 the number shown for your age on your annuity starting date. Freefile com This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Freefile com Multiple-lives annuity. Freefile com   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. Freefile com Enter on line 3 the number shown for the annuitants' combined ages on the annuity starting date. Freefile com For an annuity payable to you as the primary annuitant and to more than one survivor annuitant, combine your age and the age of the youngest survivor annuitant. Freefile com For an annuity that has no primary annuitant and is payable to you and others as survivor annuitants, combine the ages of the oldest and youngest annuitants. Freefile com Do not treat as a survivor annuitant anyone whose entitlement to payments depends on an event other than the primary annuitant's death. Freefile com   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Freefile com Instead, you must use Table 1 at the bottom of the worksheet and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Freefile com This number will differ depending on whether your annuity starting date is before November 19, 1996, or after November 18, 1996. Freefile com Fixed-period annuities. Freefile com   If your annuity does not depend in whole or in part on anyone's life expectancy, the total number of expected monthly payments to enter on line 3 of the worksheet is the number of monthly annuity payments under the contract. Freefile com Line 6. Freefile com   The amount on line 6 should include all amounts that could have been recovered in prior years. Freefile com If you did not recover an amount in a prior year, you may be able to amend your returns for the affected years. Freefile com    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. Freefile com Example. Freefile com Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. Freefile com Bill's annuity starting date is January 1, 2013. Freefile com The benefits are to be paid over the joint lives of Bill and his wife, Kathy, age 65. Freefile com Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Freefile com Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. Freefile com Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. Freefile com See the illustrated Worksheet 2-A, Simplified Method Worksheet, later. Freefile com You can find a blank version of this worksheet in Publication 575. Freefile com (The references in the illustrated worksheet are to sections in Publication 575). Freefile com His annuity is payable over the lives of more than one annuitant, so Bill uses his and Kathy's combined ages, 130 (65 + 65), and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet and finds the line 3 amount to be 310. Freefile com Bill's tax-free monthly amount is $100 ($31,000 ÷ 310 as shown on line 4 of the worksheet). Freefile com Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Freefile com The full amount of any annuity payments received after 310 payments are paid must generally be included in gross income. Freefile com If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. Freefile com This deduction is not subject to the 2%-of-adjusted-gross-income limit. Freefile com Worksheet 2-A. Freefile com Simplified Method Worksheet—Illustrated 1. Freefile com Enter the total pension or annuity payments received this year. Freefile com Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Freefile com $ 14,400 2. Freefile com Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion* See Cost (Investment in the Contract), earlier 2. Freefile com 31,000   Note. Freefile com If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Freefile com Otherwise, go to line 3. Freefile com     3. Freefile com Enter the appropriate number from Table 1 below. Freefile com But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. Freefile com 310 4. Freefile com Divide line 2 by the number on line 3 4. Freefile com 100 5. Freefile com Multiply line 4 by the number of months for which this year's payments were made. Freefile com If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Freefile com Otherwise, go to line 6 5. Freefile com 1,200 6. Freefile com Enter any amount previously recovered tax free in years after 1986. Freefile com This is the amount shown on line 10 of your worksheet for last year 6. Freefile com 0 7. Freefile com Subtract line 6 from line 2 7. Freefile com 31,000 8. Freefile com Enter the smaller of line 5 or line 7 8. Freefile com 1,200 9. Freefile com Taxable amount for year. Freefile com Subtract line 8 from line 1. Freefile com Enter the result, but not less than zero. Freefile com Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Freefile com Note. Freefile com If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Freefile com If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers, earlier, before entering an amount on your tax return. Freefile com 9. Freefile com $ 13,200 10. Freefile com Was your annuity starting date before 1987? □ Yes. Freefile com STOP. Freefile com Do not complete the rest of this worksheet. Freefile com  ☑ No. Freefile com Add lines 6 and 8. Freefile com This is the amount you have recovered tax free through 2013. Freefile com You will need this number if you need to fill out this worksheet next year. Freefile com 10. Freefile com 1,200 11. Freefile com Balance of cost to be recovered. Freefile com Subtract line 10 from line 2. Freefile com If zero, you will not have to complete this worksheet next year. Freefile com The payments you receive next year will generally be fully taxable 11. Freefile com $ 29,800 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Freefile com   Table 1 for Line 3 Above       AND your annuity starting date was—   IF your age on your annuity starting date was . Freefile com . Freefile com . Freefile com   BEFORE November 19, 1996, enter on line 3 . Freefile com . Freefile com . Freefile com AFTER November 18, 1996, enter on line 3 . Freefile com . Freefile com . Freefile com   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the annuitants' combined ages on your annuity starting date were . Freefile com . Freefile com . Freefile com   THEN enter on line 3 . Freefile com . Freefile com . Freefile com         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Survivors of retirees. Freefile com   Benefits paid to you as a survivor under a joint and survivor annuity must be included in your gross income in the same way the retiree would have included them in gross income. Freefile com   If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule, include the total received in your income. Freefile com The retiree's cost has already been recovered tax free. Freefile com   If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage the retiree used to your initial payment called for in the contract. Freefile com The resulting tax-free amount will then remain fixed. Freefile com Any increases in the survivor annuity are fully taxable. Freefile com   If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. Freefile com See Simplified Method , earlier. Freefile com How to report. Freefile com   If you file Form 1040, report your total annuity on line 16a, and the taxable part on line 16b. Freefile com If your pension or annuity is fully taxable, enter it on line 16b. Freefile com Do not make an entry on line 16a. Freefile com   If you file Form 1040A, report your total annuity on line 12a, and the taxable part on line 12b. Freefile com If your pension or annuity is fully taxable, enter it on line 12b. Freefile com Do not make an entry on line 12a. Freefile com   If you file Form 1040NR, report your total annuity on line 17a, and the taxable part on line 17b. Freefile com If your pension or annuity is fully taxable, enter it on line 17b. Freefile com Do not make an entry on line 17a. Freefile com Example. Freefile com You are a Form 1040 filer and you received monthly payments totaling $1,200 (12 months x $100) during 2013 from a pension plan that was completely financed by your employer. Freefile com You had paid no tax on the payments that your employer made to the plan, and the payments were not used to pay for accident, health, or long-term care insurance premiums (as discussed later under Insurance Premiums for Retired Public Safety Officers ). Freefile com The entire $1,200 is taxable. Freefile com You include $1,200 only on Form 1040, line 16b. Freefile com Joint return. Freefile com   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on line 16a of Form 1040, line 12a of Form 1040A, or line 17a of Form 1040NR. Freefile com Report the total of the taxable parts on line 16b of Form 1040, line 12b of Form 1040A, or line 17b of Form 1040NR. Freefile com Form 1099-R. Freefile com   You should receive a Form 1099-R for your pension or annuity. Freefile com Form 1099-R shows your pension or annuity for the year and any income tax withheld. Freefile com You should receive a Form W-2 if you receive distributions from certain nonqualified plans. Freefile com You must attach Forms 1099-R or Forms W-2 to your 2013 tax return if federal income tax was withheld. Freefile com Generally, you should be sent these forms by January 31, 2014. Freefile com Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from your income as a recovery of your cost. Freefile com Nonperiodic distributions include cash withdrawals, distributions of current earnings (dividends) on your investment, and certain loans. Freefile com For information on how to figure the taxable amount of a nonperiodic distribution, see Taxation of Nonperiodic Payments in Publication 575. Freefile com The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. Freefile com See Tax on Early Distributions, later. Freefile com Lump-sum distributions. Freefile com   If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. Freefile com The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. Freefile com The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. Freefile com You may be able to use the 10-year tax option to figure tax on the ordinary income part. Freefile com Form 1099-R. Freefile com   If you receive a total distribution from a plan, you should receive a Form 1099-R. Freefile com If the distribution qualifies as a lump-sum distribution, box 3 shows the capital gain part of the distribution. Freefile com The amount in box 2a, Taxable amount, minus the amount in box 3, Capital gain, is the ordinary income part. Freefile com More information. Freefile com   For more detailed information on lump-sum distributions, see Publication 575 or Form 4972, Tax on Lump-Sum Distributions. Freefile com Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 59½ are subject to an additional tax of 10%. Freefile com The tax applies to the taxable part of the distribution. Freefile com For this purpose, a qualified retirement plan is: A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)), A qualified employee annuity plan, A tax-sheltered annuity plan (403(b) plan), or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). Freefile com  An IRA is also a qualified retirement plan for purposes of this tax. Freefile com General exceptions to tax. Freefile com   The early distribution tax does not apply to any distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. Freefile com Additional exceptions. Freefile com   There are additional exceptions to the early distribution tax for certain distributions from qualified retirement plans and nonqualified annuity contracts. Freefile com See Publication 575 for details. Freefile com Reporting tax. Freefile com   If you owe only the tax on early distributions and distribution code 1 (early distribution, no known exception) is correctly shown in Form 1099-R, box 7, multiply the taxable part of the early distribution by 10% (. Freefile com 10) and enter the result on Form 1040, line 58, or Form 1040NR, line 56. Freefile com See the instructions for line 58 of Form 1040 or line 56 of Form 1040NR for more information about reporting the early distribution tax. Freefile com Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date. Freefile com Unless the rule for 5% owners applies, this is generally April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. Freefile com However, your plan may require you to begin to receive payments by April 1 of the year that follows the year in which you reach 70½, even if you have not retired. Freefile com For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan) (for benefits accruing after 1986). Freefile com  An IRA is also a qualified retirement plan for purposes of this tax. Freefile com An excess accumulation is the undistributed remainder of the required minimum distribution that was left in your qualified retirement plan. Freefile com 5% owners. Freefile com   If you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the company maintaining your qualified retirement plan, you must begin to receive distributions from the plan by April 1 of the year after the calendar year in which you reach age 70½. Freefile com See Publication 575 for more information. Freefile com Amount of tax. Freefile com   If you do not receive the required minimum distribution, you are subject to an additional tax. Freefile com The tax equals 50% of the difference between the amount that must be distributed and the amount that was distributed during the tax year. Freefile com You can get this excise tax excused if you establish that the shortfall in distributions was due to reasonable error and that you are taking reasonable steps to remedy the shortfall. Freefile com Form 5329. Freefile com   You must file a Form 5329 if you owe a tax because you did not receive a minimum required distribution from your qualified retirement plan. Freefile com Additional information. Freefile com   For more detailed information on the tax on excess accumulation, see Publication 575. Freefile com Insurance Premiums for Retired Public Safety Officers If you are an eligible retired public safety officer (law enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for accident or health insurance or long-term care insurance. Freefile com The premiums can be for coverage for you, your spouse, or dependent(s). Freefile com The distribution must be made directly from the plan to the insurance provider. Freefile com You can exclude from income the smaller of the amount of the insurance premiums or $3,000. Freefile com You can only make this election for amounts that would otherwise be included in your income. Freefile com The amount excluded from your income cannot be used to claim a medical expense deduction. Freefile com An eligible retirement plan is a governmental plan that is a: Qualified trust, Section 403(a) plan, Section 403(b) annuity, or Section 457(b) plan. Freefile com If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. Freefile com The taxable amount shown in box 2a of any Form 1099-R that you receive does not reflect the exclusion. Freefile com Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. Freefile com Report the taxable amount on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Freefile com Enter “PSO” next to the appropriate line on which you report the taxable amount. Freefile com Railroad Retirement Benefits Benefits paid under the Railroad Retirement Act fall into two categories. Freefile com These categories are treated differently for income tax purposes. Freefile com Social security equivalent benefits. Freefile com   The first category is the amount of tier 1 railroad retirement benefits that equals the social security benefit that a railroad employee or beneficiary would have been entitled to receive under the social security system. Freefile com This part of the tier 1 benefit is the social security equivalent benefit (SSEB) and is treated for tax purposes like social security benefits. Freefile com (See Social Security and Equivalent Railroad Retirement Benefits , later. Freefile com ) Non-social security equivalent benefits. Freefile com   The second category contains the rest of the tier 1 benefits, called the non-social security equivalent benefit (NSSEB). Freefile com It also contains any tier 2 benefit, vested dual benefit (VDB), and supplemental annuity benefit. Freefile com This category of benefits is treated as an amount received from a qualified employee plan. Freefile com This allows for the tax-free (nontaxable) recovery of employee contributions from the tier 2 benefits and the NSSEB part of the tier 1 benefits. Freefile com Vested dual benefits and supplemental annuity benefits are non-contributory pensions and are fully taxable. Freefile com More information. Freefile com   For more information about railroad retirement benefits, see Publication 575. Freefile com Military Retirement Pay Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, lines 16a and 16b; on Form 1040A, lines 12a and 12b; or on Form 1040NR, lines 17a and 17b. Freefile com But, certain military and government disability pensions that are based on a percentage of disability from active service in the Armed Forces of any country generally are not taxable. Freefile com For more information, including information about veterans' benefits and insurance, see Publication 525. Freefile com Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. Freefile com Social security benefits include monthly retirement, survivor, and disability benefits. Freefile com They do not include supplemental security income (SSI) payments, which are not taxable. Freefile com Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. Freefile com They commonly are called the social security equivalent benefit (SSEB) portion of tier 1 benefits. Freefile com If you received these benefits during 2013, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien), showing the amount of the benefits. Freefile com Are Any of Your Benefits Taxable? Note. Freefile com When the term “benefits” is used in this section, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. Freefile com  To find out whether any of your benefits may be taxable, compare the base amount for your filing status (explained later) with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Freefile com When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Freefile com S. Freefile com savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned in American Samoa or Puerto Rico by bona fide residents. Freefile com Figuring total income. Freefile com   To figure the total of one-half of your benefits plus your other income, use Worksheet 2-B. Freefile com If that total amount is more than your base amount, part of your benefits may be taxable. Freefile com If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Freefile com Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Freefile com If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Freefile com If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Freefile com Worksheet 2-B. Freefile com A Quick Way To Check if Your Benefits May Be Taxable A. Freefile com Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Freefile com Include  the full amount of any lump-sum benefit payments received in 2013, for 2013 and  earlier years. Freefile com (If you received more than one form, combine the amounts from box 5  and enter the total. Freefile com ) A. Freefile com     Note. Freefile com If the amount on line A is zero or less, stop here; none of your benefits are  taxable this year. Freefile com     B. Freefile com Enter one-half of the amount on line A B. Freefile com   C. Freefile com Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Freefile com   D. Freefile com Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income for: •Interest from qualified U. Freefile com S. Freefile com savings bonds, •Employer-provided adoption benefits, •Foreign earned income or foreign housing, or •Income earned in American Samoa or Puerto Rico by bona fide residents D. Freefile com   E. Freefile com Add lines B, C, and D and enter the total E. Freefile com   F. Freefile com If you are: •Married filing jointly, enter $32,000 •Single, head of household, qualifying widow(er), or married filing separately and you  lived apart from your spouse for all of 2013, enter $25,000 •Married filing separately and you lived with your spouse at any time during 2013,  enter -0- F. Freefile com   G. Freefile com Is the amount on line F less than or equal to the amount on line E? □ No. Freefile com None of your benefits are taxable this year. Freefile com  □ Yes. Freefile com Some of your benefits may be taxable. Freefile com To figure how much of your benefits  are taxable, see Which worksheet to use under How Much Is Taxable. Freefile com     Base Amount Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er) with dependent child, $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $0 if you are married filing separately and lived with your spouse at any time during 2013. Freefile com Repayment of Benefits Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Freefile com It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Freefile com If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Freefile com Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Freefile com Your repayments are shown in box 4. Freefile com The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Freefile com Use the amount in box 5 to figure whether any of your benefits are taxable. Freefile com Tax Withholding and Estimated Tax You can choose to have federal income tax withheld from your social security and/or the SSEB portion of your tier 1 railroad retirement benefits. Freefile com If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Request. Freefile com If you do not choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. Freefile com For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. Freefile com How Much Is Taxable? If part of your benefits is taxable, how much is taxable depends on the total amount of your benefits and other income. Freefile com Generally, the higher that total amount, the greater the taxable part of your benefits. Freefile com Maximum taxable part. Freefile com   The taxable part of your benefits usually cannot be more than 50%. Freefile com However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Freefile com The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Freefile com You are married filing separately and lived with your spouse at any time during 2013. Freefile com   If you are a nonresident alien, 85% of your benefits are taxable. Freefile com However, this income is exempt under some tax treaties. Freefile com Which worksheet to use. Freefile com   A worksheet to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. Freefile com However, you will need to use a different worksheet(s) if any of the following situations applies to you. Freefile com You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse were covered by a retirement plan at work. Freefile com In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Freefile com Situation (1) does not apply and you take one or more of the following exclusions. Freefile com Interest from qualified U. Freefile com S. Freefile com savings bonds (Form 8815). Freefile com Employer-provided adoption benefits (Form 8839). Freefile com Foreign earned income or housing (Form 2555 or Form 2555-EZ). Freefile com Income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Freefile com In these situations, you must use Worksheet 1 in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, to figure your taxable benefits. Freefile com You received a lump-sum payment for an earlier year. Freefile com In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. Freefile com See Lump-Sum Election , later. Freefile com How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040, Form 1040A, or Form 1040NR. Freefile com You cannot use Form 1040EZ. Freefile com Reporting on Form 1040. Freefile com   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 20a and the taxable part on line 20b. Freefile com If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Freefile com Reporting on Form 1040A. Freefile com   Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 14a and the taxable part on line 14b. Freefile com If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Freefile com Reporting on Form 1040NR. Freefile com   Report 85% of the total amount of your benefits (box 5 of your Form SSA-1042S or Form RRB-1042S) in the appropriate column of Form 1040NR, Schedule NEC, line 8. Freefile com Benefits not taxable. Freefile com   If you are filing Form 1040EZ, do not report any benefits on your tax return. Freefile com If you are filing Form 1040 or Form 1040A, report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Freefile com Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Freefile com If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Freefile com Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Freefile com This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Freefile com No part of the lump-sum death benefit is subject to tax. Freefile com For more information about the lump-sum death benefit, visit the Social Security Administration website at www. Freefile com SSA. Freefile com gov, and use keyword: death benefit. Freefile com Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Freefile com However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Freefile com You can elect this method if it lowers your taxable benefits. Freefile com See Publication 915 for more information. Freefile com Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Freefile com If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Freefile com If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Freefile com If you have any questions about this negative figure, contact your local Social Security Administration office or your local U. Freefile com S. Freefile com Railroad Retirement Board field office. Freefile com Joint return. Freefile com   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5 but your spouse's does not, subtract the box 5 amount on your form from the box 5 amount on your spouse's form. Freefile com You do this to get your net benefits when figuring if your combined benefits are taxable. Freefile com Repayment of benefits received in an earlier year. Freefile com   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Freefile com   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Freefile com Claim it on Schedule A (Form 1040), line 23. Freefile com   If this deduction is more than $3,000, you have to follow some special instructions. Freefile com See Publication 915 for those instructions. Freefile com Sickness and Injury Benefits Generally, 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. Freefile com 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. Freefile com However, certain payments may not be taxable to you. Freefile com Some of these payments are discussed later in this section. Freefile com Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525. Freefile com Cost paid by you. Freefile com   If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Freefile com 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. Freefile com 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. Freefile com You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Freefile com Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Freefile com If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. Freefile com See Credit for the Elderly or the Disabled, later. Freefile com For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled. Freefile com Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Freefile com Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. Freefile com For more information on pensions and annuities, see Publication 575. Freefile com Retirement and profit-sharing plans. Freefile com   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. Freefile com The payments must be reported as a pension or annuity. Freefile com Accrued leave payment. Freefile com   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Freefile com The payment is not a disability payment. Freefile com Include it in your income in the tax year you receive it. Freefile com Long-Term Care Insurance Contracts In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. Freefile com Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. Freefile com However, the amount you can exclude may be limited. Freefile com Long-term care insurance contracts are discussed in more detail in Publication 525. Freefile com 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. Freefile com The exemption also applies to your survivors. Freefile com 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. Freefile com If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Freefile com For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Freefile com Return to work. Freefile com   If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Freefile com Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Freefile com Federal Employees' Compensation Act (FECA). Freefile com   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Freefile com 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. Freefile com Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. Freefile com Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Freefile com    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Freefile com For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier. Freefile com Other compensation. Freefile com   Many other amounts you receive as compensation for sickness or injury are not taxable. Freefile com These include the following amounts. Freefile com 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. Freefile com Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Freefile com Compensation you receive for permanent loss or loss of use of a part or function of your body, for your permanent disfigurement, or for such loss or disfigurement suffered by your spouse or dependent(s). Freefile com This compensation must be based only on the injury and not on the period of your absence from work. Freefile com These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Freefile com Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Freefile com This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Freefile com Proceeds not received in installments. Freefile com   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Freefile com If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Freefile com Proceeds received in installments. Freefile com   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Freefile com   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Freefile com Include anything over this excluded part in your income as interest. Freefile com Installments for life. Freefile com   If, as the beneficiary under an insurance contract, you are entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. Freefile com If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. Freefile com Surviving spouse. Freefile com   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude, in any year, up to $1,000 of the interest included in the installments. Freefile com If you remarry, you can continue to take the exclusion. Freefile com Surrender of policy for cash. Freefile com   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Freefile com In general, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Freefile com You should receive a Form 1099-R showing the total proceeds and the taxable part. Freefile com Report these amounts on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b. Freefile com Endowment Contract Proceeds An endowment contract is a policy that pays over to you a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Freefile com Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Freefile com To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously received under the contract and excluded from your income. Freefile com Include in your income the part of the lump-sum payment that is more than your cost. Freefile com Endowment proceeds that you choose to receive in installments instead of a lump-sum payment at the maturity of the policy are taxed as an annuity. Freefile com The tax treatment of an annuity is explained in Publication 575. Freefile com For this treatment to apply, you must choose to receive the proceeds in installments before receiving any part of the lump sum. Freefile com This election must be made within 60 days after the lump-sum payment first becomes payable to you. Freefile com Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are generally excluded from income if the insured is terminally or chronically ill. Freefile com However, see Exception , later. Freefile com For a chronically ill individual, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Freefile com Accelerated death benefits paid on a per diem or other periodic basis without regard to the costs are excludable up to a limit. Freefile com In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received also is excluded from income. Freefile com Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill. Freefile com To report taxable accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Freefile com Terminally or chronically ill defined. Freefile com   A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. Freefile com A chronically ill person is one who is not terminally ill but has been certified (within the previous 12 months) by a licensed health care practitioner as meeting either of the following conditions. Freefile com The person is unable to perform (without substantial help) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of 90 days or more because of a loss of functional capacity. Freefile com The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment. Freefile com Exception. Freefile com   The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the other person, or Has a financial interest in the business of the other person. Freefile com Sale of Home You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. Freefile com Generally, if you can exclude all of the gain, you do not need to report the sale on your tax return. Freefile com You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. Freefile com Main home. Freefile com   Usually, your main home is the home you live in most of the time and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. Freefile com Repaying the first-time homebuyer credit because you sold your home. Freefile com   If you claimed a first-time homebuyer credit for your main home and you sell it, you may have to repay the credit. Freefile com For a home purchased in 2008 and used as your main home until sold in 2013, you must file Form 5405 and repay the balance of the unpaid credit on your 2013 tax return. Freefile com   For a home purchased after 2008, you generally must repay the entire credit if the home was sold (or otherwise ceased to be your main home) within 36 months of the purchase date. Freefile com If you purchased your home in 2009 and used it as your main home until sold in 2013, you do not have to repay the credit or file Form 5405. Freefile com If you purchased your home in 2010 and used it as your main home until sold in 2013, you may have to file Form 5405 and repay the entire credit on your 2013 tax return. Freefile com   See the Instructions for Form 5405 for more information about repaying the credit and exceptions to repayment that may apply to you. Freefile com Maximum Amount of Exclusion You can generally exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. Freefile com You meet the ownership test. Freefile com You meet the use test. Freefile com During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Freefile com You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . Freefile com Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Freefile com This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). Freefile com Exception to ownership and use tests. Freefile com   If you owned and lived in the property as your main home for less than 2 years, you still can claim an exclusion in some cases. Freefile com Generally, you must have sold the home due to a change in place of employment, health, or unforeseen circumstances. Freefile com The maximum amount you can exclude will be reduced. Freefile com See Publication 523, Selling Your Home, for more information. Freefile com Exception to use test for individuals with a disability. Freefile com   There is an exception to the use test if, during the 5-year period before the sale of your home: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year. Freefile com Under this exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) that is licensed by a state or political subdivision to care for persons in your condition. Freefile com   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. Freefile com Exception to ownership test for property acquired in a like-kind exchange. Freefile com   You must have owned your main home for at least 5 years to qualify for the exclusion if you acquired your main home in a like-kind exchange. Freefile com This special 5-year ownership rule continues to apply to a home you acquired in a like-kind exchange and gave to another person. Freefile com A like-kind exchange is an exchange of property held for productive use in a trade or business or for investment. Freefile com See Publication 523 for more information. Freefile com Period of nonqualified use. Freefile com   Generally, the gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gain is allocated to periods of nonqualified use. Freefile com Nonqualified use is any period after December 31, 2008, during which the property is not used as the main home. Freefile com See Publication 523 for more information. Freefile com Married Persons In the special situations discussed below, if you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use test, you can exclude up to $250,000 of gain. Freefile com However, see Special rules for joint returns , next. Freefile com Special rules for joint returns. Freefile com   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Freefile com You are married and file a joint return for the year. Freefile com Either you or your spouse meets the ownership test. Freefile com Both you and your spouse meet the use test. Freefile com During the 2-year period ending on the date of the sale, neither you nor your spouse exclude gain from the sale of another home. Freefile com Sale of home by surviving spouse. Freefile com   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. Freefile com   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home in 2013. Freefile com The sale or exchange took place no more than 2 years after the date of death of your spouse. Freefile com You have not remarried. Freefile com You and your spouse met the use test at the time of your spouse's death. Freefile com You or your spouse met the ownership test at the time of your spouse's death. Freefile com Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Freefile com Home transferred from spouse. Freefile com   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. Freefile com Use of home after divorce. Freefile com   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. Freefile com Business Use or Rental of Home You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income. Freefile com However, you must meet the ownership and use tests. Freefile com See Publication 523 for more information. Freefile com Depreciation after May 6, 1997. Freefile com   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. Freefile com See Publication 523 for more information. Freefile com Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and you do not qualify to exclude all of it, You have a gain and you choose not to exclude it, or You received Form 1099-S. Freefile com If you have a gain that you cannot or choose not to exclude, if you received a Form 1099-S, or if you have a deductible loss, report the sale on your tax return. Freefile com Report the sale on Part I or Part II of Form 8949 as a short-term or long-term transaction, depending on how long you owned the home. Freefile com If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, to report the sale of the business or rental part. Freefile com See Publication 523 for more information. Freefile com Reverse Mortgages A revers