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Freetaxusa 2011

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Freetaxusa 2011

Freetaxusa 2011 10. Freetaxusa 2011   Retirement Plans, Pensions, and Annuities Table of Contents What's New Reminder IntroductionThe General Rule. Freetaxusa 2011 Individual retirement arrangements (IRAs). Freetaxusa 2011 Civil service retirement benefits. Freetaxusa 2011 Useful Items - You may want to see: General InformationIn-plan rollovers to designated Roth accounts. Freetaxusa 2011 How To Report Cost (Investment in the Contract) Taxation of Periodic PaymentsExclusion limited to cost. Freetaxusa 2011 Exclusion not limited to cost. Freetaxusa 2011 Simplified Method Taxation of Nonperiodic PaymentsLump-Sum Distributions RolloversIn-plan rollovers to designated Roth accounts. Freetaxusa 2011 Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and Beneficiaries What's New For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Freetaxusa 2011 However, these distributions are taken into account when determining the modified adjusted gross income threshold. Freetaxusa 2011 Distributions from a nonqualified retirement plan are included in net investment income. Freetaxusa 2011 See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Freetaxusa 2011 Reminder Starting in 2013, the American Taxpayer Relief Act of 2012 expanded the rules for in-plan Roth rollovers to include more taxpayers. Freetaxusa 2011 For more information, see Designated Roth accounts discussed later. Freetaxusa 2011 Introduction This chapter discusses the tax treatment of distributions you receive from: An employee pension or annuity from a qualified plan, A disability retirement, and A purchased commercial annuity. Freetaxusa 2011 What is not covered in this chapter. Freetaxusa 2011   The following topics are not discussed in this chapter. Freetaxusa 2011 The General Rule. Freetaxusa 2011   This is the method generally used to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities). Freetaxusa 2011 For a qualified plan, you generally cannot use the General Rule unless your annuity starting date is before November 19, 1996. Freetaxusa 2011 For more information about the General Rule, see Publication 939, General Rule for Pensions and Annuities. Freetaxusa 2011 Individual retirement arrangements (IRAs). Freetaxusa 2011   Information on the tax treatment of amounts you receive from an IRA is in chapter 17. Freetaxusa 2011 Civil service retirement benefits. Freetaxusa 2011    If you are retired from the federal government (regular, phased, or disability retirement), see Publication 721, Tax Guide to U. Freetaxusa 2011 S. Freetaxusa 2011 Civil Service Retirement Benefits. Freetaxusa 2011 Publication 721 also covers the information that you need if you are the survivor or beneficiary of a federal employee or retiree who died. Freetaxusa 2011 Useful Items - You may want to see: Publication 575 Pension and Annuity Income 721 Tax Guide to U. Freetaxusa 2011 S. Freetaxusa 2011 Civil Service Retirement Benefits 939 General Rule for Pensions and Annuities Form (and Instructions) W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Freetaxusa 2011 4972 Tax on Lump-Sum Distributions 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts General Information Designated Roth accounts. Freetaxusa 2011   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. Freetaxusa 2011 Elective deferrals that are designated as Roth contributions are included in your income. Freetaxusa 2011 However, qualified distributions are not included in your income. Freetaxusa 2011 See Publication 575 for more information. Freetaxusa 2011 In-plan rollovers to designated Roth accounts. Freetaxusa 2011   If you are a participant in a 401(k), 403(b), or 457(b) plan, your plan may permit you to roll over amounts in those plans to a designated Roth account within the same plan. Freetaxusa 2011 The rollover of any untaxed amounts must be included in income. Freetaxusa 2011 See Publication 575 for more information. Freetaxusa 2011 More than one program. Freetaxusa 2011   If you receive benefits from more than one program under a single trust or plan of your employer, such as a pension plan and a profit-sharing plan, you may have to figure the taxable part of each pension or annuity contract separately. Freetaxusa 2011 Your former employer or the plan administrator should be able to tell you if you have more than one pension or annuity contract. Freetaxusa 2011 Section 457 deferred compensation plans. Freetaxusa 2011    If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. Freetaxusa 2011 If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. Freetaxusa 2011 You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. Freetaxusa 2011 You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. Freetaxusa 2011   Your 457(b) plan may have a designated Roth account option. Freetaxusa 2011 If so, you may be able to roll over amounts to the designated Roth account or make contributions. Freetaxusa 2011 Elective deferrals to a designated Roth account are included in your income. Freetaxusa 2011 Qualified distributions from a designated Roth account are not subject to tax. Freetaxusa 2011   This chapter covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. Freetaxusa 2011 For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525, Taxable and Nontaxable Income. Freetaxusa 2011   For general information on these deferred compensation plans, see Section 457 Deferred Compensation Plans in Publication 575. Freetaxusa 2011 Disability pensions. Freetaxusa 2011   If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. Freetaxusa 2011 You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A until you reach minimum retirement age. Freetaxusa 2011 Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Freetaxusa 2011    You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Freetaxusa 2011 For information on the credit for the elderly or the disabled, see chapter 33. Freetaxusa 2011   Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Freetaxusa 2011 Report the payments on Form 1040, lines 16a and 16b, or on Form 1040A, lines 12a and 12b. Freetaxusa 2011    Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. Freetaxusa 2011 For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Freetaxusa 2011   For more information on how to report disability pensions, including military and certain government disability pensions, see chapter 5. Freetaxusa 2011 Retired public safety officers. Freetaxusa 2011   An eligible retired public safety officer can elect to exclude from income distributions of up to $3,000 made directly from a government retirement plan to the provider of accident, health, or long-term disability insurance. Freetaxusa 2011 See Insurance Premiums for Retired Public Safety Officers in Publication 575 for more information. Freetaxusa 2011 Railroad retirement benefits. Freetaxusa 2011   Part of any railroad retirement benefits you receive is treated for tax purposes as social security benefits, and part is treated as an employee pension. Freetaxusa 2011 For information about railroad retirement benefits treated as social security benefits, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Freetaxusa 2011 For information about railroad retirement benefits treated as an employee pension, see Railroad Retirement Benefits in Publication 575. Freetaxusa 2011 Withholding and estimated tax. Freetaxusa 2011   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable parts of amounts paid to you. Freetaxusa 2011 You can tell the payer how much to withhold, or not to withhold, by filing Form W-4P. Freetaxusa 2011 If you choose not to have tax withheld, or you do not have enough tax withheld, you may have to pay estimated tax. Freetaxusa 2011   If you receive an eligible rollover distribution, you cannot choose not to have tax withheld. Freetaxusa 2011 Generally, 20% will be withheld, but no tax will be withheld on a direct rollover of an eligible rollover distribution. Freetaxusa 2011 See Direct rollover option under Rollovers, later. Freetaxusa 2011   For more information, see Pensions and Annuities under Tax Withholding for 2014 in chapter 4. Freetaxusa 2011 Qualified plans for self-employed individuals. Freetaxusa 2011   Qualified plans set up by self-employed individuals are sometimes called Keogh or H. Freetaxusa 2011 R. Freetaxusa 2011 10 plans. Freetaxusa 2011 Qualified plans can be set up by sole proprietors, partnerships (but not a partner), and corporations. Freetaxusa 2011 They can cover self-employed persons, such as the sole proprietor or partners, as well as regular (common-law) employees. Freetaxusa 2011    Distributions from a qualified plan are usually fully taxable because most recipients have no cost basis. Freetaxusa 2011 If you have an investment (cost) in the plan, however, your pension or annuity payments from a qualified plan are taxed under the Simplified Method. Freetaxusa 2011 For more information about qualified plans, see Publication 560, Retirement Plans for Small Business. Freetaxusa 2011 Purchased annuities. Freetaxusa 2011   If you receive pension or annuity payments from a privately purchased annuity contract from a commercial organization, such as an insurance company, you generally must use the General Rule to figure the tax-free part of each annuity payment. Freetaxusa 2011 For more information about the General Rule, get Publication 939. Freetaxusa 2011 Also, see Variable Annuities in Publication 575 for the special provisions that apply to these annuity contracts. Freetaxusa 2011 Loans. Freetaxusa 2011   If you borrow money from your retirement plan, you must treat the loan as a nonperiodic distribution from the plan unless certain exceptions apply. Freetaxusa 2011 This treatment also applies to any loan under a contract purchased under your retirement plan, and to the value of any part of your interest in the plan or contract that you pledge or assign. Freetaxusa 2011 This means that you must include in income all or part of the amount borrowed. Freetaxusa 2011 Even if you do not have to treat the loan as a nonperiodic distribution, you may not be able to deduct the interest on the loan in some situations. Freetaxusa 2011 For details, see Loans Treated as Distributions in Publication 575. Freetaxusa 2011 For information on the deductibility of interest, see chapter 23. Freetaxusa 2011 Tax-free exchange. Freetaxusa 2011   No gain or loss is recognized on an exchange of an annuity contract for another annuity contract if the insured or annuitant remains the same. Freetaxusa 2011 However, if an annuity contract is exchanged for a life insurance or endowment contract, any gain due to interest accumulated on the contract is ordinary income. Freetaxusa 2011 See Transfers of Annuity Contracts in Publication 575 for more information about exchanges of annuity contracts. Freetaxusa 2011 How To Report If you file Form 1040, report your total annuity on line 16a and the taxable part on line 16b. Freetaxusa 2011 If your pension or annuity is fully taxable, enter it on line 16b; do not make an entry on line 16a. Freetaxusa 2011 If you file Form 1040A, report your total annuity on line 12a and the taxable part on line 12b. Freetaxusa 2011 If your pension or annuity is fully taxable, enter it on line 12b; do not make an entry on line 12a. Freetaxusa 2011 More than one annuity. Freetaxusa 2011   If you receive more than one annuity and at least one of them is not fully taxable, enter the total amount received from all annuities on Form 1040, line 16a, or Form 1040A, line 12a, and enter the taxable part on Form 1040, line 16b, or Form 1040A, line 12b. Freetaxusa 2011 If all the annuities you receive are fully taxable, enter the total of all of them on Form 1040, line 16b, or Form 1040A, line 12b. Freetaxusa 2011 Joint return. Freetaxusa 2011   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 Form 1040, line 16a, or Form 1040A, line 12a, and report the taxable part on Form 1040, line 16b, or Form 1040A, line 12b. Freetaxusa 2011 Cost (Investment in the Contract) Before you can figure how much, if any, of a distribution from your pension or annuity plan is taxable, you must determine your cost (your investment in the contract) in the pension or annuity. Freetaxusa 2011 Your total cost in the plan includes the total premiums, contributions, or other amounts you paid. Freetaxusa 2011 This includes the amounts your employer contributed that were taxable to you when paid. Freetaxusa 2011 Cost does not include any amounts you deducted or were excluded from your income. Freetaxusa 2011 From this total cost, subtract any refunds of premiums, rebates, dividends, unrepaid loans that were not included in your income, or other tax-free amounts that you received by the later of the annuity starting date or the date on which you received your first payment. Freetaxusa 2011 Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. Freetaxusa 2011 Designated Roth accounts. Freetaxusa 2011   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. Freetaxusa 2011 Your cost will also include any in-plan Roth rollovers you included in income. Freetaxusa 2011 Foreign employment contributions. Freetaxusa 2011   If you worked in a foreign country and contributions were made to your retirement plan, special rules apply in determining your cost. Freetaxusa 2011 See Foreign employment contributions under Cost (Investment in the Contract) in Publication 575. Freetaxusa 2011 Taxation of Periodic Payments Fully taxable payments. Freetaxusa 2011   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 from your pay while you worked, the amounts you receive each year are fully taxable. Freetaxusa 2011 You must report them on your income tax return. Freetaxusa 2011 Partly taxable payments. Freetaxusa 2011   If you paid part of the cost of your pension or annuity, you are not taxed on the part of the pension or annuity you receive that represents a return of your cost. Freetaxusa 2011 The rest of the amount you receive is generally taxable. Freetaxusa 2011 You figure the tax-free part of the payment using either the Simplified Method or the General Rule. Freetaxusa 2011 Your annuity starting date and whether or not your plan is qualified determine which method you must or may use. Freetaxusa 2011   If your annuity starting date is after November 18, 1996, and your payments are from a qualified plan, you must use the Simplified Method. Freetaxusa 2011 Generally, you must use the General Rule if your annuity is paid under a nonqualified plan, and you cannot use this method if your annuity is paid under a qualified plan. Freetaxusa 2011   If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. Freetaxusa 2011   If your annuity is paid under a qualified plan and your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method. Freetaxusa 2011 Exclusion limit. Freetaxusa 2011   Your annuity starting date determines the total amount of annuity payments that you can exclude from your taxable income over the years. Freetaxusa 2011 Once your annuity starting date is determined, it does not change. Freetaxusa 2011 If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. Freetaxusa 2011 That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. Freetaxusa 2011 Exclusion limited to cost. Freetaxusa 2011   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. Freetaxusa 2011 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. Freetaxusa 2011 This deduction is not subject to the 2%-of-adjusted-gross-income limit. Freetaxusa 2011 Exclusion not limited to cost. Freetaxusa 2011   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. Freetaxusa 2011 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. Freetaxusa 2011 The total exclusion may be more than your cost. Freetaxusa 2011 Simplified Method 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. Freetaxusa 2011 For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. Freetaxusa 2011 For any other annuity, this number is the number of monthly annuity payments under the contract. Freetaxusa 2011 Who must use the Simplified Method. Freetaxusa 2011   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you both: Receive pension or annuity payments from a qualified employee plan, qualified employee annuity, or a tax-sheltered annuity (403(b)) plan, and On your annuity starting date, you were either under age 75, or entitled to less than 5 years of guaranteed payments. Freetaxusa 2011 Guaranteed payments. Freetaxusa 2011   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. Freetaxusa 2011 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. Freetaxusa 2011 How to use the Simplified Method. Freetaxusa 2011    Complete the Simplified Method Worksheet in Publication 575 to figure your taxable annuity for 2013. Freetaxusa 2011 Single-life annuity. Freetaxusa 2011    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. Freetaxusa 2011 Enter on line 3 the number shown for your age at the annuity starting date. Freetaxusa 2011 Multiple-lives annuity. Freetaxusa 2011   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. Freetaxusa 2011 Enter on line 3 the number shown for the combined ages of you and the youngest survivor annuitant at the annuity starting date. Freetaxusa 2011   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. Freetaxusa 2011 Instead you must use Table 1 and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. Freetaxusa 2011    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity next year. Freetaxusa 2011 Example. Freetaxusa 2011 Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. Freetaxusa 2011 Bill's annuity starting date is January 1, 2013. Freetaxusa 2011 The benefits are to be paid for the joint lives of Bill and his wife Kathy, age 65. Freetaxusa 2011 Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Freetaxusa 2011 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. Freetaxusa 2011 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. Freetaxusa 2011 Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet. Freetaxusa 2011 His completed worksheet is shown in Worksheet 10-A. Freetaxusa 2011 Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. Freetaxusa 2011 Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. Freetaxusa 2011 The full amount of any annuity payments received after 310 payments are paid must be included in gross income. Freetaxusa 2011 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. Freetaxusa 2011 This deduction is not subject to the 2%-of-adjusted- gross-income limit. Freetaxusa 2011 Worksheet 10-A. Freetaxusa 2011 Simplified Method Worksheet for Bill Smith 1. Freetaxusa 2011 Enter the total pension or annuity payments received this year. Freetaxusa 2011 Also, add this amount to the total for Form 1040, line 16a, or Form 1040A, line 12a 1. Freetaxusa 2011 14,400 2. Freetaxusa 2011 Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion*. Freetaxusa 2011 See Cost (Investment in the Contract) , earlier 2. Freetaxusa 2011 31,000       Note: 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). Freetaxusa 2011 Otherwise, go to line 3. Freetaxusa 2011         3. Freetaxusa 2011 Enter the appropriate number from Table 1 below. Freetaxusa 2011 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. Freetaxusa 2011 310     4. Freetaxusa 2011 Divide line 2 by the number on line 3 4. Freetaxusa 2011 100     5. Freetaxusa 2011 Multiply line 4 by the number of months for which this year's payments were made. Freetaxusa 2011 If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Freetaxusa 2011 Otherwise, go to line 6 5. Freetaxusa 2011 1,200     6. Freetaxusa 2011 Enter any amounts previously recovered tax free in years after 1986. Freetaxusa 2011 This is the amount shown on line 10 of your worksheet for last year 6. Freetaxusa 2011 -0-     7. Freetaxusa 2011 Subtract line 6 from line 2 7. Freetaxusa 2011 31,000     8. Freetaxusa 2011 Enter the smaller of line 5 or line 7 8. Freetaxusa 2011 1,200 9. Freetaxusa 2011 Taxable amount for year. Freetaxusa 2011 Subtract line 8 from line 1. Freetaxusa 2011 Enter the result, but not less than zero. Freetaxusa 2011 Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b 9. Freetaxusa 2011 13,200   Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Freetaxusa 2011 If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers in Publication 575 before entering an amount on your tax return. Freetaxusa 2011     10. Freetaxusa 2011 Was your annuity starting date before 1987? □ Yes. Freetaxusa 2011 STOP. Freetaxusa 2011 Do not complete the rest of this worksheet. Freetaxusa 2011  ☑ No. Freetaxusa 2011 Add lines 6 and 8. Freetaxusa 2011 This is the amount you have recovered tax free through 2013. Freetaxusa 2011 You will need this number if you need to fill out this worksheet next year 10. Freetaxusa 2011 1,200 11. Freetaxusa 2011 Balance of cost to be recovered. Freetaxusa 2011 Subtract line 10 from line 2. Freetaxusa 2011 If zero, you will not have to complete this worksheet next year. Freetaxusa 2011 The payments you receive next year will generally be fully taxable 11. Freetaxusa 2011 29,800 TABLE 1 FOR LINE 3 ABOVE   AND your annuity starting date was— IF the age at annuity starting date was. Freetaxusa 2011 . Freetaxusa 2011 . Freetaxusa 2011 before November 19, 1996, enter on line 3. Freetaxusa 2011 . Freetaxusa 2011 . Freetaxusa 2011 after November 18, 1996, enter on line 3. Freetaxusa 2011 . Freetaxusa 2011 . Freetaxusa 2011 55 or under 300 360 56–60 260 310 61–65 240 260 66–70 170 210 71 or older 120 160 TABLE 2 FOR LINE 3 ABOVE IF the combined ages at annuity starting date were. Freetaxusa 2011 . Freetaxusa 2011 . Freetaxusa 2011   THEN enter on line 3. Freetaxusa 2011 . Freetaxusa 2011 . Freetaxusa 2011 110 or under   410 111–120   360 121–130   310 131–140   260 141 or older   210 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Freetaxusa 2011 Who must use the General Rule. Freetaxusa 2011   You 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 your annuity payments are guaranteed for at least 5 years. Freetaxusa 2011 Annuity starting before November 19, 1996. Freetaxusa 2011   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. Freetaxusa 2011 You also had to use it for any fixed-period annuity. Freetaxusa 2011 If you did not have to use the General Rule, you could have chosen to use it. Freetaxusa 2011 If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. Freetaxusa 2011   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. Freetaxusa 2011 Who cannot use the General Rule. Freetaxusa 2011   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. Freetaxusa 2011 See Who must use the Simplified Method , earlier. Freetaxusa 2011 More information. Freetaxusa 2011   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. Freetaxusa 2011 Taxation of Nonperiodic Payments Nonperiodic distributions are also known as amounts not received as an annuity. Freetaxusa 2011 They include all payments other than periodic payments and corrective distributions. Freetaxusa 2011 Examples of nonperiodic payments are cash withdrawals, distributions of current earnings, certain loans, and the value of annuity contracts transferred without full and adequate consideration. Freetaxusa 2011 Corrective distributions of excess plan contributions. Freetaxusa 2011   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. Freetaxusa 2011 To correct an excess, your plan may distribute it to you (along with any income earned on the excess). Freetaxusa 2011 For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. Freetaxusa 2011 Figuring the taxable amount of nonperiodic payments. Freetaxusa 2011   How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date, or on or after the annuity starting date. Freetaxusa 2011 If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan. Freetaxusa 2011 If it is made under a nonqualified plan, its tax treatment depends on whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982. Freetaxusa 2011 Annuity starting date. Freetaxusa 2011   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. Freetaxusa 2011 Distribution on or after annuity starting date. Freetaxusa 2011   If you receive a nonperiodic payment from your annuity contract on or after the annuity starting date, you generally must include all of the payment in gross income. Freetaxusa 2011 Distribution before annuity starting date. Freetaxusa 2011   If you receive a nonperiodic distribution before the annuity starting date from a qualified retirement plan, you generally can allocate only part of it to the cost of the contract. Freetaxusa 2011 You exclude from your gross income the part that you allocate to the cost. Freetaxusa 2011 You include the remainder in your gross income. Freetaxusa 2011   If you receive a nonperiodic distribution before the annuity starting date from a plan other than a qualified retirement plan (nonqualified plan), it is allocated first to earnings (the taxable part) and then to the cost of the contract (the tax-free part). Freetaxusa 2011 This allocation rule applies, for example, to a commercial annuity contract you bought directly from the issuer. Freetaxusa 2011    Distributions from nonqualified plans are subject to the net investment income tax. Freetaxusa 2011 See the Instructions for Form 8960. Freetaxusa 2011   For more information, see Figuring the Taxable Amount under Taxation of Nonperiodic Payments in Publication 575. Freetaxusa 2011 Lump-Sum Distributions This section on lump-sum distributions only applies if the plan participant was born before January 2, 1936. Freetaxusa 2011 If the plan participant was born after January 1, 1936, the taxable amount of this nonperiodic payment is reported as discussed earlier. Freetaxusa 2011 A lump-sum distribution is the distribution or payment in one tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind (for example, pension, profit-sharing, or stock bonus plans). Freetaxusa 2011 A distribution from a nonqualified plan (such as a privately purchased commercial annuity or a section 457 deferred compensation plan of a state or local government or tax-exempt organization) cannot qualify as a lump-sum distribution. Freetaxusa 2011 The participant's entire balance from a plan does not include certain forfeited amounts. Freetaxusa 2011 It also does not include any deductible voluntary employee contributions allowed by the plan after 1981 and before 1987. Freetaxusa 2011 For more information about distributions that do not qualify as lump-sum distributions, see Distributions that do not qualify under Lump-Sum Distributions in Publication 575. Freetaxusa 2011 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. Freetaxusa 2011 The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. Freetaxusa 2011 The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. Freetaxusa 2011 You may be able to use the 10-year tax option, discussed later, to figure tax on the ordinary income part. Freetaxusa 2011 Use Form 4972 to figure the separate tax on a lump-sum distribution using the optional methods. Freetaxusa 2011 The tax figured on Form 4972 is added to the regular tax figured on your other income. Freetaxusa 2011 This may result in a smaller tax than you would pay by including the taxable amount of the distribution as ordinary income in figuring your regular tax. Freetaxusa 2011 How to treat the distribution. Freetaxusa 2011   If you receive a lump-sum distribution, you may have the following options for how you treat the taxable part. Freetaxusa 2011 Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and the part from participation after 1973 as ordinary income. Freetaxusa 2011 Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and use the 10-year tax option to figure the tax on the part from participation after 1973 (if you qualify). Freetaxusa 2011 Use the 10-year tax option to figure the tax on the total taxable amount (if you qualify). Freetaxusa 2011 Roll over all or part of the distribution. Freetaxusa 2011 See Rollovers , later. Freetaxusa 2011 No tax is currently due on the part rolled over. Freetaxusa 2011 Report any part not rolled over as ordinary income. Freetaxusa 2011 Report the entire taxable part of the distribution as ordinary income on your tax return. Freetaxusa 2011   The first three options are explained in the following discussions. Freetaxusa 2011 Electing optional lump-sum treatment. Freetaxusa 2011   You can choose to use the 10-year tax option or capital gain treatment only once after 1986 for any plan participant. Freetaxusa 2011 If you make this choice, you cannot use either of these optional treatments for any future distributions for the participant. Freetaxusa 2011 Taxable and tax-free parts of the distribution. Freetaxusa 2011    The taxable part of a lump-sum distribution is the employer's contributions and income earned on your account. Freetaxusa 2011 You may recover your cost in the lump sum and any net unrealized appreciation (NUA) in employer securities tax free. Freetaxusa 2011 Cost. Freetaxusa 2011   In general, your cost is the total of: The plan participant's nondeductible contributions to the plan, The plan participant's taxable costs of any life insurance contract distributed, Any employer contributions that were taxable to the plan participant, and Repayments of any loans that were taxable to the plan participant. Freetaxusa 2011 You must reduce this cost by amounts previously distributed tax free. Freetaxusa 2011 Net unrealized appreciation (NUA). Freetaxusa 2011   The NUA in employer securities (box 6 of Form 1099-R) received as part of a lump-sum distribution is generally tax free until you sell or exchange the securities. Freetaxusa 2011 (For more information, see Distributions of employer securities under Taxation of Nonperiodic Payments in Publication 575. Freetaxusa 2011 ) Capital Gain Treatment Capital gain treatment applies only to the taxable part of a lump-sum distribution resulting from participation in the plan before 1974. Freetaxusa 2011 The amount treated as capital gain is taxed at a 20% rate. Freetaxusa 2011 You can elect this treatment only once for any plan participant, and only if the plan participant was born before January 2, 1936. Freetaxusa 2011 Complete Part II of Form 4972 to choose the 20% capital gain election. Freetaxusa 2011 For more information, see Capital Gain Treatment under Lump-Sum Distributions in Publication 575. Freetaxusa 2011 10-Year Tax Option The 10-year tax option is a special formula used to figure a separate tax on the ordinary income part of a lump-sum distribution. Freetaxusa 2011 You pay the tax only once, for the year in which you receive the distribution, not over the next 10 years. Freetaxusa 2011 You can elect this treatment only once for any plan participant, and only if the plan participant was born before January 2, 1936. Freetaxusa 2011 The ordinary income part of the distribution is the amount shown in box 2a of the Form 1099-R given to you by the payer, minus the amount, if any, shown in box 3. Freetaxusa 2011 You also can treat the capital gain part of the distribution (box 3 of Form 1099-R) as ordinary income for the 10-year tax option if you do not choose capital gain treatment for that part. Freetaxusa 2011 Complete Part III of Form 4972 to choose the 10-year tax option. Freetaxusa 2011 You must use the special Tax Rate Schedule shown in the instructions for Part III to figure the tax. Freetaxusa 2011 Publication 575 illustrates how to complete Form 4972 to figure the separate tax. Freetaxusa 2011 Rollovers If you withdraw cash or other assets from a qualified retirement plan in an eligible rollover distribution, you can defer tax on the distribution by rolling it over to another qualified retirement plan or a traditional IRA. Freetaxusa 2011 For this purpose, the following plans are qualified retirement plans. Freetaxusa 2011 A qualified employee plan. Freetaxusa 2011 A qualified employee annuity. Freetaxusa 2011 A tax-sheltered annuity plan (403(b) plan). Freetaxusa 2011 An eligible state or local government section 457 deferred compensation plan. Freetaxusa 2011 Eligible rollover distributions. Freetaxusa 2011   Generally, an eligible rollover distribution is any distribution of all or any part of the balance to your credit in a qualified retirement plan. Freetaxusa 2011 For information about exceptions to eligible rollover distributions, see Publication 575. Freetaxusa 2011 Rollover of nontaxable amounts. Freetaxusa 2011   You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another qualified retirement plan that is a qualified employee plan or a 403(b) plan, or to a traditional or Roth IRA. Freetaxusa 2011 The transfer must be made either through a direct rollover to a qualified plan or 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional or Roth IRA. Freetaxusa 2011   If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution. Freetaxusa 2011   Any after-tax contributions that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. Freetaxusa 2011 To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. Freetaxusa 2011 For more information, see the Form 8606 instructions. Freetaxusa 2011 Direct rollover option. Freetaxusa 2011   You can choose to have any part or all of an eligible rollover distribution paid directly to another qualified retirement plan that accepts rollover distributions or to a traditional or Roth IRA. Freetaxusa 2011 If you choose the direct rollover option, or have an automatic rollover, no tax will be withheld from any part of the distribution that is directly paid to the trustee of the other plan. Freetaxusa 2011 Payment to you option. Freetaxusa 2011   If an eligible rollover distribution is paid to you, 20% generally will be withheld for income tax. Freetaxusa 2011 However, the full amount is treated as distributed to you even though you actually receive only 80%. Freetaxusa 2011 You generally must include in income any part (including the part withheld) that you do not roll over within 60 days to another qualified retirement plan or to a traditional or Roth IRA. Freetaxusa 2011 (See Pensions and Annuities under Tax Withholding for 2014 in chapter 4. Freetaxusa 2011 )    If you decide to roll over an amount equal to the distribution before withholding, your contribution to the new plan or IRA must include other money (for example, from savings or amounts borrowed) to replace the amount withheld. Freetaxusa 2011 Time for making rollover. Freetaxusa 2011   You generally must complete the rollover of an eligible rollover distribution paid to you by the 60th day following the day on which you receive the distribution from your employer's plan. Freetaxusa 2011 (If an amount distributed to you becomes a frozen deposit in a financial institution during the 60-day period after you receive it, the rollover period is extended for the period during which the distribution is in a frozen deposit in a financial institution. Freetaxusa 2011 )   The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. Freetaxusa 2011   The administrator of a qualified plan must give you a written explanation of your distribution options within a reasonable period of time before making an eligible rollover distribution. Freetaxusa 2011 Qualified domestic relations order (QDRO). Freetaxusa 2011   You may be able to roll over tax free all or part of a distribution from a qualified retirement plan that you receive under a QDRO. Freetaxusa 2011 If you receive the distribution as an employee's spouse or former spouse (not as a nonspousal beneficiary), the rollover rules apply to you as if you were the employee. Freetaxusa 2011 You can roll over the distribution from the plan into a traditional IRA or to another eligible retirement plan. Freetaxusa 2011 See Rollovers in Publication 575 for more information on benefits received under a QDRO. Freetaxusa 2011 Rollover by surviving spouse. Freetaxusa 2011   You may be able to roll over tax free all or part of a distribution from a qualified retirement plan you receive as the surviving spouse of a deceased employee. Freetaxusa 2011 The rollover rules apply to you as if you were the employee. Freetaxusa 2011 You can roll over a distribution into a qualified retirement plan or a traditional or Roth IRA. Freetaxusa 2011 For a rollover to a Roth IRA, see Rollovers to Roth IRAs , later. Freetaxusa 2011    A distribution paid to a beneficiary other than the employee's surviving spouse is generally not an eligible rollover distribution. Freetaxusa 2011 However, see Rollovers by nonspouse beneficiary next. Freetaxusa 2011 Rollovers by nonspouse beneficiary. Freetaxusa 2011   If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you may be able to roll over tax free all or a portion of a distribution you receive from an eligible retirement plan of the employee. Freetaxusa 2011 The distribution must be a direct trustee-to-trustee transfer to your traditional or Roth IRA that was set up to receive the distribution. Freetaxusa 2011 The transfer will be treated as an eligible rollover distribution and the receiving plan will be treated as an inherited IRA. Freetaxusa 2011 For information on inherited IRAs, see What if You Inherit an IRA? in chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs). Freetaxusa 2011 Retirement bonds. Freetaxusa 2011   If you redeem retirement bonds purchased under a qualified bond purchase plan, you can roll over the proceeds that exceed your basis tax free into an IRA (as discussed in Publication 590) or a qualified employer plan. Freetaxusa 2011 Designated Roth accounts. Freetaxusa 2011   You can roll over an eligible rollover distribution from a designated Roth account into another designated Roth account or a Roth IRA. Freetaxusa 2011 If you want to roll over the part of the distribution that is not included in income, you must make a direct rollover of the entire distribution or you can roll over the entire amount (or any portion) to a Roth IRA. Freetaxusa 2011 For more information on rollovers from designated Roth accounts, see Rollovers in Publication 575. Freetaxusa 2011 In-plan rollovers to designated Roth accounts. Freetaxusa 2011   If you are a plan participant in a 401(k), 403(b), or 457(b) plan, your plan may permit you to roll over amounts in those plans to a designated Roth account within the same plan. Freetaxusa 2011 The rollover of any untaxed amounts must be included in income. Freetaxusa 2011 See Designated Roth accounts under Rollovers in Publication 575 for more information. Freetaxusa 2011 Rollovers to Roth IRAs. Freetaxusa 2011   You can roll over distributions directly from a qualified retirement plan (other than a designated Roth account) to a Roth IRA. Freetaxusa 2011   You must include in your gross income distributions from a qualified retirement plan (other than a designated Roth account) that you would have had to include in income if you had not rolled them over into a Roth IRA. Freetaxusa 2011 You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions to the plan that were taxable to you when paid. Freetaxusa 2011 In addition, the 10% tax on early distributions does not apply. Freetaxusa 2011 More information. Freetaxusa 2011   For more information on the rules for rolling over distributions, see Rollovers in Publication 575. Freetaxusa 2011 Special Additional Taxes To discourage the use of pension funds for purposes other than normal retirement, the law imposes additional taxes on early distributions of those funds and on failures to withdraw the funds timely. Freetaxusa 2011 Ordinarily, you will not be subject to these taxes if you roll over all early distributions you receive, as explained earlier, and begin drawing out the funds at a normal retirement age, in reasonable amounts over your life expectancy. Freetaxusa 2011 These special additional taxes are the taxes on: Early distributions, and Excess accumulation (not receiving minimum distributions). Freetaxusa 2011 These taxes are discussed in the following sections. Freetaxusa 2011 If you must pay either of these taxes, report them on Form 5329. Freetaxusa 2011 However, you do not have to file Form 5329 if you owe only the tax on early distributions and your Form 1099-R correctly shows a “1” in box 7. Freetaxusa 2011 Instead, enter 10% of the taxable part of the distribution on Form 1040, line 58 and write “No” under the heading “Other Taxes” to the left of line 58. Freetaxusa 2011 Even if you do not owe any of these taxes, you may have to complete Form 5329 and attach it to your Form 1040. Freetaxusa 2011 This applies if you meet an exception to the tax on early distributions but box 7 of your Form 1099-R does not indicate an exception. Freetaxusa 2011 Tax on Early Distributions Most distributions (both periodic and nonperiodic) from qualified retirement plans and nonqualified annuity contracts made to you before you reach age 59½ are subject to an additional tax of 10%. Freetaxusa 2011 This tax applies to the part of the distribution that you must include in gross income. Freetaxusa 2011 For this purpose, a qualified retirement plan is: A qualified employee plan, A qualified employee annuity plan, A tax-sheltered annuity 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). Freetaxusa 2011 5% rate on certain early distributions from deferred annuity contracts. Freetaxusa 2011   If an early withdrawal from a deferred annuity is otherwise subject to the 10% additional tax, a 5% rate may apply instead. Freetaxusa 2011 A 5% rate applies to distributions under a written election providing a specific schedule for the distribution of your interest in the contract if, as of March 1, 1986, you had begun receiving payments under the election. Freetaxusa 2011 On line 4 of Form 5329, multiply the line 3 amount by 5% instead of 10%. Freetaxusa 2011 Attach an explanation to your return. Freetaxusa 2011 Distributions from Roth IRAs allocable to a rollover from an eligible retirement plan within the 5-year period. Freetaxusa 2011   If, within the 5-year period starting with the first day of your tax year in which you rolled over an amount from an eligible retirement plan to a Roth IRA, you take a distribution from the Roth IRA, you may have to pay the additional 10% tax on early distributions. Freetaxusa 2011 You generally must pay the 10% additional tax on any amount attributable to the part of the rollover that you had to include in income. Freetaxusa 2011 The additional tax is figured on Form 5329. Freetaxusa 2011 For more information, see Form 5329 and its instructions. Freetaxusa 2011 For information on qualified distributions from Roth IRAs, see Additional Tax on Early Distributions in chapter 2 of Publication 590. Freetaxusa 2011 Distributions from designated Roth accounts allocable to in-plan Roth rollovers within the 5-year period. Freetaxusa 2011   If, within the 5-year period starting with the first day of your tax year in which you rolled over an amount from a 401(k), 403(b), or 457(b) plan to a designated Roth account, you take a distribution from the designated Roth account, you may have to pay the additional 10% tax on early distributions. Freetaxusa 2011 You generally must pay the 10% additional tax on any amount attributable to the part of the in-plan rollover that you had to include in income. Freetaxusa 2011 The additional tax is figured on Form 5329. Freetaxusa 2011 For more information, see Form 5329 and its instructions. Freetaxusa 2011 For information on qualified distributions from designated Roth accounts, see Designated Roth accounts under Taxation of Periodic Payments in Publication 575. Freetaxusa 2011 Exceptions to tax. Freetaxusa 2011    Certain early distributions are excepted from the early distribution tax. Freetaxusa 2011 If the payer knows that an exception applies to your early distribution, distribution code “2,” “3,” or “4” should be shown in box 7 of your Form 1099-R and you do not have to report the distribution on Form 5329. Freetaxusa 2011 If an exception applies but distribution code “1” (early distribution, no known exception) is shown in box 7, you must file Form 5329. Freetaxusa 2011 Enter the taxable amount of the distribution shown in box 2a of your Form 1099-R on line 1 of Form 5329. Freetaxusa 2011 On line 2, enter the amount that can be excluded and the exception number shown in the Form 5329 instructions. Freetaxusa 2011    If distribution code “1” is incorrectly shown on your Form 1099-R for a distribution received when you were age 59½ or older, include that distribution on Form 5329. Freetaxusa 2011 Enter exception number “12” on line 2. Freetaxusa 2011 General exceptions. Freetaxusa 2011   The tax does not apply to 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 your 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. Freetaxusa 2011 Additional exceptions for qualified retirement plans. Freetaxusa 2011   The tax does not apply to distributions that are: From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees), From a qualified retirement plan (other than an IRA) to an alternate payee under a qualified domestic relations order, From a qualified retirement plan to the extent you have deductible medical expenses that exceed 10% (or 7. Freetaxusa 2011 5% if you or your spouse are age 65 or older) of your adjusted gross income, whether or not you itemize your deductions for the year, From an employer plan under a written election that provides a specific schedule for distribution of your entire interest if, as of March 1, 1986, you had separated from service and had begun receiving payments under the election, From an employee stock ownership plan for dividends on employer securities held by the plan, From a qualified retirement plan due to an IRS levy of the plan, From elective deferral accounts under 401(k) or 403(b) plans or similar arrangements that are qualified reservist distributions, or Phased retirement annuity payments made to federal employees. Freetaxusa 2011 See Pub. Freetaxusa 2011 721 for more information on the phased retirement program. Freetaxusa 2011 Qualified public safety employees. Freetaxusa 2011   If you are a qualified public safety employee, distributions made from a governmental defined benefit pension plan are not subject to the additional tax on early distributions. Freetaxusa 2011 You are a qualified public safety employee if you provide police protection, firefighting services, or emergency medical services for a state or municipality, and you separated from service in or after the year you attained age 50. Freetaxusa 2011 Qualified reservist distributions. Freetaxusa 2011   A qualified reservist distribution is not subject to the additional tax on early distributions. Freetaxusa 2011 A qualified reservist distribution is a distribution (a) from elective deferrals under a section 401(k) or 403(b) plan, or a similar arrangement, (b) to an individual ordered or called to active duty (because he or she is a member of a reserve component) for a period of more than 179 days or for an indefinite period, and (c) made during the period beginning on the date of the order or call and ending at the close of the active duty period. Freetaxusa 2011 You must have been ordered or called to active duty after September 11, 2001. Freetaxusa 2011 For more information, see Qualified reservist distributions under Special Additional Taxes in Publication 575. Freetaxusa 2011 Additional exceptions for nonqualified annuity contracts. Freetaxusa 2011   The tax does not apply to distributions from: A deferred annuity contract to the extent allocable to investment in the contract before August 14, 1982, A deferred annuity contract under a qualified personal injury settlement, A deferred annuity contract purchased by your employer upon termination of a qualified employee plan or qualified employee annuity plan and held by your employer until your separation from service, or An immediate annuity contract (a single premium contract providing substantially equal annuity payments that start within 1 year from the date of purchase and are paid at least annually). Freetaxusa 2011 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 (defined later). Freetaxusa 2011 The payments each year cannot be less than the required minimum distribution. Freetaxusa 2011 Required distributions not made. Freetaxusa 2011   If the actual distributions to you in any year are less than the minimum required distribution for that year, you are subject to an additional tax. Freetaxusa 2011 The tax equals 50% of the part of the required minimum distribution that was not distributed. Freetaxusa 2011   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). Freetaxusa 2011 Waiver. Freetaxusa 2011   The tax may be waived if you establish that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. Freetaxusa 2011 See the Instructions for Form 5329 for the procedure to follow if you believe you qualify for a waiver of this tax. Freetaxusa 2011 State insurer delinquency proceedings. Freetaxusa 2011   You might not receive the minimum distribution because assets are invested in a contract issued by an insurance company in state insurer delinquency proceedings. Freetaxusa 2011 If your payments are reduced below the minimum due to these proceedings, you should contact your plan administrator. Freetaxusa 2011 Under certain conditions, you will not have to pay the 50% excise tax. Freetaxusa 2011 Required beginning date. Freetaxusa 2011   Unless the rule for 5% owners applies, you generally must begin to receive distributions from your qualified retirement plan by 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. Freetaxusa 2011 However, your plan may require you to begin to receive distributions by April 1 of the year that follows the year in which you reach age 70½, even if you have not retired. Freetaxusa 2011   If you reached age 70½ in 2013, you may be required to receive your first distribution by April 1, 2014. Freetaxusa 2011 Your required distribution then must be made for 2014 by December 31, 2014. Freetaxusa 2011 5% owners. Freetaxusa 2011   If you are a 5% owner, you must begin to receive distributions by April 1 of the year that follows the calendar year in which you reach age 70½. Freetaxusa 2011   You are a 5% owner if, for the plan year ending in the calendar year in which you reach age 70½, you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the outstanding stock (or more than 5% of the total voting power of all stock) of the employer, or more than 5% of the capital or profits interest in the employer. Freetaxusa 2011 Age 70½. Freetaxusa 2011   You reach age 70½ on the date that is 6 calendar months after the date of your 70th birthday. Freetaxusa 2011   For example, if you are retired and your 70th birthday was on June 30, 2013, you were age 70½ on December 30, 2013. Freetaxusa 2011 If your 70th birthday was on July 1, 2013, you reached age 70½ on January 1, 2014. Freetaxusa 2011 Required distributions. Freetaxusa 2011   By the required beginning date, as explained earlier, you must either: Receive your entire interest in the plan (for a tax-sheltered annuity, your entire benefit accruing after 1986), or Begin receiving periodic distributions in annual amounts calculated to distribute your entire interest (for a tax-sheltered annuity, your entire benefit accruing after 1986) over your life or life expectancy or over the joint lives or joint life expectancies of you and a designated beneficiary (or over a shorter period). Freetaxusa 2011 Additional information. Freetaxusa 2011   For more information on this rule, see Tax on Excess Accumulation in Publication 575. Freetaxusa 2011 Form 5329. Freetaxusa 2011   You must file Form 5329 if you owe tax because you did not receive a minimum required distribution from your qualified retirement plan. Freetaxusa 2011 Survivors and Beneficiaries Generally, a survivor or beneficiary reports pension or annuity income in the same way the plan participant would have. Freetaxusa 2011 However, some special rules apply. Freetaxusa 2011 See Publication 575 for more information. Freetaxusa 2011 Survivors of employees. Freetaxusa 2011   If you are entitled to receive a survivor annuity on the death of an employee who died, you can exclude part of each annuity payment as a tax-free recovery of the employee's investment in the contract. Freetaxusa 2011 You must figure the taxable and tax-free parts of your annuity payments using the method that applies as if you were the employee. Freetaxusa 2011 Survivors of retirees. Freetaxusa 2011   If you receive benefits as a survivor under a joint and survivor annuity, include those benefits in income in the same way the retiree would have included them in income. Freetaxusa 2011 If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule and recovered all of the cost tax free, your survivor payments are fully taxable. Freetaxusa 2011    If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage to your initial survivor annuity payment called for in the contract. Freetaxusa 2011 The resulting tax-free amount will then remain fixed. Freetaxusa 2011 Any increases in the survivor annuity are fully taxable. Freetaxusa 2011    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. Freetaxusa 2011 This amount remains fixed even if the annuity payments are increased or decreased. Freetaxusa 2011 See Simplified Method , earlier. Freetaxusa 2011   In any case, if the annuity starting date is after 1986, the total exclusion over the years cannot be more than the cost. Freetaxusa 2011 Estate tax deduction. Freetaxusa 2011   If your annuity was a joint and survivor annuity that was included in the decedent's estate, an estate tax may have been paid on it. Freetaxusa 2011 You can deduct the part of the total estate tax that was based on the annuity. Freetaxusa 2011 The deceased annuitant must have died after the annuity starting date. Freetaxusa 2011 (For details, see section 1. Freetaxusa 2011 691(d)-1 of the regulations. Freetaxusa 2011 ) Deduct it in equal amounts over your remaining life expectancy. Freetaxusa 2011   If the decedent died before the annuity starting date of a deferred annuity contract and you receive a death benefit under that contract, the amount you receive (either in a lump sum or as periodic payments) in excess of the decedent's cost is included in your gross income as income in respect of a decedent for which you may be able to claim an estate tax deduction. Freetaxusa 2011   You can take the estate tax deduction as an itemized deduction on Schedule A, Form 1040. Freetaxusa 2011 This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. Freetaxusa 2011 See Publication 559, Survivors, Executors, and Administrators, for more information on the estate tax deduction. Freetaxusa 2011 Prev  Up  Next   Home   More Online Publications Skip to content
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Recalls API Server

When you're buying and using products, safety comes first.

Access the Data

Use our Recalls API to tap into a list of car, drug, food, and product safety data and recalls.

See the most recent recalls in JSON or RSS.

You can also see how this data is used when searching for recalls on USA.gov.

Contribute to the Code

The server code that runs our Recalls API is here on Github. If you're a Ruby developer, keep reading. Fork this repo to add features (such as additional datasets) or fix bugs.

Ruby

This code is currently tested against Ruby 2.1.

Gems

We use bundler to manage gems. You can install bundler and other required gems like this:

gem install bundler
bundle install

Solr

We're using Solr for fulltext search. You can start/stop/reindex Solr like this:

bundle exec rake sunspot:solr:start
bundle exec rake sunspot:solr:stop
bundle exec rake sunspot:solr:run
bundle exec rake sunspot:solr:reindex

Database

database.yml assumes you have a local database server up and running (preferably MySQL >= 5.1.65), accessible from user 'root' with no password.

Create and setup your development and test databases:

bundle exec rake db:setup
bundle exec rake db:setup RAILS_ENV=test

Seed data

Populate recall data for your development database:

bundle exec rake usagov:recalls:import_cdc_data
bundle exec rake usagov:recalls:import_cpsc_data
bundle exec rake usagov:recalls:import_nhtsa_data

You need to run these tasks daily to receive the latest recalls data.

Running it

Fire up a server and try it all out:

bundle exec rails s

http://127.0.0.1:3000/search.json?query=stroller

API Versioning

We support API versioning with json format. The current version is v1.

You can specify a a specific JSON version of recalls data like this:

curl -H 'Accept: application/vnd.usagov.recalls.v1' http://localhost:3000/search.json

Parameters

Seven generic parameters are accepted: (1) query, (2) organization, (3) start_date, (4) end_date, (5) page, (6) per_page, and (7) sort. There are additional parameters that are specific to food, product, and car safety recalls. None are required.

Full documentation on the parameters is in our Recalls API documentation.

Tests

Tests require a Solr server to be spun up.

bundle exec rake sunspot:solr:start RAILS_ENV=test

Make sure the tests run:

bundle exec rake spec

Code Coverage

We track test coverage of the codebase over time, to help identify areas where we could write better tests and to see when poorly tested code got introduced.

After running your tests, view the report by opening coverage/rcov/index.html in your browser.

Click around on the files that have < 100% coverage to see what lines weren't exercised.

License

This project is covered under the terms of the GNU General Public License, version 2 or later.

Terms of Use

By accessing this Recalls API server, you agree to our Terms of Service.

Feedback

You can send feedback via Github Issues.


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The Freetaxusa 2011

Freetaxusa 2011 3. Freetaxusa 2011   Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Freetaxusa 2011 They are the American opportunity credit and the lifetime learning credit. Freetaxusa 2011 This chapter discusses the lifetime learning credit. Freetaxusa 2011 The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . Freetaxusa 2011 This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Freetaxusa 2011 What is the tax benefit of the lifetime learning credit. Freetaxusa 2011   For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. Freetaxusa 2011 There is no limit on the number of years the lifetime learning credit can be claimed for each student. Freetaxusa 2011   A tax credit reduces the amount of income tax you may have to pay. Freetaxusa 2011 Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Freetaxusa 2011 The lifetime learning credit is a nonrefundable credit. Freetaxusa 2011 This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. Freetaxusa 2011   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. Freetaxusa 2011 Can you claim more than one education credit this year. Freetaxusa 2011   For each student, you can elect for any year only one of the credits. Freetaxusa 2011 For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. Freetaxusa 2011   If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. Freetaxusa 2011   If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. Freetaxusa 2011 This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Freetaxusa 2011 Differences between the American opportunity and lifetime learning credits. Freetaxusa 2011   There are several differences between these two credits. Freetaxusa 2011 For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. Freetaxusa 2011 However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Freetaxusa 2011 The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Freetaxusa 2011 Overview of the lifetime learning credit. Freetaxusa 2011   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. Freetaxusa 2011 The details are discussed in this chapter. Freetaxusa 2011 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. Freetaxusa 2011 Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. Freetaxusa 2011 You pay qualified education expenses of higher education. Freetaxusa 2011 You pay the education expenses for an eligible student. Freetaxusa 2011 The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Freetaxusa 2011 Table 3-1. Freetaxusa 2011 Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. Freetaxusa 2011 Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. Freetaxusa 2011 “Qualified education expenses” are defined later under Qualified Education Expenses . Freetaxusa 2011 “Eligible students” are defined later under Who Is an Eligible Student . Freetaxusa 2011 A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Freetaxusa 2011 You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. Freetaxusa 2011 Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. Freetaxusa 2011 Your filing status is married filing separately. Freetaxusa 2011 You are listed as a dependent on another person's tax return (such as your parents'). Freetaxusa 2011 See Who Can Claim a Dependent's Expenses , later. Freetaxusa 2011 Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). Freetaxusa 2011 MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Freetaxusa 2011 You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Freetaxusa 2011 More information on nonresident aliens can be found in Publication 519. Freetaxusa 2011 You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. Freetaxusa 2011 What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Freetaxusa 2011 Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. Freetaxusa 2011 For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. Freetaxusa 2011 Academic period. Freetaxusa 2011   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Freetaxusa 2011 In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Freetaxusa 2011 Paid with borrowed funds. Freetaxusa 2011   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Freetaxusa 2011 You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. Freetaxusa 2011 Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Freetaxusa 2011 Student withdraws from class(es). Freetaxusa 2011   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. Freetaxusa 2011 Qualified Education Expenses For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. Freetaxusa 2011 The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. Freetaxusa 2011 Eligible educational institution. Freetaxusa 2011   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Freetaxusa 2011 S. Freetaxusa 2011 Department of Education. Freetaxusa 2011 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Freetaxusa 2011 The educational institution should be able to tell you if it is an eligible educational institution. Freetaxusa 2011   Certain educational institutions located outside the United States also participate in the U. Freetaxusa 2011 S. Freetaxusa 2011 Department of Education's Federal Student Aid (FSA) programs. Freetaxusa 2011 Related expenses. Freetaxusa 2011   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. Freetaxusa 2011 Prepaid expenses. Freetaxusa 2011   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Freetaxusa 2011 See Academic period , earlier. Freetaxusa 2011 For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Freetaxusa 2011 You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Freetaxusa 2011 In the following examples, assume that each student is an eligible student at an eligible educational institution. Freetaxusa 2011 Example 1. Freetaxusa 2011   Jackson is a sophomore in University V's degree program in dentistry. Freetaxusa 2011 This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Freetaxusa 2011 Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. Freetaxusa 2011 Example 2. Freetaxusa 2011   Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Freetaxusa 2011 The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Freetaxusa 2011 Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Freetaxusa 2011 Donna bought hers at College W's bookstore. Freetaxusa 2011 Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. Freetaxusa 2011 Example 3. Freetaxusa 2011   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Freetaxusa 2011 This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. Freetaxusa 2011 No portion of the fee covers personal expenses. Freetaxusa 2011 Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Freetaxusa 2011 Therefore, it is a qualified expense. Freetaxusa 2011 No Double Benefit Allowed You cannot do any of the following: Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses. Freetaxusa 2011 Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. Freetaxusa 2011 Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. Freetaxusa 2011 Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Freetaxusa 2011 See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Freetaxusa 2011 Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Freetaxusa 2011 See Adjustments to Qualified Education Expenses, next. Freetaxusa 2011 This image is too large to be displayed in the current screen. Freetaxusa 2011 Please click the link to view the image. Freetaxusa 2011 Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Freetaxusa 2011 The result is the amount of adjusted qualified education expenses for each student. Freetaxusa 2011 Tax-free educational assistance. Freetaxusa 2011   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Freetaxusa 2011 See Academic period , earlier. Freetaxusa 2011   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Freetaxusa 2011 This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Freetaxusa 2011   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. Freetaxusa 2011 If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. Freetaxusa 2011   Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Freetaxusa 2011 Generally, any scholarship or fellowship is treated as tax free. Freetaxusa 2011 However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Freetaxusa 2011 The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Freetaxusa 2011 The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Freetaxusa 2011 You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Freetaxusa 2011 For examples, see Coordination with Pell grants and other scholarships, later. Freetaxusa 2011 Refunds. Freetaxusa 2011   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Freetaxusa 2011 Some tax-free educational assistance received after 2013 may be treated as a refund. Freetaxusa 2011 See Tax-free educational assistance , earlier. Freetaxusa 2011 Refunds received in 2013. Freetaxusa 2011   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Freetaxusa 2011 Refunds received after 2013 but before your income tax return is filed. Freetaxusa 2011   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Freetaxusa 2011 Refunds received after 2013 and after your income tax return is filed. Freetaxusa 2011   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Freetaxusa 2011 See Credit recapture, next. Freetaxusa 2011 Credit recapture. Freetaxusa 2011    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Freetaxusa 2011 You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Freetaxusa 2011 You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Freetaxusa 2011 Include that amount as an additional tax for the year the refund or tax-free assistance was received. Freetaxusa 2011 Example. Freetaxusa 2011   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. Freetaxusa 2011 You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. Freetaxusa 2011 You claimed no other tax credits. Freetaxusa 2011 After you filed your return, your child withdrew from two courses and you received a refund of $2,900. Freetaxusa 2011 You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. Freetaxusa 2011 The refigured credit is $1,280 and your tax liability increased by $580. Freetaxusa 2011 See instructions for your 2014 income tax return to determine where to include this tax. Freetaxusa 2011 If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Freetaxusa 2011 Amounts that do not reduce qualified education expenses. Freetaxusa 2011   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Freetaxusa 2011   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Freetaxusa 2011 The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Freetaxusa 2011 The use of the money is not restricted. Freetaxusa 2011 For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. Freetaxusa 2011 Coordination with Pell grants and other scholarships. Freetaxusa 2011   In some cases, you may be able to reduce your tax liability by including scholarships in income. Freetaxusa 2011 If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Freetaxusa 2011 The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Freetaxusa 2011 Example 1—No scholarship. Freetaxusa 2011 Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. Freetaxusa 2011 Her AGI and her MAGI, for purposes of the credit, are $27,000. Freetaxusa 2011 Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. Freetaxusa 2011 She claims no credits other than the lifetime learning credit. Freetaxusa 2011 In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. Freetaxusa 2011 Judy and the college meet all requirements for the lifetime learning tax credit. Freetaxusa 2011 She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. Freetaxusa 2011 She claims a $900 lifetime learning credit and her tax after credits is $1,256. Freetaxusa 2011 Example 2—Scholarship excluded from income. Freetaxusa 2011 The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. Freetaxusa 2011 Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. Freetaxusa 2011 If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. Freetaxusa 2011 Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. Freetaxusa 2011 Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. Freetaxusa 2011 Example 3—Scholarship included in income. Freetaxusa 2011 The facts are the same as in Example 2—Scholarship excluded from income. Freetaxusa 2011 If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. Freetaxusa 2011 Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. Freetaxusa 2011 She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. Freetaxusa 2011 Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. Freetaxusa 2011 Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Freetaxusa 2011 This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Freetaxusa 2011 Sports, games, hobbies, and noncredit courses. Freetaxusa 2011   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Freetaxusa 2011 However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. Freetaxusa 2011 Comprehensive or bundled fees. Freetaxusa 2011   Some eligible educational institutions combine all of their fees for an academic period into one amount. Freetaxusa 2011 If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. Freetaxusa 2011 The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. Freetaxusa 2011 See Figuring the Credit , later, for more information about Form 1098-T. Freetaxusa 2011 Who Is an Eligible Student For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). Freetaxusa 2011 Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year. Freetaxusa 2011 For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. Freetaxusa 2011 You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Freetaxusa 2011 IF you. Freetaxusa 2011 . Freetaxusa 2011 . Freetaxusa 2011 THEN only. Freetaxusa 2011 . Freetaxusa 2011 . Freetaxusa 2011 claim an exemption on your tax return for a dependent who is an eligible student you can claim the lifetime learning credit based on that dependent's expenses. Freetaxusa 2011 The dependent cannot claim the credit. Freetaxusa 2011 do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the lifetime learning credit. Freetaxusa 2011 You cannot claim the credit based on this dependent's expenses. Freetaxusa 2011 Expenses paid by dependent. Freetaxusa 2011   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Freetaxusa 2011 Include these expenses when figuring the amount of your lifetime learning credit. Freetaxusa 2011    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Freetaxusa 2011 Expenses paid by you. Freetaxusa 2011   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. Freetaxusa 2011 If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. Freetaxusa 2011 Expenses paid by others. Freetaxusa 2011   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Freetaxusa 2011 In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Freetaxusa 2011 If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Freetaxusa 2011 Example. Freetaxusa 2011 In 2013, Ms. Freetaxusa 2011 Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Freetaxusa 2011 For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Freetaxusa 2011 Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. Freetaxusa 2011 If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. Freetaxusa 2011 If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. Freetaxusa 2011 Tuition reduction. Freetaxusa 2011   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Freetaxusa 2011 If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Freetaxusa 2011 For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Freetaxusa 2011 Figuring the Credit The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. Freetaxusa 2011 The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). Freetaxusa 2011 However, that amount may be reduced based on your MAGI. Freetaxusa 2011 See Effect of the Amount of Your Income on the Amount of Your Credit , later. Freetaxusa 2011 Example. Freetaxusa 2011 Bruce and Toni Harper are married and file a joint tax return. Freetaxusa 2011 For 2013, their MAGI is $75,000. Freetaxusa 2011 Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. Freetaxusa 2011 She already has a bachelor's degree in history and wants to become a nurse. Freetaxusa 2011 In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. Freetaxusa 2011 Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. Freetaxusa 2011 Form 1098-T. Freetaxusa 2011   To help you figure your lifetime learning credit, the student should receive Form 1098-T. Freetaxusa 2011 Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Freetaxusa 2011 An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Freetaxusa 2011 However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. Freetaxusa 2011 When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Freetaxusa 2011   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Freetaxusa 2011    The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. Freetaxusa 2011 Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). Freetaxusa 2011 You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). Freetaxusa 2011 Modified adjusted gross income (MAGI). Freetaxusa 2011   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Freetaxusa 2011 MAGI when using Form 1040A. Freetaxusa 2011   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Freetaxusa 2011 MAGI when using Form 1040. Freetaxusa 2011   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Freetaxusa 2011 You can use Worksheet 3-1 to figure your MAGI. Freetaxusa 2011 Worksheet 3-1. Freetaxusa 2011 MAGI for the Lifetime Learning Credit 1. Freetaxusa 2011 Enter your adjusted gross income  (Form 1040, line 38)   1. Freetaxusa 2011   2. Freetaxusa 2011 Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Freetaxusa 2011       3. Freetaxusa 2011 Enter your foreign housing deduction (Form 2555, line 50)   3. Freetaxusa 2011       4. Freetaxusa 2011 Enter the amount of income from Puerto Rico you are excluding   4. Freetaxusa 2011       5. Freetaxusa 2011 Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Freetaxusa 2011       6. Freetaxusa 2011 Add the amounts on lines 2, 3, 4, and 5   6. Freetaxusa 2011   7. Freetaxusa 2011 Add the amounts on lines 1 and 6. Freetaxusa 2011  This is your modified adjusted  gross income. Freetaxusa 2011 Enter this amount  on Form 8863, line 14   7. Freetaxusa 2011   Phaseout. Freetaxusa 2011   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. Freetaxusa 2011 The same method is shown in the following example. Freetaxusa 2011 Example. Freetaxusa 2011 You are filing a joint return with a MAGI of $112,000. Freetaxusa 2011 In 2013, you paid $6,600 of qualified education expenses. Freetaxusa 2011 You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). Freetaxusa 2011 The result is a $1,320 (20% x $6,600) tentative credit. Freetaxusa 2011 Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. Freetaxusa 2011 The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. Freetaxusa 2011 The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). Freetaxusa 2011 The result is the amount of your phased out (reduced) lifetime learning credit ($990). Freetaxusa 2011   $1,320 × $127,000 − $112,000  $20,000 = $990   Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Freetaxusa 2011 Enter the credit on Form 1040, line 49, or Form 1040A, line 31. Freetaxusa 2011 Note. Freetaxusa 2011 In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Freetaxusa 2011 Prev  Up  Next   Home   More Online Publications