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Full time student Publication 502 - Main Content Table of Contents What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. Full time student How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Spouse Dependent Decedent What Medical Expenses Are Includible?Abortion Acupuncture Alcoholism Ambulance Annual Physical Examination Artificial Limb Artificial Teeth Bandages Birth Control Pills Body Scan Braille Books and Magazines Breast Pumps and Supplies Breast Reconstruction Surgery Capital Expenses Car Chiropractor Christian Science Practitioner Contact Lenses Crutches Dental Treatment Diagnostic Devices Disabled Dependent Care Expenses Drug Addiction Drugs Eye Exam Eyeglasses Eye Surgery Fertility Enhancement Founder's Fee Guide Dog or Other Service Animal Health Institute Health Maintenance Organization (HMO) Hearing Aids Home Care Home Improvements Hospital Services Insurance Premiums Intellectually and Developmentally Disabled, Special Home for Laboratory Fees Lactation Expenses Lead-Based Paint Removal Learning Disability Legal Fees Lifetime Care—Advance Payments Lodging Long-Term Care Meals Medical Conferences Medical Information Plan Medicines Nursing Home Nursing Services Operations Optometrist Organ Donors Osteopath Oxygen Physical Examination Pregnancy Test Kit Prosthesis Psychiatric Care Psychoanalysis Psychologist Special Education Sterilization Stop-Smoking Programs Surgery Telephone Television Therapy Transplants Transportation Trips Tuition Vasectomy Vision Correction Surgery Weight-Loss Program Wheelchair Wig X-ray What Expenses Are Not Includible?Baby Sitting, Childcare, and Nursing Services for a Normal, Healthy Baby Controlled Substances Cosmetic Surgery Dancing Lessons Diaper Service Electrolysis or Hair Removal Flexible Spending Account Funeral Expenses Future Medical Care Hair Transplant Health Club Dues Health Coverage Tax Credit Health Savings Accounts Household Help Illegal Operations and Treatments Insurance Premiums Maternity Clothes Medical Savings Account (MSA) Medicines and Drugs From Other Countries Nonprescription Drugs and Medicines Nutritional Supplements Personal Use Items Swimming Lessons Teeth Whitening Veterinary Fees Weight-Loss Program How Do You Treat Reimbursements?Insurance Reimbursement How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Sale of Medical Equipment or Property Damages for Personal Injuries Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons COBRA Premium Assistance Health Coverage Tax CreditWho Can Take This Credit? Qualifying Family Member Qualified Health Insurance Nonqualified Health Insurance Eligible Coverage Month How To Take the Credit How To Get Tax HelpLow Income Taxpayer Clinics What Are Medical Expenses? Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. Full time student These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. Full time student They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Full time student Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Full time student They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation. Full time student Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Full time student Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract. Full time student What Expenses Can You Include This Year? You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. Full time student (But see Decedent under Whose Medical Expenses Can You Include, for an exception. Full time student ) If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. Full time student If you use a “pay-by-phone” or “online” account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. Full time student If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged. Full time student If you did not claim a medical or dental expense that would have been deductible in an earlier year, you can file Form 1040X, Amended U. Full time student S. Full time student Individual Income Tax Return, for the year in which you overlooked the expense. Full time student Do not claim the expense on this year's return. Full time student Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. Full time student You cannot include medical expenses that were paid by insurance companies or other sources. Full time student This is true whether the payments were made directly to you, to the patient, or to the provider of the medical services. Full time student Separate returns. Full time student   If you and your spouse live in a noncommunity property state and file separate returns, each of you can include only the medical expenses each actually paid. Full time student Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise. Full time student Community property states. Full time student   If you and your spouse live in a community property state and file separate returns or are registered domestic partners in Nevada, Washington, or California, any medical expenses paid out of community funds are divided equally. Full time student Generally, each of you should include half the expenses. Full time student If medical expenses are paid out of the separate funds of one individual, only the individual who paid the medical expenses can include them. Full time student If you live in a community property state and are not filing a joint return, see Publication 555, Community Property. Full time student How Much of the Expenses Can You Deduct? Generally, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 10% of your AGI. Full time student But if either you or your spouse was born before January 2, 1949, you can deduct the amount of your medical and dental expenses that is more than 7. Full time student 5% of your AGI. Full time student Example. Full time student You are unmarried and were born after January 2, 1949, and your AGI is $40,000, 10% of which is $4,000. Full time student You paid medical expenses of $2,500. Full time student You cannot deduct any of your medical expenses because they are not more than 10% of your AGI. Full time student Whose Medical Expenses Can You Include? You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them. Full time student There are different rules for decedents and for individuals who are the subject of multiple support agreements. Full time student See Support claimed under a multiple support agreement , later under Qualifying Relative. Full time student Spouse You can include medical expenses you paid for your spouse. Full time student To include these expenses, you must have been married either at the time your spouse received the medical services or at the time you paid the medical expenses. Full time student Example 1. Full time student Mary received medical treatment before she married Bill. Full time student Bill paid for the treatment after they married. Full time student Bill can include these expenses in figuring his medical expense deduction even if Bill and Mary file separate returns. Full time student If Mary had paid the expenses, Bill could not include Mary's expenses in his separate return. Full time student Mary would include the amounts she paid during the year in her separate return. Full time student If they filed a joint return, the medical expenses both paid during the year would be used to figure their medical expense deduction. Full time student Example 2. Full time student This year, John paid medical expenses for his wife Louise, who died last year. Full time student John married Belle this year and they file a joint return. Full time student Because John was married to Louise when she received the medical services, he can include those expenses in figuring his medical expense deduction for this year. Full time student Dependent You can include medical expenses you paid for your dependent. Full time student For you to include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses. Full time student A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met. Full time student The person was a qualifying child (defined later) or a qualifying relative (defined later), and The person was a U. Full time student S. Full time student citizen or national or a resident of the United States, Canada, or Mexico. Full time student If your qualifying child was adopted, see Exception for adopted child , later. Full time student You can include medical expenses you paid for an individual that would have been your dependent except that: He or she received gross income of $3,900 or more in 2013, He or she filed a joint return for 2013, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Full time student Exception for adopted child. Full time student   If you are a U. Full time student S. Full time student citizen or national and your adopted child lived with you as a member of your household for 2013, that child does not have to be a U. Full time student S. Full time student citizen or national, or a resident of the United States, Canada, or Mexico. Full time student Qualifying Child A qualifying child is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a full-time student, and younger than you (or your spouse, if filing jointly), or Any age and permanently and totally disabled, Lived with you for more than half of 2013, Did not provide over half of his or her own support for 2013, and Did not file a joint return, other than to claim a refund. Full time student Adopted child. Full time student   A legally adopted child is treated as your own child. Full time student This child includes a child lawfully placed with you for legal adoption. Full time student   You can include medical expenses that you paid for a child before adoption if the child qualified as your dependent when the medical services were provided or when the expenses were paid. Full time student   If you pay back an adoption agency or other persons for medical expenses they paid under an agreement with you, you are treated as having paid those expenses provided you clearly substantiate that the payment is directly attributable to the medical care of the child. Full time student   But if you pay the agency or other person for medical care that was provided and paid for before adoption negotiations began, you cannot include them as medical expenses. Full time student    You may be able to take a credit for other expenses related to an adoption. Full time student See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Full time student Child of divorced or separated parents. Full time student   For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Full time student Each parent can include the medical expenses he or she pays for the child, even if the other parent claims the child's dependency exemption, if: The child is in the custody of one or both parents for more than half the year, The child receives over half of his or her support during the year from his or her parents, and The child's parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Live apart at all times during the last 6 months of the year. Full time student This does not apply if the child's exemption is being claimed under a multiple support agreement (discussed later). Full time student Qualifying Relative A qualifying relative is a person: Who is your: Son, daughter, stepchild, or foster child, or a descendant of any of them (for example, your grandchild), Brother, sister, half brother, half sister, or a son or daughter of any of them, Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle), Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law, Who was not a qualifying child (see Qualifying Child, earlier) of any taxpayer for 2013, and For whom you provided over half of the support in 2013. Full time student But see Child of divorced or separated parents , earlier, Support claimed under a multiple support agreement, next, and Kidnapped child under Qualifying Relative in Publication 501. Full time student Support claimed under a multiple support agreement. Full time student   If you are considered to have provided more than half of a qualifying relative's support under a multiple support agreement, you can include medical expenses you pay for that person. Full time student A multiple support agreement is used when two or more people provide more than half of a person's support, but no one alone provides more than half. Full time student   Any medical expenses paid by others who joined you in the agreement cannot be included as medical expenses by anyone. Full time student However, you can include the entire unreimbursed amount you paid for medical expenses. Full time student Example. Full time student You and your three brothers each provide one-fourth of your mother's total support. Full time student Under a multiple support agreement, you treat your mother as your dependent. Full time student You paid all of her medical expenses. Full time student Your brothers repaid you for three-fourths of these expenses. Full time student In figuring your medical expense deduction, you can include only one-fourth of your mother's medical expenses. Full time student Your brothers cannot include any part of the expenses. Full time student However, if you and your brothers share the nonmedical support items and you separately pay all of your mother's medical expenses, you can include the unreimbursed amount you paid for her medical expenses in your medical expenses. Full time student Decedent Medical expenses paid before death by the decedent are included in figuring any deduction for medical and dental expenses on the decedent's final income tax return. Full time student This includes expenses for the decedent's spouse and dependents as well as for the decedent. Full time student The survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent's estate for the decedent's medical care as paid by the decedent at the time the medical services were provided. Full time student The expenses must be paid within the 1-year period beginning with the day after the date of death. Full time student If you are the survivor or personal representative making this choice, you must attach a statement to the decedent's Form 1040 (or the decedent's amended return, Form 1040X) saying that the expenses have not been and will not be claimed on the estate tax return. Full time student Qualified medical expenses paid before death by the decedent are not deductible if paid with a tax-free distribution from any Archer MSA, Medicare Advantage MSA, or health savings account. Full time student What if the decedent's return had been filed and the medical expenses were not included?   Form 1040X can be filed for the year or years the expenses are treated as paid, unless the period for filing an amended return for that year has passed. Full time student Generally, an amended return must be filed within 3 years of the date the original return was filed, or within 2 years from the time the tax was paid, whichever date is later. Full time student Example. Full time student John properly filed his 2012 income tax return. Full time student He died in 2013 with unpaid medical expenses of $1,500 from 2012 and $1,800 in 2013. Full time student If the expenses are paid within the 1-year period, his survivor or personal representative can file an amended return for 2012 claiming a deduction based on the $1,500 medical expenses. Full time student The $1,800 of medical expenses from 2013 can be included on the decedent's final return for 2013. Full time student What if you pay medical expenses of a deceased spouse or dependent?   If you paid medical expenses for your deceased spouse or dependent, include them as medical expenses on your Form 1040 in the year paid, whether they are paid before or after the decedent's death. Full time student The expenses can be included if the person was your spouse or dependent either at the time the medical services were provided or at the time you paid the expenses. Full time student What Medical Expenses Are Includible? Following is a list of items that you can include in figuring your medical expense deduction. Full time student The items are listed in alphabetical order. Full time student This list does not include all possible medical expenses. Full time student To determine if an expense not listed can be included in figuring your medical expense deduction, see What Are Medical Expenses , earlier. Full time student Abortion You can include in medical expenses the amount you pay for a legal abortion. Full time student Acupuncture You can include in medical expenses the amount you pay for acupuncture. Full time student Alcoholism You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for alcohol addiction. Full time student This includes meals and lodging provided by the center during treatment. Full time student You can also include in medical expenses amounts you pay for transportation to and from Alcoholics Anonymous meetings in your community if the attendance is pursuant to medical advice that membership in Alcoholics Anonymous is necessary for the treatment of a disease involving the excessive use of alcoholic liquors. Full time student Ambulance You can include in medical expenses amounts you pay for ambulance service. Full time student Annual Physical Examination See Physical Examination , later. Full time student Artificial Limb You can include in medical expenses the amount you pay for an artificial limb. Full time student Artificial Teeth You can include in medical expenses the amount you pay for artificial teeth. Full time student Bandages You can include in medical expenses the cost of medical supplies such as bandages. Full time student Birth Control Pills You can include in medical expenses the amount you pay for birth control pills prescribed by a doctor. Full time student Body Scan You can include in medical expenses the cost of an electronic body scan. Full time student Braille Books and Magazines You can include in medical expenses the part of the cost of Braille books and magazines for use by a visually impaired person that is more than the cost of regular printed editions. Full time student Breast Pumps and Supplies You can include in medical expenses the cost of breast pumps and supplies that assist lactation. Full time student Breast Reconstruction Surgery You can include in medical expenses the amounts you pay for breast reconstruction surgery, as well as breast prosthesis, following a mastectomy for cancer. Full time student See Cosmetic Surgery , later. Full time student Capital Expenses You can include in medical expenses amounts you pay for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent. Full time student The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. Full time student The cost of the improvement is reduced by the increase in the value of your property. Full time student The difference is a medical expense. Full time student If the value of your property is not increased by the improvement, the entire cost is included as a medical expense. Full time student Certain improvements made to accommodate a home to your disabled condition, or that of your spouse or your dependents who live with you, do not usually increase the value of the home and the cost can be included in full as medical expenses. Full time student These improvements include, but are not limited to, the following items. Full time student Constructing entrance or exit ramps for your home. Full time student Widening doorways at entrances or exits to your home. Full time student Widening or otherwise modifying hallways and interior doorways. Full time student Installing railings, support bars, or other modifications to bathrooms. Full time student Lowering or modifying kitchen cabinets and equipment. Full time student Moving or modifying electrical outlets and fixtures. Full time student Installing porch lifts and other forms of lifts (but elevators generally add value to the house). Full time student Modifying fire alarms, smoke detectors, and other warning systems. Full time student Modifying stairways. Full time student Adding handrails or grab bars anywhere (whether or not in bathrooms). Full time student Modifying hardware on doors. Full time student Modifying areas in front of entrance and exit doorways. Full time student Grading the ground to provide access to the residence. Full time student Only reasonable costs to accommodate a home to a disabled condition are considered medical care. Full time student Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses. Full time student Capital expense worksheet. Full time student   Use Worksheet A to figure the amount of your capital expense to include in your medical expenses. Full time student Worksheet A. Full time student Capital Expense Worksheet Instructions: Use this worksheet to figure the amount, if any, of your medical expenses due to a home improvement. Full time student 1. Full time student Enter the amount you paid for the home improvement 1. Full time student   2. Full time student Enter the value of your home immediately after the improvement 2. Full time student       3. Full time student Enter the value of your home immediately before the improvement 3. Full time student       4. Full time student Subtract line 3 from line 2. Full time student This is the increase in the value of your home due to the improvement 4. Full time student     • If line 4 is more than or equal to line 1, you have no medical expenses due to the home improvement; stop here. Full time student       • If line 4 is less than line 1, go to line 5. Full time student     5. Full time student Subtract line 4 from line 1. Full time student These are your medical expenses due to the home improvement 5. Full time student   Operation and upkeep. Full time student   Amounts you pay for operation and upkeep of a capital asset qualify as medical expenses, as long as the main reason for them is medical care. Full time student This rule applies even if none or only part of the original cost of the capital asset qualified as a medical care expense. Full time student Improvements to property rented by a person with a disability. Full time student   Amounts paid to buy and install special plumbing fixtures for a person with a disability, mainly for medical reasons, in a rented house are medical expenses. Full time student Example. Full time student John has arthritis and a heart condition. Full time student He cannot climb stairs or get into a bathtub. Full time student On his doctor's advice, he installs a bathroom with a shower stall on the first floor of his two-story rented house. Full time student The landlord did not pay any of the cost of buying and installing the special plumbing and did not lower the rent. Full time student John can include in medical expenses the entire amount he paid. Full time student Car You can include in medical expenses the cost of special hand controls and other special equipment installed in a car for the use of a person with a disability. Full time student Special design. Full time student   You can include in medical expenses the difference between the cost of a regular car and a car specially designed to hold a wheelchair. Full time student Cost of operation. Full time student   The includible costs of using a car for medical reasons are explained under Transportation , later. Full time student Chiropractor You can include in medical expenses fees you pay to a chiropractor for medical care. Full time student Christian Science Practitioner You can include in medical expenses fees you pay to Christian Science practitioners for medical care. Full time student Contact Lenses You can include in medical expenses amounts you pay for contact lenses needed for medical reasons. Full time student You can also include the cost of equipment and materials required for using contact lenses, such as saline solution and enzyme cleaner. Full time student See Eyeglasses and Eye Surgery , later. Full time student Crutches You can include in medical expenses the amount you pay to buy or rent crutches. Full time student Dental Treatment You can include in medical expenses the amounts you pay for the prevention and alleviation of dental disease. Full time student Preventive treatment includes the services of a dental hygienist or dentist for such procedures as teeth cleaning, the application of sealants, and fluoride treatments to prevent tooth decay. Full time student Treatment to alleviate dental disease include services of a dentist for procedures such as X-rays, fillings, braces, extractions, dentures, and other dental ailments. Full time student But see Teeth Whitening under What Expenses Are Not Includible, later. Full time student Diagnostic Devices You can include in medical expenses the cost of devices used in diagnosing and treating illness and disease. Full time student Example. Full time student You have diabetes and use a blood sugar test kit to monitor your blood sugar level. Full time student You can include the cost of the blood sugar test kit in your medical expenses. Full time student Disabled Dependent Care Expenses Some disabled dependent care expenses may qualify as either: Medical expenses, or Work-related expenses for purposes of taking a credit for dependent care. Full time student (See Publication 503, Child and Dependent Care Expenses. Full time student ) You can choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction. Full time student Drug Addiction You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for drug addiction. Full time student This includes meals and lodging at the center during treatment. Full time student Drugs See Medicines , later. Full time student Eye Exam You can include in medical expenses the amount you pay for eye examinations. Full time student Eyeglasses You can include in medical expenses amounts you pay for eyeglasses and contact lenses needed for medical reasons. Full time student See Contact Lenses , earlier, for more information. Full time student Eye Surgery You can include in medical expenses the amount you pay for eye surgery to treat defective vision, such as laser eye surgery or radial keratotomy. Full time student Fertility Enhancement You can include in medical expenses the cost of the following procedures to overcome an inability to have children. Full time student Procedures such as in vitro fertilization (including temporary storage of eggs or sperm). Full time student Surgery, including an operation to reverse prior surgery that prevented the person operated on from having children. Full time student Founder's Fee See Lifetime Care—Advance Payments , later. Full time student Guide Dog or Other Service Animal You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities. Full time student In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties. Full time student Health Institute You can include in medical expenses fees you pay for treatment at a health institute only if the treatment is prescribed by a physician and the physician issues a statement that the treatment is necessary to alleviate a physical or mental defect or illness of the individual receiving the treatment. Full time student Health Maintenance Organization (HMO) You can include in medical expenses amounts you pay to entitle you, your spouse, or a dependent to receive medical care from an HMO. Full time student These amounts are treated as medical insurance premiums. Full time student See Insurance Premiums , later. Full time student Hearing Aids You can include in medical expenses the cost of a hearing aid and batteries, repairs, and maintenance needed to operate it. Full time student Home Care See Nursing Services , later. Full time student Home Improvements See Capital Expenses , earlier. Full time student Hospital Services You can include in medical expenses amounts you pay for the cost of inpatient care at a hospital or similar institution if a principal reason for being there is to receive medical care. Full time student This includes amounts paid for meals and lodging. Full time student Also see Lodging , later. Full time student Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. Full time student Medical care policies can provide payment for treatment that includes: Hospitalization, surgical services, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Long-term care (subject to additional limitations). Full time student See Qualified Long-Term Care Insurance Contracts under Long-Term Care, later. Full time student If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. Full time student The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement. Full time student Health coverage tax credit. Full time student   If, during 2013, you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient, you must complete Form 8885 before completing Schedule A. Full time student When figuring the amount of insurance premiums you can deduct on Schedule A, do not include: Any amounts you included on Form 8885, Any qualified health insurance premiums you paid to “U. Full time student S. Full time student Treasury–HCTC,” or Any health coverage tax credit advance payments shown on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Full time student Employer-Sponsored Health Insurance Plan Do not include in your medical and dental expenses any insurance premiums paid by an employer-sponsored health insurance plan unless the premiums are included on your Form W-2, Wage and Tax Statement. Full time student Also, do not include any other medical and dental expenses paid by the plan unless the amount paid is included on your Form W-2. Full time student Example. Full time student You are a federal employee participating in the premium conversion plan of the Federal Employee Health Benefits (FEHB) program. Full time student Your share of the FEHB premium is paid by making a pre-tax reduction in your salary. Full time student Because you are an employee whose insurance premiums are paid with money that is never included in your gross income, you cannot deduct the premiums paid with that money. Full time student Long-term care services. Full time student   Contributions made by your employer to provide coverage for qualified long-term care services under a flexible spending or similar arrangement must be included in your income. Full time student This amount will be reported as wages on your Form W-2. Full time student Retired public safety officers. Full time student   If you are a retired public safety officer, do not include as medical expenses any health or long-term care insurance premiums that you elected to have paid with tax-free distributions from a retirement plan. Full time student This applies only to distributions that would otherwise be included in income. Full time student Health reimbursement arrangement (HRA). Full time student   If you have medical expenses that are reimbursed by a health reimbursement arrangement, you cannot include those expenses in your medical expenses. Full time student This is because an HRA is funded solely by the employer. Full time student Medicare A If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare A. Full time student The payroll tax paid for Medicare A is not a medical expense. Full time student If you are not covered under social security (or were not a government employee who paid Medicare tax), you can voluntarily enroll in Medicare A. Full time student In this situation you can include the premiums you paid for Medicare A as a medical expense. Full time student Medicare B Medicare B is a supplemental medical insurance. Full time student Premiums you pay for Medicare B are a medical expense. Full time student Check the information you received from the Social Security Administration to find out your premium. Full time student Medicare D Medicare D is a voluntary prescription drug insurance program for persons with Medicare A or B. Full time student You can include as a medical expense premiums you pay for Medicare D. Full time student Prepaid Insurance Premiums Premiums you pay before you are age 65 for insurance for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). Full time student Unused Sick Leave Used To Pay Premiums You must include in gross income cash payments you receive at the time of retirement for unused sick leave. Full time student You also must include in gross income the value of unused sick leave that, at your option, your employer applies to the cost of your continuing participation in your employer's health plan after you retire. Full time student You can include this cost of continuing participation in the health plan as a medical expense. Full time student If you participate in a health plan where your employer automatically applies the value of unused sick leave to the cost of your continuing participation in the health plan (and you do not have the option to receive cash), do not include the value of the unused sick leave in gross income. Full time student You cannot include this cost of continuing participation in that health plan as a medical expense. Full time student Insurance Premiums You Cannot Include You cannot include premiums you pay for: Life insurance policies, Policies providing payment for loss of earnings, Policies for loss of life, limb, sight, etc. Full time student , Policies that pay you a guaranteed amount each week for a stated number of weeks if you are hospitalized for sickness or injury, The part of your car insurance that provides medical insurance coverage for all persons injured in or by your car because the part of the premium providing insurance for you, your spouse, and your dependents is not stated separately from the part of the premium providing insurance for medical care for others, or Health or long-term care insurance if you elected to pay these premiums with tax-free distributions from a retirement plan made directly to the insurance provider and these distributions would otherwise have been included in income. Full time student Taxes imposed by any governmental unit, such as Medicare taxes, are not insurance premiums. Full time student Coverage for nondependents. Full time student   Generally, you cannot deduct any additional premium you pay as the result of including on your policy someone who is not your spouse or dependent, even if that person is your child under age 27. Full time student However, you can deduct the additional premium if that person is: Your child whom you do not claim as a dependent because of the rules for children of divorced or separated parents, Any person you could have claimed as a dependent on your return except that person received $3,900 or more of gross income or filed a joint return, or Any person you could have claimed as a dependent except that you, or your spouse if filing jointly, can be claimed as a dependent on someone else's 2013 return. Full time student  Also, if you had family coverage when you added this individual to your policy and your premiums did not increase, you can enter on Schedule A (Form 1040) the full amount of your medical and dental insurance premiums. Full time student Intellectually and Developmentally Disabled, Special Home for You can include in medical expenses the cost of keeping a person who is intellectually and developmentally disabled in a special home, not the home of a relative, on the recommendation of a psychiatrist to help the person adjust from life in a mental hospital to community living. Full time student Laboratory Fees You can include in medical expenses the amounts you pay for laboratory fees that are part of medical care. Full time student Lactation Expenses See Breast Pumps and Supplies , earlier. Full time student Lead-Based Paint Removal You can include in medical expenses the cost of removing lead-based paints from surfaces in your home to prevent a child who has or had lead poisoning from eating the paint. Full time student These surfaces must be in poor repair (peeling or cracking) or within the child's reach. Full time student The cost of repainting the scraped area is not a medical expense. Full time student If, instead of removing the paint, you cover the area with wallboard or paneling, treat these items as capital expenses. Full time student See Capital Expenses , earlier. Full time student Do not include the cost of painting the wallboard as a medical expense. Full time student Learning Disability See Special Education , later. Full time student Legal Fees You can include in medical expenses legal fees you paid that are necessary to authorize treatment for mental illness. Full time student However, you cannot include in medical expenses fees for the management of a guardianship estate, fees for conducting the affairs of the person being treated, or other fees that are not necessary for medical care. Full time student Lifetime Care—Advance Payments You can include in medical expenses a part of a life-care fee or “founder's fee” you pay either monthly or as a lump sum under an agreement with a retirement home. Full time student The part of the payment you include is the amount properly allocable to medical care. Full time student The agreement must require that you pay a specific fee as a condition for the home's promise to provide lifetime care that includes medical care. Full time student You can use a statement from the retirement home to prove the amount properly allocable to medical care. Full time student The statement must be based either on the home's prior experience or on information from a comparable home. Full time student Dependents with disabilities. Full time student   You can include in medical expenses advance payments to a private institution for lifetime care, treatment, and training of your physically or mentally impaired child upon your death or when you become unable to provide care. Full time student The payments must be a condition for the institution's future acceptance of your child and must not be refundable. Full time student Payments for future medical care. Full time student   Generally, you cannot include in medical expenses current payments for medical care (including medical insurance) to be provided substantially beyond the end of the year. Full time student This rule does not apply in situations where the future care is purchased in connection with obtaining lifetime care of the type described earlier. Full time student Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to receive medical care. Full time student See Nursing Home , later. Full time student You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. Full time student You can include the cost of such lodging while away from home if all of the following requirements are met. Full time student The lodging is primarily for and essential to medical care. Full time student The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. Full time student The lodging is not lavish or extravagant under the circumstances. Full time student There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. Full time student The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. Full time student You can include lodging for a person traveling with the person receiving the medical care. Full time student For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Full time student Meals are not included. Full time student Do not include the cost of lodging while away from home for medical treatment if that treatment is not received from a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital or if that lodging is not primarily for or essential to the medical care received. Full time student Long-Term Care You can include in medical expenses amounts paid for qualified long-term care services and premiums paid for qualified long-term care insurance contracts. Full time student Qualified Long-Term Care Services Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later) that are: Required by a chronically ill individual, and Provided pursuant to a plan of care prescribed by a licensed health care practitioner. Full time student Chronically ill individual. Full time student   An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions. Full time student He or she is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. Full time student Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Full time student He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Full time student Maintenance and personal care services. Full time student    Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with his or her disabilities (including protection from threats to health and safety due to severe cognitive impairment). Full time student Qualified Long-Term Care Insurance Contracts A qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services. Full time student The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses. Full time student The amount of qualified long-term care premiums you can include is limited. Full time student You can include the following as medical expenses on Schedule A (Form 1040). Full time student Qualified long-term care premiums up to the following amounts. Full time student Age 40 or under – $360. Full time student Age 41 to 50 – $680. Full time student Age 51 to 60 – $1,360. Full time student Age 61 to 70 – $3,640. Full time student Age 71 or over – $4,550. Full time student Unreimbursed expenses for qualified long-term care services. Full time student Note. Full time student The limit on premiums is for each person. Full time student Also, if you are an eligible retired public safety officer, you cannot include premiums for long-term care insurance if you elected to pay these premiums with tax-free distributions from a qualified retirement plan made directly to the insurance provider and these distributions would otherwise have been included in your income. Full time student Meals You can include in medical expenses the cost of meals at a hospital or similar institution if a principal reason for being there is to get medical care. Full time student You cannot include in medical expenses the cost of meals that are not part of inpatient care. Full time student Also see Weight-Loss Program and Nutritional Supplements , later. Full time student Medical Conferences You can include in medical expenses amounts paid for admission and transportation to a medical conference if the medical conference concerns the chronic illness of yourself, your spouse, or your dependent. Full time student The costs of the medical conference must be primarily for and necessary to the medical care of you, your spouse, or your dependent. Full time student The majority of the time spent at the conference must be spent attending sessions on medical information. Full time student The cost of meals and lodging while attending the conference is not deductible as a medical expense. Full time student Medical Information Plan You can include in medical expenses amounts paid to a plan that keeps medical information in a computer data bank and retrieves and furnishes the information upon request to an attending physician. Full time student Medicines You can include in medical expenses amounts you pay for prescribed medicines and drugs. Full time student A prescribed drug is one that requires a prescription by a doctor for its use by an individual. Full time student You can also include amounts you pay for insulin. Full time student Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. Full time student Imported medicines and drugs. Full time student   If you imported medicines or drugs from other countries, see Medicines and Drugs From Other Countries , under What Expenses Are Not Includible, later. Full time student Nursing Home You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. Full time student This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care. Full time student Do not include the cost of meals and lodging if the reason for being in the home is personal. Full time student You can, however, include in medical expenses the part of the cost that is for medical or nursing care. Full time student Nursing Services You can include in medical expenses wages and other amounts you pay for nursing services. Full time student The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. Full time student This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. Full time student These services can be provided in your home or another care facility. Full time student Generally, only the amount spent for nursing services is a medical expense. Full time student If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. Full time student For example, because of your medical condition you pay a visiting nurse $300 per week for medical and household services. Full time student She spends 10% of her time doing household services such as washing dishes and laundry. Full time student You can include only $270 per week as medical expenses. Full time student The $30 (10% × $300) allocated to household services cannot be included. Full time student However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Full time student See Maintenance and personal care services under Long-Term Care, earlier. Full time student Additionally, certain expenses for household services or for the care of a qualifying individual incurred to allow you to work may qualify for the child and dependent care credit. Full time student See Publication 503. Full time student You can also include in medical expenses part of the amount you pay for that attendant's meals. Full time student Divide the food expense among the household members to find the cost of the attendant's food. Full time student Then divide that cost in the same manner as in the preceding paragraph. Full time student If you had to pay additional amounts for household upkeep because of the attendant, you can include the extra amounts with your medical expenses. Full time student This includes extra rent or utilities you pay because you moved to a larger apartment to provide space for the attendant. Full time student Employment taxes. Full time student   You can include as a medical expense social security tax, FUTA, Medicare tax, and state employment taxes you pay for an attendant who provides medical care. Full time student If the attendant also provides personal and household services, you can include as a medical expense only the amount of employment taxes paid for medical services as explained earlier. Full time student For information on employment tax responsibilities of household employers, see Publication 926, Household Employer's Tax Guide. Full time student Operations You can include in medical expenses amounts you pay for legal operations that are not for unnecessary cosmetic surgery. Full time student See Cosmetic Surgery under What Expenses Are Not Includible, later. Full time student Optometrist See Eyeglasses , earlier. Full time student Organ Donors See Transplants , later. Full time student Osteopath You can include in medical expenses amounts you pay to an osteopath for medical care. Full time student Oxygen You can include in medical expenses amounts you pay for oxygen and oxygen equipment to relieve breathing problems caused by a medical condition. Full time student Physical Examination You can include in medical expenses the amount you pay for an annual physical examination and diagnostic tests by a physician. Full time student You do not have to be ill at the time of the examination. Full time student Pregnancy Test Kit You can include in medical expenses the amount you pay to purchase a pregnancy test kit to determine if you are pregnant. Full time student Prosthesis See Artificial Limb and Breast Reconstruction Surgery , earlier. Full time student Psychiatric Care You can include in medical expenses amounts you pay for psychiatric care. Full time student This includes the cost of supporting a mentally ill dependent at a specially equipped medical center where the dependent receives medical care. Full time student See Psychoanalysis, next, and Transportation , later. Full time student Psychoanalysis You can include in medical expenses payments for psychoanalysis. Full time student However, you cannot include payments for psychoanalysis that is part of required training to be a psychoanalyst. Full time student Psychologist You can include in medical expenses amounts you pay to a psychologist for medical care. Full time student Special Education You can include in medical expenses fees you pay on a doctor's recommendation for a child's tutoring by a teacher who is specially trained and qualified to work with children who have learning disabilities caused by mental or physical impairments, including nervous system disorders. Full time student You can include in medical expenses the cost (tuition, meals, and lodging) of attending a school that furnishes special education to help a child to overcome learning disabilities. Full time student A doctor must recommend that the child attend the school. Full time student Overcoming the learning disabilities must be a principal reason for attending the school, and any ordinary education received must be incidental to the special education provided. Full time student Special education includes: Teaching Braille to a visually impaired person, Teaching lip reading to a hearing disabled person, or Giving remedial language training to correct a condition caused by a birth defect. Full time student Sterilization You can include in medical expenses the cost of a legal sterilization (a legally performed operation to make a person unable to have children). Full time student Also see Vasectomy , later. Full time student Stop-Smoking Programs You can include in medical expenses amounts you pay for a program to stop smoking. Full time student However, you cannot include in medical expenses amounts you pay for drugs that do not require a prescription, such as nicotine gum or patches, that are designed to help stop smoking. Full time student Surgery See Operations , earlier. Full time student Telephone You can include in medical expenses the cost of special telephone equipment that lets a person who is deaf, hard of hearing or has a speech disability communicate over a regular telephone. Full time student This includes teletypewriter (TTY) and telecommunications device for the deaf (TDD) equipment. Full time student You can also include the cost of repairing the equipment. Full time student Television You can include in medical expenses the cost of equipment that displays the audio part of television programs as subtitles for persons with a hearing disability. Full time student This may be the cost of an adapter that attaches to a regular set. Full time student It also may be the part of the cost of a specially equipped television that exceeds the cost of the same model regular television set. Full time student Therapy You can include in medical expenses amounts you pay for therapy received as medical treatment. Full time student Transplants You can include in medical expenses amounts paid for medical care you receive because you are a donor or a possible donor of a kidney or other organ. Full time student This includes transportation. Full time student You can include any expenses you pay for the medical care of a donor in connection with the donating of an organ. Full time student This includes transportation. Full time student Transportation You can include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. Full time student You can include:    Bus, taxi, train, or plane fares or ambulance service, Transportation expenses of a parent who must go with a child who needs medical care, Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment. Full time student Car expenses. Full time student   You can include out-of-pocket expenses, such as the cost of gas and oil, when you use a car for medical reasons. Full time student You cannot include depreciation, insurance, general repair, or maintenance expenses. Full time student   If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents a mile. Full time student    You can also include parking fees and tolls. Full time student You can add these fees and tolls to your medical expenses whether you use actual expenses or the standard mileage rate. Full time student Example. Full time student In 2013, Bill Jones drove 2,800 miles for medical reasons. Full time student He spent $500 for gas, $30 for oil, and $100 for tolls and parking. Full time student He wants to figure the amount he can include in medical expenses both ways to see which gives him the greater deduction. Full time student He figures the actual expenses first. Full time student He adds the $500 for gas, the $30 for oil, and the $100 for tolls and parking for a total of $630. Full time student He then figures the standard mileage amount. Full time student He multiplies 2,800 miles by 24 cents a mile for a total of $672. Full time student He then adds the $100 tolls and parking for a total of $772. Full time student Bill includes the $772 of car expenses with his other medical expenses for the year because the $772 is more than the $630 he figured using actual expenses. Full time student Transportation expenses you cannot include. Full time student    You cannot include in medical expenses the cost of transportation in the following situations. Full time student Going to and from work, even if your condition requires an unusual means of transportation. Full time student Travel for purely personal reasons to another city for an operation or other medical care. Full time student Travel that is merely for the general improvement of one's health. Full time student The costs of operating a specially equipped car for other than medical reasons. Full time student Trips You can include in medical expenses amounts you pay for transportation to another city if the trip is primarily for, and essential to, receiving medical services. Full time student You may be able to include up to $50 for each night for each person. Full time student You can include lodging for a person traveling with the person receiving the medical care. Full time student For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Full time student Meals are not included. Full time student See Lodging , earlier. Full time student You cannot include in medical expenses a trip or vacation taken merely for a change in environment, improvement of morale, or general improvement of health, even if the trip is made on the advice of a doctor. Full time student However, see Medical Conferences , earlier. Full time student Tuition Under special circumstances, you can include charges for tuition in medical expenses. Full time student See Special Education , earlier. Full time student You can include charges for a health plan included in a lump-sum tuition fee if the charges are separately stated or can easily be obtained from the school. Full time student Vasectomy You can include in medical expenses the amount you pay for a vasectomy. Full time student Vision Correction Surgery See Eye Surgery , earlier. Full time student Weight-Loss Program You can include in medical expenses amounts you pay to lose weight if it is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease). Full time student This includes fees you pay for membership in a weight reduction group as well as fees for attendance at periodic meetings. Full time student You cannot include membership dues in a gym, health club, or spa as medical expenses, but you can include separate fees charged there for weight loss activities. Full time student You cannot include the cost of diet food or beverages in medical expenses because the diet food and beverages substitute for what is normally consumed to satisfy nutritional needs. Full time student You can include the cost of special food in medical expenses only if: The food does not satisfy normal nutritional needs, The food alleviates or treats an illness, and The need for the food is substantiated by a physician. Full time student The amount you can include in medical expenses is limited to the amount by which the cost of the special food exceeds the cost of a normal diet. Full time student See also Weight-Loss Program under What Expenses Are Not Includible, later. Full time student Wheelchair You can include in medical expenses amounts you pay for a wheelchair used mainly for the relief of sickness or disability, and not just to provide transportation to and from work. Full time student The cost of operating and maintaining the wheelchair is also a medical expense. Full time student Wig You can include in medical expenses the cost of a wig purchased upon the advice of a physician for the mental health of a patient who has lost all of his or her hair from disease. Full time student X-ray You can include in medical expenses amounts you pay for X-rays for medical reasons. Full time student What Expenses Are Not Includible? Following is a list of some items that you cannot include in figuring your medical expense deduction. Full time student The items are listed in alphabetical order. Full time student Baby Sitting, Childcare, and Nursing Services for a Normal, Healthy Baby You cannot include in medical expenses amounts you pay for the care of children, even if the expenses enable you, your spouse, or your dependent to get medical or dental treatment. Full time student Also, any expense allowed as a childcare credit cannot be treated as an expense paid for medical care. Full time student Controlled Substances You cannot include in medical expenses amounts you pay for controlled substances (such as marijuana, laetrile, etc. Full time student ), even if such substances are legalized by state law. Full time student Such substances are not legal under federal law and cannot be included in medical expenses. Full time student Cosmetic Surgery Generally, you cannot include in medical expenses the amount you pay for unnecessary cosmetic surgery. Full time student This includes any procedure that is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. Full time student You generally cannot include in medical expenses the amount you pay for procedures such as face lifts, hair transplants, hair removal (electrolysis), and liposuction. Full time student You can include in medical expenses the amount you pay for cosmetic surgery if it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. Full time student Example. Full time student An individual undergoes surgery that removes a breast as part of treatment for cancer. Full time student She pays a surgeon to reconstruct the breast. Full time student The surgery to reconstruct the breast corrects a deformity directly related to the disease. Full time student The cost of the surgery is includible in her medical expenses. Full time student Dancing Lessons You cannot include in medical expenses the cost of dancing lessons, swimming lessons, etc. Full time student , even if they are recommended by a doctor, if they are only for the improvement of general health. Full time student Diaper Service You cannot include in medical expenses the amount you pay for diapers or diaper services, unless they are needed to relieve the effects of a particular disease. Full time student Electrolysis or Hair Removal See Cosmetic Surgery , earlier. Full time student Flexible Spending Account You cannot include in medical expenses amounts for which you are fully reimbursed by your flexible spending account if you contribute a part of your income on a pre-tax basis to pay for the qualified benefit. Full time student Funeral Expenses You cannot include in medical expenses amounts you pay for funerals. Full time student Future Medical Care Generally, you cannot include in medical expenses current payments for medical care (including medical insurance) to be provided substantially beyond the end of the year. Full time student This rule does not apply in situations where the future care is purchased in connection with obtaining lifetime care or long-term care of the type described at Lifetime Care—Advance Payments or Long-Term Care, earlier under What Medical Expenses Are Includible. Full time student Hair Transplant See Cosmetic Surgery , earlier. Full time student Health Club Dues You cannot include in medical expenses health club dues or amounts paid to improve one's general health or to relieve physical or mental discomfort not related to a particular medical condition. Full time student You cannot include in medical expenses the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. Full time student Health Coverage Tax Credit You cannot include in medical expenses amounts you pay for health insurance that you use in figuring your health coverage tax credit. Full time student For more information, see Health Coverage Tax Credit , later. Full time student Health Savings Accounts You cannot include in medical expenses any payment or distribution for medical expenses out of a health savings account. Full time student Contributions to health savings accounts are deducted separately. Full time student See Publication 969. Full time student Household Help You cannot include in medical expenses the cost of household help, even if such help is recommended by a doctor. Full time student This is a personal expense that is not deductible. Full time student However, you may be able to include certain expenses paid to a person providing nursing-type services. Full time student For more information, see Nursing Services , earlier under What Medical Expenses Are Includible. Full time student Also, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Full time student For more information, see Long-Term Care , earlier under What Medical Expenses Are Includible. Full time student Illegal Operations and Treatments You cannot include in medical expenses amounts you pay for illegal operations, treatments, or controlled substances whether rendered or prescribed by licensed or unlicensed practitioners. Full time student Insurance Premiums See Insurance Premiums under What Medical Expenses Are Includible, earlier. Full time student Maternity Clothes You cannot include in medical expenses amounts you pay for maternity clothes. Full time student Medical Savings Account (MSA) You cannot include in medical expenses amounts you contribute to an Archer MSA. Full time student You cannot include expenses you pay for with a tax-free distribution from your Archer MSA. Full time student You also cannot use other funds equal to the amount of the distribution and include the expenses. Full time student For more information on Archer MSAs, see Publication 969. Full time student Medicines and Drugs From Other Countries In general, you cannot include in your medical expenses the cost of a prescribed drug brought in (or ordered shipped) from another country. Full time student You can only include the cost of a drug that was imported legally. Full time student For example, you can include the cost of a prescribed drug the Food and Drug Administration announces can be legally imported by individuals. Full time student You can include the cost of a prescribed drug you purchase and consume in another country if the drug is legal in both the other country and the United States. Full time student Nonprescription Drugs and Medicines Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. Full time student Example. Full time student Your doctor recommends that you take aspirin. Full time student Because aspirin is a drug that does not require a physician's prescription, you cannot include its cost in your medical expenses. Full time student Nutritional Supplements You cannot include in medical expenses the cost of nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc. Full time student unless they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician. Full time student Otherwise, these items are taken to maintain your ordinary good health, and are not for medical care. Full time student Personal Use Items You cannot include in medical expenses the cost of an item ordinarily used for personal, living, or family purposes unless it is used primarily to prevent or alleviate a physical or mental defect or illness. Full time student For example, the cost of a toothbrush and toothpaste is a nondeductible personal expense. Full time student In order to accommodate an individual with a physical defect, you may have to purchase an item ordinarily used as a personal, living, or family item in a special form. Full time student You can include the excess of the cost of the item in a special form over the cost of the item in normal form as a medical expense. Full time student (See Braille Books and Magazines under What Medical Expenses Are Includible, earlier. Full time student ) Swimming Lessons See Dancing Lessons , earlier. Full time student Teeth Whitening You cannot include in medical expenses amounts paid to whiten teeth. Full time student See Cosmetic Surgery , earlier. Full time student Veterinary Fees You generally cannot include veterinary fees in your medical expenses, but see Guide Dog or Other Service Animal under What Medical Expenses Are Includible, earlier. Full time student Weight-Loss Program You cannot include in medical expenses the cost of a weight-loss program if the purpose of the weight loss is the improvement of appearance, general health, or sense of well-being. Full time student You cannot include amounts you pay to lose weight unless the weight loss is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease). Full time student If the weight-loss treatment is not for a specific disease diagnosed by a physician, you cannot include either the fees you pay for membership in a weight reduction group or fees for attendance at periodic meetings. Full time student Also, you cannot include membership dues in a gym, health club, or spa. Full time student You cannot include the cost of diet food or beverages in medical expenses because the diet food and beverages substitute for what is normally consumed to satisfy nutritional needs. Full time student See Weight-Loss Program under What Medical Expenses Are Includible, earlier. Full time student How Do You Treat Reimbursements? You can include in medical expenses only those amounts paid during the tax year for which you received no insurance or other reimbursement. Full time student Insurance Reimbursement You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. Full time student This includes payments from Medicare. Full time student Even if a policy provides reimbursement only for certain specific medical expenses, you must use amounts you receive from that policy to reduce your total medical expenses, including those it does not reimburse. Full time student Example. Full time student You have insurance policies that cover your hospital and doctors' bills but not your nursing bills. Full time student The insurance you receive for the hospital and doctors' bills is more than their charges. Full time student In figuring your medical deduction, you must reduce the total amount you spent for medical care by the total amount of insurance you received, even if the policies do not cover some of your medical expenses. Full time student Health reimbursement arrange
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Understanding Your CP141C Notice

You are receiving this notice because you did not respond to a previous request for missing or incomplete information on your return and your return is late.


What you need to do

  • Send the incomplete/missing information described in the “About your return” section on the notice.
  • Include the contact voucher at the end of the notice.
  • Send the amount due to avoid interest charges.

You may want to

  • If the reason your return was incomplete was beyond your control, send us a signed explanation with any supporting documentation.

Answers to Common Questions

Q. What if I disagree with the penalty?

A. Send a written statement with any supporting documentation to the address on the notice.

 

Page Last Reviewed or Updated: 21-Jan-2014

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Full Time Student

Full time student Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. Full time student S. Full time student Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. Full time student S. Full time student Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. Full time student S. Full time student Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. Full time student Employee business expenses. Full time student Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Full time student You can change your choice for each year's taxes. Full time student To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. Full time student S. Full time student tax return. Full time student However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. Full time student See How To Figure the Credit , later. Full time student To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. Full time student Figure your tax both ways—claiming the credit and claiming the deduction. Full time student Then fill out your return the way that benefits you more. Full time student See Why Choose the Credit, later. Full time student Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. Full time student If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. Full time student You cannot deduct any of them. Full time student Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. Full time student You cannot take a credit for any of them. Full time student See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. Full time student There are exceptions to this general rule, which are described next. Full time student Exceptions for foreign taxes not allowed as a credit. Full time student   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Full time student Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. Full time student S. Full time student tax purposes. Full time student For more information, see Internal Revenue Code section 901(m). Full time student The IRS intends to issue guidance that will explain this provision in greater detail. Full time student   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. Full time student Foreign taxes that are not income taxes. Full time student   In most cases, only foreign income taxes qualify for the foreign tax credit. Full time student Other taxes, such as foreign real and personal property taxes, do not qualify. Full time student But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. Full time student   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. Full time student However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). Full time student Carrybacks and carryovers. Full time student   There is a limit on the credit you can claim in a tax year. Full time student If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. Full time student If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. Full time student That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. Full time student   For more information on the limit, see How To Figure the Credit , later. Full time student For more information on carrybacks and carryovers, see Carryback and Carryover , later. Full time student Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. Full time student You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. Full time student Example. Full time student You paid foreign taxes for the last 13 years and chose to deduct them on your U. Full time student S. Full time student income tax returns. Full time student You were timely in both filing your returns and paying your U. Full time student S. Full time student tax liability. Full time student In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. Full time student Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). Full time student Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. Full time student Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. Full time student If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. Full time student Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. Full time student Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. Full time student However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. Full time student You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. Full time student See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. Full time student Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. Full time student In most cases, if the foreign tax rate is higher than the U. Full time student S. Full time student rate, there will be no U. Full time student S. Full time student tax on the foreign income. Full time student If the foreign tax rate is lower than the U. Full time student S. Full time student rate, U. Full time student S. Full time student tax on the foreign income will be limited to the difference between the rates. Full time student The foreign tax credit can only reduce U. Full time student S. Full time student taxes on foreign source income; it cannot reduce U. Full time student S. Full time student taxes on U. Full time student S. Full time student source income. Full time student Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. Full time student This is because: A credit reduces your actual U. Full time student S. Full time student income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. Full time student You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. Full time student (See Limit on credit under How To Figure the Credit, later. Full time student ) Example 1. Full time student For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. Full time student None of the dividends are qualified dividends. Full time student You file a joint return and can claim two $3,900 exemptions. Full time student You had to pay $2,000 in foreign income taxes on the dividend income. Full time student If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. Full time student Your taxable income then is $57,500 and your tax is $7,736. Full time student If you take the credit instead, your itemized deductions are only $13,000. Full time student Your taxable income then is $59,500 and your tax before the credit is $8,036. Full time student After the credit, however, your tax is only $6,036. Full time student Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. Full time student Example 2. Full time student In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. Full time student You report on your U. Full time student S. Full time student return this income as well as $56,000 of U. Full time student S. Full time student source wages and an allowable $49,000 partnership loss from a U. Full time student S. Full time student partnership. Full time student Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. Full time student You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. Full time student If you deduct the foreign tax on your U. Full time student S. Full time student return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. Full time student If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. Full time student You can take a credit of only $113 because of limits discussed later. Full time student Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. Full time student If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). Full time student When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. Full time student Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. Full time student “Tax year” refers to the tax year for which your U. Full time student S. Full time student return is filed, not the tax year for which your foreign return is filed. Full time student Accrual method of accounting. Full time student   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. Full time student You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. Full time student   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. Full time student Generally, this occurs on the last day of the tax year for which your foreign return is filed. Full time student Contesting your foreign tax liability. Full time student   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. Full time student However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. Full time student Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. Full time student If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . Full time student You may have to post a bond. Full time student   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. Full time student   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. Full time student Cash method of accounting. Full time student   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. Full time student You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. Full time student Choosing to take credit in the year taxes accrue. Full time student   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. Full time student You make the choice by checking the box in Part II of Form 1116. Full time student Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. Full time student   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. Full time student You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Full time student   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. Full time student Credit based on taxes paid in earlier year. Full time student   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. Full time student Example. Full time student Last year you took the credit based on taxes paid. Full time student This year you chose to take the credit based on taxes accrued. Full time student During the year you paid foreign income taxes owed for last year. Full time student You also accrued foreign income taxes for this year that you did not pay by the end of the year. Full time student You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. Full time student Foreign Currency and Exchange Rates U. Full time student S. Full time student income tax is imposed on income expressed in U. Full time student S. Full time student dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. Full time student Therefore, fluctuations in the value of the foreign currency relative to the U. Full time student S. Full time student dollar may affect the foreign tax credit. Full time student Translating foreign currency into U. Full time student S. Full time student dollars. Full time student   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. Full time student S. Full time student dollars. Full time student How and when you do this depends on your functional currency. Full time student In most cases, your functional currency is the U. Full time student S. Full time student dollar unless you are required to use the currency of a foreign country. Full time student   You must make all federal income tax determinations in your functional currency. Full time student The U. Full time student S. Full time student dollar is the functional currency for all taxpayers except some qualified business units. Full time student A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Full time student Unless you are self-employed, your functional currency is the U. Full time student S. Full time student dollar. Full time student   Even if you are self-employed and have a qualified business unit, your functional currency is the U. Full time student S. Full time student dollar if any of the following apply. Full time student You conduct the business primarily in dollars. Full time student The principal place of business is located in the United States. Full time student You choose to or are required to use the dollar as your functional currency. Full time student The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. Full time student   If your functional currency is the U. Full time student S. Full time student dollar, you must immediately translate into dollars all items of income, expense, etc. Full time student , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Full time student If there is more than one exchange rate, use the one that most properly reflects your income. Full time student In most cases, you can get exchange rates from banks and U. Full time student S. Full time student Embassies. Full time student   If your functional currency is not the U. Full time student S. Full time student dollar, make all income tax determinations in your functional currency. Full time student At the end of the year, translate the results, such as income or loss, into U. Full time student S. Full time student dollars to report on your income tax return. Full time student    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. Full time student   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. Full time student If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. Full time student If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. Full time student   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). Full time student Exception. Full time student   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. Full time student This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. Full time student The foreign taxes are paid on or after the first day of the tax year to which they relate. Full time student The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. Full time student The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). Full time student (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. Full time student )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. Full time student Election to use exchange rate on date paid. Full time student   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. Full time student If any of the accrued taxes are unpaid, you must translate them into U. Full time student S. Full time student dollars using the exchange rate on the last day of the U. Full time student S. Full time student tax year to which those taxes relate. Full time student You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. Full time student S. Full time student dollar functional currency. Full time student Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. Full time student The election is available for tax years beginning after 2004. Full time student It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. Full time student Make the election by attaching a statement to the applicable tax return. Full time student The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. Full time student S. Full time student dollar functional currency. Full time student Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. Full time student S. Full time student foreign tax credit claimed. Full time student The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. Full time student If a foreign tax redetermination occurs, a redetermination of your U. Full time student S. Full time student tax liability is required if any of the following conditions apply. Full time student The accrued taxes when paid differ from the amounts claimed as a credit. Full time student The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. Full time student If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. Full time student You will not be allowed a credit for the unpaid taxes until you pay them. Full time student When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. Full time student S. Full time student dollars using the exchange rate as of the date they were paid. Full time student The foreign tax credit is allowed for the year to which the foreign tax relates. Full time student See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. Full time student The foreign taxes you paid are refunded in whole or in part. Full time student For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. Full time student However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. Full time student S. Full time student tax year. Full time student In this case, you must adjust your U. Full time student S. Full time student tax in the tax year in which the accrued foreign taxes are paid. Full time student Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. Full time student S. Full time student tax liability for each tax year affected by the redetermination. Full time student In most cases, you must file Form 1040X, Amended U. Full time student S. Full time student Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. Full time student S. Full time student tax liability for the year or years affected. Full time student See Contents of statement , later. Full time student You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. Full time student There are other exceptions to this requirement. Full time student They are discussed later under Due date of notification to IRS . Full time student Contents of statement. Full time student   The statement must include all of the following. Full time student Your name, address, and taxpayer identification number. Full time student The tax year or years that are affected by the foreign tax redetermination. Full time student The date or dates the foreign taxes were accrued, if applicable. Full time student The date or dates the foreign taxes were paid. Full time student The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. Full time student Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. Full time student   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. Full time student   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). Full time student Due date of notification to IRS. Full time student   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. Full time student There is no limit on the time the IRS has to redetermine and assess the correct U. Full time student S. Full time student tax due. Full time student If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. Full time student S. Full time student taxes. Full time student See Time Limit on Refund Claims , later. Full time student   Exceptions to this due date are explained in the next two paragraphs. Full time student Multiple redeterminations of U. Full time student S. Full time student tax liability for same tax year. Full time student   Where more than one foreign tax redetermination requires a redetermination of U. Full time student S. Full time student tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. Full time student If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. Full time student However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. Full time student S. Full time student tax liability is required may occur after the due date for providing that notification. Full time student In this situation, you may have to file more than one Form 1040X for that tax year. Full time student Additional U. Full time student S. Full time student tax due eliminated by foreign tax credit carryback or carryover. Full time student   If a foreign tax redetermination requires a redetermination of U. Full time student S. Full time student tax liability that would otherwise result in an additional amount of U. Full time student S. Full time student tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. Full time student Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. Full time student You must file the statement by the due date (with extensions) of that return. Full time student The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. Full time student S. Full time student tax liability is required). Full time student Failure-to-notify penalty. Full time student   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. Full time student   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. Full time student S. Full time student tax. Full time student This penalty cannot be more than 25% of the tax due. Full time student Foreign tax refund. Full time student   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. Full time student S. Full time student tax for the time before the date of the refund. Full time student   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. Full time student The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. Full time student Interest also is owed from the time you receive a refund until you pay the additional tax due. Full time student Foreign tax imposed on foreign refund. Full time student   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. Full time student However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. Full time student Example. Full time student You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. Full time student When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. Full time student Time Limit on Refund Claims You have 10 years to file a claim for refund of U. Full time student S. Full time student tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. Full time student The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. Full time student You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. Full time student The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). Full time student The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. Full time student See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. Full time student Who Can Take the Credit? U. Full time student S. Full time student citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. Full time student S. Full time student tax on foreign source income may be able to take a foreign tax credit. Full time student U. Full time student S. Full time student Citizens If you are a U. Full time student S. Full time student citizen, you are taxed by the United States on your worldwide income wherever you live. Full time student You are normally entitled to take a credit for foreign taxes you pay or accrue. Full time student Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. Full time student S. Full time student citizens. Full time student If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. Full time student Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. Full time student For information on alien status, see Publication 519. Full time student Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. Full time student However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. Full time student S. Full time student possession on income from foreign sources that is effectively connected with a trade or business in the United States. Full time student But if you must pay tax to a foreign country or U. Full time student S. Full time student possession on income from U. Full time student S. Full time student sources only because you are a citizen or a resident of that country or U. Full time student S. Full time student possession, do not use that tax in figuring the amount of your credit. Full time student For information on alien status and effectively connected income, see Publication 519. Full time student What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. Full time student The tax must be imposed on you. Full time student You must have paid or accrued the tax. Full time student The tax must be the legal and actual foreign tax liability. Full time student The tax must be an income tax (or a tax in lieu of an income tax). Full time student Certain foreign taxes do not qualify for the credit even if the four tests are met. Full time student See Foreign Taxes for Which You Cannot Take a Credit, later. Full time student Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. Full time student S. Full time student possession. Full time student For example, a tax that is deducted from your wages is considered to be imposed on you. Full time student You cannot shift the right to claim the credit by contract or other means. Full time student Foreign country. Full time student   A foreign country includes any foreign state and its political subdivisions. Full time student Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. Full time student U. Full time student S. Full time student possessions. Full time student   For foreign tax credit purposes, all qualified taxes paid to U. Full time student S. Full time student possessions are considered foreign taxes. Full time student For this purpose, U. Full time student S. Full time student possessions include Puerto Rico and American Samoa. Full time student   When the term “foreign country” is used in this publication, it includes U. Full time student S. Full time student possessions unless otherwise stated. Full time student You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. Full time student S. Full time student possession. Full time student However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. Full time student Joint return. Full time student   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. Full time student Combined income. Full time student   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. Full time student 901-2(f)(3)(iii). Full time student Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. Full time student   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. Full time student However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. Full time student For more details, see paragraphs (f) and (h) of Regulations section 1. Full time student 901-2. Full time student For similar rules applicable to prior tax years, see Regulations section 1. Full time student 901-2 (revised as of April 1, 2011). Full time student Example. Full time student You and your spouse reside in Country X, which imposes income tax on your combined incomes. Full time student Both of you use the “u” as your functional currency. Full time student Country X apportions tax based on income. Full time student You had income of 30,000u and your spouse had income of 20,000u. Full time student Your filing status on your U. Full time student S. Full time student income tax return is married filing separately. Full time student You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. Full time student S income tax return. Full time student Your spouse can claim only 40% (20,000u/50,000u). Full time student Partner or S corporation shareholder. Full time student   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. Full time student These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. Full time student However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. Full time student Beneficiary. Full time student   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. Full time student This amount will be shown on the Schedule K-1 you receive from the estate or trust. Full time student However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. Full time student Mutual fund shareholder. Full time student   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. Full time student You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. Full time student If you do not receive this information, you will need to contact the fund. Full time student Controlled foreign corporation shareholder. Full time student   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. Full time student If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. Full time student Controlled foreign corporation. Full time student   A controlled foreign corporation is a foreign corporation in which U. Full time student S. Full time student shareholders own more than 50% of the voting power or value of the stock. Full time student You are considered a U. Full time student S. Full time student shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. Full time student See Internal Revenue Code sections 951(b) and 958(b) for more information. Full time student Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. Full time student Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. Full time student Foreign tax refund. Full time student   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. Full time student   For example, the United States has tax treaties with many countries allowing U. Full time student S. Full time student citizens and residents reductions in the rates of tax of those foreign countries. Full time student However, some treaty countries require U. Full time student S. Full time student citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. Full time student The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. Full time student Subsidy received. Full time student   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. Full time student This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. Full time student A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. Full time student   The term “subsidy” includes any type of benefit. Full time student Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Full time student Shareholder receiving refund for corporate tax in integrated system. Full time student   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. Full time student You may be able to claim a refund of these taxes from the foreign government. Full time student You must include the refund (including any amount withheld) in your income in the year received. Full time student Any tax withheld from the refund is a qualified foreign tax. Full time student Example. Full time student You are a shareholder of a French corporation. Full time student You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. Full time student The French government imposes a 15% withholding tax ($15) on the refund you received. Full time student You receive a check for $85. Full time student You include $100 in your income. Full time student The $15 of tax withheld is a qualified foreign tax. Full time student Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. Full time student Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. Full time student Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. Full time student See Taxes in Lieu of Income Taxes , later. Full time student Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. Full time student A foreign levy is an income tax only if it meets both of the following requirements. Full time student It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. Full time student The predominant character of the tax is that of an income tax in the U. Full time student S. Full time student sense. Full time student A foreign levy may meet these requirements even if the foreign tax law differs from U. Full time student S. Full time student tax law. Full time student The foreign law may include in income items that U. Full time student S. Full time student law does not include, or it may allow certain exclusions or deductions that U. Full time student S. Full time student law does not allow. Full time student Specific economic benefit. Full time student   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. Full time student   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. Full time student   However, see the exception discussed later under Pension, unemployment, and disability fund payments . Full time student Economic benefits. Full time student   Economic benefits include the following. Full time student Goods. Full time student Services. Full time student Fees or other payments. Full time student Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. Full time student Discharges of contractual obligations. Full time student   In most cases, the right or privilege merely to engage in business is not an economic benefit. Full time student Dual-capacity taxpayers. Full time student   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. Full time student ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. Full time student    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. Full time student   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. Full time student    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. Full time student For more information about these agreements, see Publication 54. Full time student Soak-up taxes. Full time student   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. Full time student A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. Full time student This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. Full time student Penalties and interest. Full time student   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. Full time student Taxes not based on income. Full time student   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. Full time student Taxes based on assets, such as property taxes, do not qualify for the credit. Full time student Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. Full time student A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. Full time student A tax in lieu of an income tax does not have to be based on realized net income. Full time student A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. Full time student In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. Full time student However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. Full time student The soak-up tax. Full time student The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. Full time student Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. Full time student These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. Full time student S. Full time student persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. Full time student Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. Full time student S. Full time student gross income. Full time student Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. Full time student S. Full time student income under the foreign earned income exclusion or the foreign housing exclusion. Full time student See Publication 54 for more information on the foreign earned income and housing exclusions. Full time student Wages completely excluded. Full time student   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. Full time student Wages partly excluded. Full time student   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. Full time student You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. Full time student   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. Full time student Deductible expenses do not include the foreign housing deduction. Full time student   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Full time student If the foreign law taxes foreign earned income and some other income (for example, earned income from U. Full time student S. Full time student sources or a type of income not subject to U. Full time student S. Full time student tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. Full time student Example. Full time student You are a U. Full time student S. Full time student citizen and a cash basis taxpayer, employed by Company X and living in Country A. Full time student Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. Full time student To find that part, do the following. Full time student First, find the amount of business expenses allocable to excluded wages and therefore not deductible. Full time student To do this, multiply the otherwise deductible expenses by a fraction. Full time student That fraction is the excluded wages over your foreign earned income. Full time student   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. Full time student To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). Full time student The result is $81,984. Full time student Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). Full time student Finally, multiply the foreign tax you paid by the resulting fraction. Full time student   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. Full time student Taxes on Income From Puerto Rico Exempt From U. Full time student S. Full time student Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. Full time student For information on figuring the reduction, see Publication 570. Full time student Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. Full time student For more information on this exclusion, see Publication 570. Full time student Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. Full time student However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. Full time student Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. Full time student However, you can claim an itemized deduction for these taxes. Full time student See Choosing To Take Credit or Deduction , earlier. Full time student Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. Full time student The following countries meet this description for 2013. Full time student Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. Full time student Cuba. Full time student Iran. Full time student Libya (but see Note later). Full time student North Korea. Full time student Sudan. Full time student Syria. Full time student Waiver of denial of the credit. Full time student   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. Full time student S. Full time student companies in the sanctioned country. Full time student The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. Full time student Note. Full time student Effective December 10, 2004, the President granted a waiver to Libya. Full time student Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. Full time student Limit on credit. Full time student   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. Full time student You must fill out a separate Form 1116 for this income. Full time student This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. Full time student Example. Full time student You lived and worked in Iran until August, when you were transferred to Italy. Full time student You paid taxes to each country on the income earned in that country. Full time student You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. Full time student Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. Full time student You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. Full time student Figuring the credit when a sanction ends. Full time student    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. Full time student For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. Full time student Example. Full time student The sanctions against Country X ended on July 31. Full time student On August 19, you receive a distribution from a mutual fund of Country X income. Full time student The fund paid Country X income tax for you on the distribution. Full time student Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. Full time student Amounts for the nonsanctioned period. Full time student   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. Full time student Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. Full time student   Number of nonsanctioned days in year  Number of days in year Example. Full time student You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. Full time student Sanctions against Country X ended on July 11, 2013. Full time student You are unable to determine how much of the income or tax is for the nonsanctioned period. Full time student Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. Full time student You would compute the income for the nonsanctioned period as follows. Full time student 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. Full time student 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. Full time student Further information. Full time student   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. Full time student This Cumulative Bulletin can be found in many libraries and IRS offices. Full time student Table 1. Full time student Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. Full time student Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. Full time student The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). Full time student The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. Full time student If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. Full time student When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Full time student Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. Full time student Withholding tax. Full time student   For this purpose, withholding tax includes any tax determined on a gross basis. Full time student It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Full time student Ex-dividend date. Full time student   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. Full time student Example 1. Full time student You bought common stock from a foreign corporation on November 3. Full time student You sold the stock on November 19. Full time student You received a dividend on this stock because you owned it on the ex-dividend date of November 5. Full time student To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). Full time student Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. Full time student Example 2. Full time student The facts are the same as in Example 1 except that you sold the stock on November 14. Full time student You held the stock for only 11 days. Full time student You are not entitled to the credit. Full time student Exception. Full time student   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. Full time student See section 901(k)(4) of the Internal Revenue Code for more information. Full time student Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. Full time student When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Full time student Withholding tax. Full time student   For this purpose, withholding tax includes any tax determined on a gross basis. Full time student It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Full time student Exception for dealers. Full time student   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. Full time student See section 901(I)(2) of the Internal Revenue Code for more information. Full time student Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. Full time student A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. Full time student S. Full time student tax purposes but not for foreign tax purposes. Full time student For more information, see Internal Revenue Code section 901(m). Full time student The IRS intends to issue guidance that will explain this provision in greater detail. Full time student Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. Full time student Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. Full time student For details, see Regulations section 1. Full time student 901-3. Full time student Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. Full time student See the instructions for line 12 in the Form 1116 instructions to figure this reduction. Full time student In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. Full time student List of boycotting countries. Full time student   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. Full time student As of November 2013, the following countries are listed. Full time student Iraq. Full time student Kuwait. Full time student Lebanon. Full time student Libya. Full time student Qatar. Full time student Saudi Arabia. Full time student Syria. Full time student United Arab Emirates. Full time student Yemen. Full time student    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. Full time student   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. Full time student The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. Full time student Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. Full time student Public inspection. Full time student   A determination and any related background file is open to public inspection. Full time student However, your identity and certain other information will remain confidential. Full time student Reporting requirements. Full time student   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. Full time student A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. Full time student A partnership in which you are a partner. Full time student A trust you are treated as owning. Full time student Form 5713 required. Full time student   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. Full time student See the Instructions for Form 5713 for information on when and where to file the form. Full time student Penalty for failure to file. Full time student   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. Full time student Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. Full time student The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. Full time student S. Full time student tax liability (Form 1040, line 44) divided by your worldwide taxable income. Full time student You may be entitled to carry over to other years taxes reduced under this rule. Full time student See Internal Revenue Code section 907(f). Full time student Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. Full time student Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. Full time student Taxes of U. Full time student S. Full time student Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. Full time student If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. Full time student See Penalty for not filing Form 5471 or Form 8865 , later. Full time student U. Full time student S. Full time student persons controlling foreign corporations. Full time student   If you are a U. Full time student S. Full time student citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. Full time student S. Full time student Persons With Respect To Certain Foreign Corporations. Full time student Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. Full time student U. Full time student S. Full time student persons controlling foreign partnerships. Full time student   If you are a U. Full time student S. Full time student citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file