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Instructions For Form 1040ez

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Instructions For Form 1040ez

Instructions for form 1040ez 4. Instructions for form 1040ez   Communications and Air Transportation Taxes Table of Contents Uncollected Tax Report Communications TaxLocal-only service. Instructions for form 1040ez Private communication service. Instructions for form 1040ez Exemptions Credits or Refunds Air Transportation TaxesTransportation of Persons by Air International Air Travel Facilities Transportation of Property by Air Special Rules on Transportation Taxes Excise taxes are imposed on amounts paid for certain facilities and services. Instructions for form 1040ez If you receive any payment on which tax is imposed, you are required to collect the tax, file returns, and pay the tax over to the government. Instructions for form 1040ez If you fail to collect and pay over the taxes, you may be liable for the trust fund recovery penalty. Instructions for form 1040ez See chapter 14, later. Instructions for form 1040ez Uncollected Tax Report A separate report is required to be filed by collecting agents of communications services and air transportation taxes if the person from whom the facilities or services tax (the tax) is required to be collected (the taxpayer) refuses to pay the tax, or it is impossible for the collecting agent to collect the tax. Instructions for form 1040ez The report must contain the name and address of the taxpayer, the type of facility provided or service rendered, the amount paid for the facility or service (the amount on which the tax is based), and the date paid. Instructions for form 1040ez Regular method taxpayers. Instructions for form 1040ez   For regular method taxpayers, the report must be filed by the due date of the Form 720 on which the tax would have been reported. Instructions for form 1040ez Alternative method taxpayers. Instructions for form 1040ez   For alternative method taxpayers, the report must be filed by the due date of the Form 720 that includes an adjustment to the separate account for the uncollected tax. Instructions for form 1040ez See Alternative method in  chapter 11. Instructions for form 1040ez Where to file. Instructions for form 1040ez    Do not file the uncollected tax report with Form 720. Instructions for form 1040ez Instead, mail the report to: Internal Revenue Service Excise Tax Program SE:S:SP:EX MS C9-109 5000 Ellin Rd. Instructions for form 1040ez  Lanham, MD 20706 Communications Tax A 3% tax is imposed on amounts paid for local telephone service and teletypewriter exchange service. Instructions for form 1040ez Local telephone service. Instructions for form 1040ez   This includes access to a local telephone system and the privilege of telephonic quality communication with most people who are part of the system. Instructions for form 1040ez Local telephone service also includes any facility or services provided in connection with this service. Instructions for form 1040ez The tax applies to lease payments for certain customer premises equipment (CPE) even though the lessor does not also provide access to a local telecommunications system. Instructions for form 1040ez Local-only service. Instructions for form 1040ez   Local-only service is local telephone service as described above, provided under a plan that does not include long distance telephone service or that separately states the charge for local service on the bill to customers. Instructions for form 1040ez Local-only service also includes any facility or services provided in connection with this service, even though these services and facilities may also be used with long-distance service. Instructions for form 1040ez Private communication service. Instructions for form 1040ez   Private communication service is not local telephone service. Instructions for form 1040ez Private communication service includes accessory-type services provided in connection with a Centrex, PBX, or other similar system for dual use accessory equipment. Instructions for form 1040ez However, the charge for the service must be stated separately from the charge for the basic system, and the accessory must function, in whole or in part, in connection with intercommunication among the subscriber's stations. Instructions for form 1040ez Teletypewriter exchange service. Instructions for form 1040ez   This includes access from a teletypewriter or other data station to a teletypewriter exchange system and the privilege of intercommunication by that station with most persons having teletypewriter or other data stations in the same exchange system. Instructions for form 1040ez Figuring the tax. Instructions for form 1040ez   The tax is based on the sum of all charges for local telephone service included in the bill. Instructions for form 1040ez However, if the bill groups individual items for billing and tax purposes, the tax is based on the sum of the individual items within that group. Instructions for form 1040ez The tax on the remaining items not included in any group is based on the charge for each item separately. Instructions for form 1040ez Do not include in the tax base state or local sales or use taxes that are separately stated on the taxpayer's bill. Instructions for form 1040ez Exemptions Payments for certain services or payments from certain users are exempt from the communications tax. Instructions for form 1040ez Nontaxable service. Instructions for form 1040ez   Nontaxable service means bundled service and long distance service. Instructions for form 1040ez Nontaxable service also includes pre-paid telephone cards and pre-paid cellular service. Instructions for form 1040ez Bundled service. Instructions for form 1040ez   Bundled service is local and long distance service provided under a plan that does not separately state the charge for the local telephone service. Instructions for form 1040ez Bundled service includes plans that provide both local and long distance service for either a flat monthly fee or a charge that varies with the elapsed transmission time for which the service is used. Instructions for form 1040ez Telecommunications companies provide bundled service for both landlines and wireless (cellular) service. Instructions for form 1040ez If Voice over Internet Protocol service provides both local and long distance service and the charges are not separately stated, such service is bundled service. Instructions for form 1040ez   The method for sending or receiving a call, such as on a landline telephone, wireless (cellular), or some other method, does not affect whether a service is local-only or bundled. Instructions for form 1040ez Long distance service. Instructions for form 1040ez   Long distance service is telephonic quality communication with persons whose telephones are outside the local telephone system of the caller. Instructions for form 1040ez Pre-paid telephone cards (PTC). Instructions for form 1040ez   A PTC will be treated as bundled service unless a PTC expressly states it is for local-only service. Instructions for form 1040ez Generally, the person responsible for collecting the tax is the carrier who transfers the PTC to the transferee. Instructions for form 1040ez The transferee is the first person that is not a carrier to whom a PTC is transferred by the carrier. Instructions for form 1040ez The transferee is the person liable for the tax and is eligible to request a credit or refund. Instructions for form 1040ez For more information, see Regulations section 49. Instructions for form 1040ez 4251-4. Instructions for form 1040ez   The holder is the person that purchases a PTC to use and not to resell. Instructions for form 1040ez Holders are not liable for the tax and cannot request a credit or refund. Instructions for form 1040ez Pre-paid cellular telephones. Instructions for form 1040ez   Rules similar to the PTC rules described above apply to pre-paid cellular telephones. Instructions for form 1040ez The transferee is the person eligible to request the credit or refund. Instructions for form 1040ez Installation charges. Instructions for form 1040ez   The tax does not apply to payments received for the installation of any instrument, wire, pole, switchboard, apparatus, or equipment. Instructions for form 1040ez However, the tax does apply to payments for the repair or replacement of those items incidental to ordinary maintenance. Instructions for form 1040ez Answering services. Instructions for form 1040ez   The tax does not apply to amounts paid for a private line, an answering service, and a one-way paging or message service if they do not provide access to a local telephone system and the privilege of telephonic communication as part of the local telephone system. Instructions for form 1040ez Mobile radio telephone service. Instructions for form 1040ez   The tax does not apply to payments for a two-way radio service that does not provide access to a local telephone system. Instructions for form 1040ez Coin-operated telephones. Instructions for form 1040ez   The tax for local telephone service does not apply to payments made for services by inserting coins in public coin-operated telephones. Instructions for form 1040ez But the tax applies if the coin-operated telephone service is furnished for a guaranteed amount. Instructions for form 1040ez Figure the tax on the amount paid under the guarantee plus any fixed monthly or other periodic charge. Instructions for form 1040ez Telephone-operated security systems. Instructions for form 1040ez   The tax does not apply to amounts paid for telephones used only to originate calls to a limited number of telephone stations for security entry into a building. Instructions for form 1040ez In addition, the tax does not apply to any amounts paid for rented communication equipment used in the security system. Instructions for form 1040ez News services. Instructions for form 1040ez   The tax on teletypewriter exchange service does not apply to charges for the following news services. Instructions for form 1040ez Services dealing exclusively with the collection or dissemination of news for or through the public press or radio or television broadcasting. Instructions for form 1040ez Services used exclusively in the collection or dissemination of news by a news ticker service furnishing a general news service similar to that of the public press. Instructions for form 1040ez This exemption applies to payments received for messages from one member of the news media to another member (or to or from their bona fide correspondents). Instructions for form 1040ez For the exemption to apply, the charge for these services must be billed in writing to the person paying for the service and that person must certify in writing that the services are used for an exempt purpose. Instructions for form 1040ez Services not exempted. Instructions for form 1040ez   The tax applies to amounts paid by members of the news media for local telephone service. Instructions for form 1040ez International organizations and the American Red Cross. Instructions for form 1040ez   The tax does not apply to communication services furnished to an international organization or to the American National Red Cross. Instructions for form 1040ez Nonprofit hospitals. Instructions for form 1040ez   The tax does not apply to telephone services furnished to income tax-exempt nonprofit hospitals for their use. Instructions for form 1040ez Also, the tax does not apply to amounts paid by these hospitals to provide local telephone service in the homes of their personnel who must be reached during their off-duty hours. Instructions for form 1040ez Nonprofit educational organizations. Instructions for form 1040ez   The tax does not apply to payments received for services and facilities furnished to a nonprofit educational organization for its use. Instructions for form 1040ez A nonprofit educational organization is one that satisfies all the following requirements. Instructions for form 1040ez It normally maintains a regular faculty and curriculum. Instructions for form 1040ez It normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. Instructions for form 1040ez It is exempt from income tax under section 501(a). Instructions for form 1040ez This includes a school operated by an organization exempt under section 501(c)(3) if the school meets the above qualifications. Instructions for form 1040ez Qualified blood collector organizations. Instructions for form 1040ez   The tax does not apply to telephone services furnished to qualified blood collector organizations for their use. Instructions for form 1040ez A qualified blood collector organization is one that is: Described in section 501(c)(3) and exempt from tax under section 501(a), Primarily engaged in the activity of collecting human blood, Registered with the IRS, and Registered by the Food and Drug Administration to collect blood. Instructions for form 1040ez Federal, state, and local government. Instructions for form 1040ez   The tax does not apply to communication services provided to the government of the United States, the government of any state or its political subdivisions, the District of Columbia, or the United Nations. Instructions for form 1040ez Treat an Indian tribal government as a state for the exemption from the communications tax only if the services involve the exercise of an essential tribal government function. Instructions for form 1040ez Exemption certificate. Instructions for form 1040ez   Any form of exemption certificate will be acceptable if it includes all the information required by the Internal Revenue Code and Regulations. Instructions for form 1040ez See Regulations section 49. Instructions for form 1040ez 4253-11. Instructions for form 1040ez File the certificate with the provider of the communication services. Instructions for form 1040ez An exemption certificate is not required for nontaxable services. Instructions for form 1040ez   The following users that are exempt from the communications tax do not have to file an annual exemption certificate after they have filed the initial certificate to claim an exemption from the communications tax. Instructions for form 1040ez The American National Red Cross and other international organizations. Instructions for form 1040ez Nonprofit hospitals. Instructions for form 1040ez Nonprofit educational organizations. Instructions for form 1040ez Qualified blood collector organizations. Instructions for form 1040ez State and local governments. Instructions for form 1040ez   The federal government does not have to file any exemption certificate. Instructions for form 1040ez   All other organizations must furnish exemption certificates when required. Instructions for form 1040ez Credits or Refunds If tax is collected and paid over for nontaxable services, or for certain services or users exempt from the communications tax, the collector or taxpayer may claim a credit or refund if it has repaid the tax to the person from whom the tax was collected or obtained the consent of that person to the allowance of the credit or refund. Instructions for form 1040ez Alternatively, the person who paid the tax may claim a refund. Instructions for form 1040ez For more information on how to file for credits or refunds, see the Instructions for Form 720 or Form 8849. Instructions for form 1040ez Collectors. Instructions for form 1040ez   The collector may request a credit or refund if it has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. Instructions for form 1040ez These requirements also apply to nontaxable service refunds. Instructions for form 1040ez Collectors using the regular method for deposits. Instructions for form 1040ez   Collectors using the regular method for deposits must use Form 720X to request a credit or refund if the collector has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. Instructions for form 1040ez Collectors using the alternative method for deposits. Instructions for form 1040ez   Collectors using the alternative method for deposits must adjust their separate accounts for the credit or refund if it has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. Instructions for form 1040ez For more information, see the Instructions for Form 720. Instructions for form 1040ez Air Transportation Taxes Taxes are imposed on amounts paid for: Transportation of persons by air, Use of international air travel facilities, and Transportation of property by air. Instructions for form 1040ez Transportation of Persons by Air The tax on transportation of persons by air is made up of the: Percentage tax, and Domestic-segment tax. Instructions for form 1040ez Percentage tax. Instructions for form 1040ez   A tax of 7. Instructions for form 1040ez 5% applies to amounts paid for taxable transportation of persons by air. Instructions for form 1040ez Amounts paid for transportation include charges for layover or waiting time and movement of aircraft in deadhead service. Instructions for form 1040ez Mileage awards. Instructions for form 1040ez   The percentage tax may apply to an amount paid (in cash or in kind) to an air carrier (or any related person) for the right to provide mileage awards for, or other reductions in the cost of, any transportation of persons by air. Instructions for form 1040ez For example, this applies to mileage awards purchased by credit card companies, telephone companies, restaurants, hotels, and other businesses. Instructions for form 1040ez   Generally, the percentage tax does not apply to amounts paid for mileage awards where the mileage awards cannot, under any circumstances, be redeemed for air transportation that is subject to the tax. Instructions for form 1040ez Until regulations are issued, the following rules apply to mileage awards. Instructions for form 1040ez Amounts paid for mileage awards that cannot be redeemed for taxable transportation beginning and ending in the United States are not subject to the tax. Instructions for form 1040ez For this rule, mileage awards issued by a foreign air carrier are considered to be usable only on that foreign air carrier and thus not redeemable for taxable transportation beginning and ending in the United States. Instructions for form 1040ez Therefore, amounts paid to a foreign air carrier for mileage awards are not subject to the tax. Instructions for form 1040ez Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation are not subject to the tax to the extent those miles will be awarded in connection with the purchase of taxable transportation. Instructions for form 1040ez Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation are subject to the tax to the extent those miles will not be awarded in connection with the purchase of taxable transportation. Instructions for form 1040ez Domestic-segment tax. Instructions for form 1040ez   The domestic-segment tax is a flat dollar amount for each segment of taxable transportation for which an amount is paid. Instructions for form 1040ez However, see Rural airports, later. Instructions for form 1040ez A segment is a single takeoff and a single landing. Instructions for form 1040ez The amount of the domestic-segment tax is in the Instructions for Form 720. Instructions for form 1040ez Charter flights. Instructions for form 1040ez    If an aircraft is chartered, the domestic-segment tax for each segment of taxable transportation is figured by multiplying the tax by the number of passengers transported on the aircraft. Instructions for form 1040ez Rural airports. Instructions for form 1040ez   The domestic-segment tax does not apply to a segment to or from a rural airport. Instructions for form 1040ez An airport is a rural airport for a calendar year if fewer than 100,000 commercial passengers departed from the airport by air during the second preceding calendar year (the 100,000 passenger rule), and one of the following is true: The airport is not located within 75 miles of another airport from which 100,000 or more commercial passengers departed during the second preceding calendar year, The airport was receiving essential air service subsidies as of August 5, 1997, or The airport is not connected by paved roads to another airport. Instructions for form 1040ez   To apply the 100,000 passenger rule to any airport described in (3) above, only count commercial passengers departing from the airport by air on flight segments of at least 100 miles. Instructions for form 1040ez   An updated list of rural airports can be found on the Department of Transportation website at www. Instructions for form 1040ez dot. Instructions for form 1040ez gov and enter the phrase “Essential Air Service” in the search box. Instructions for form 1040ez Taxable transportation. Instructions for form 1040ez   Taxable transportation is transportation by air that meets either of the following tests. Instructions for form 1040ez It begins and ends either in the United States or at any place in Canada or Mexico not more than 225 miles from the nearest point on the continental United States boundary (this is the 225-mile zone). Instructions for form 1040ez It is directly or indirectly from one port or station in the United States to another port or station in the United States, but only if it is not a part of uninterrupted international air transportation, discussed later. Instructions for form 1040ez Round trip. Instructions for form 1040ez   A round trip is considered two separate trips. Instructions for form 1040ez The first trip is from the point of departure to the destination. Instructions for form 1040ez The second trip is the return trip from that destination. Instructions for form 1040ez Uninterrupted international air transportation. Instructions for form 1040ez   This means transportation entirely by air that does not begin and end in the United States or in the 225-mile zone if there is not more than a 12-hour scheduled interval between arrival and departure at any station in the United States. Instructions for form 1040ez For a special rule that applies to military personnel, see Exemptions, later. Instructions for form 1040ez Transportation between the continental U. Instructions for form 1040ez S. Instructions for form 1040ez and Alaska or Hawaii. Instructions for form 1040ez   This transportation is partially exempt from the tax on transportation of persons by air. Instructions for form 1040ez The tax does not apply to the part of the trip between the point at which the route of transportation leaves or enters the continental United States (or a port or station in the 225-mile zone) and the point at which it enters or leaves Hawaii or Alaska. Instructions for form 1040ez Leaving or entering occurs when the route of the transportation passes over either the United States border or a point 3 nautical miles (3. Instructions for form 1040ez 45 statute miles) from low tide on the coast line, or when it leaves a port or station in the 225-mile zone. Instructions for form 1040ez Therefore, this transportation is subject to the percentage tax on the part of the trip in U. Instructions for form 1040ez S. Instructions for form 1040ez airspace, the domestic-segment tax for each domestic segment, and the tax on the use of international air travel facilities, discussed later. Instructions for form 1040ez Transportation within Alaska or Hawaii. Instructions for form 1040ez   The tax on transportation of persons by air applies to the entire fare paid in the case of flights between any of the Hawaiian Islands, and between any ports or stations in the Aleutian Islands or other ports or stations elsewhere in Alaska. Instructions for form 1040ez The tax applies even though parts of the flights may be over international waters or over Canada, if no point on the direct line of transportation between the ports or stations is more than 225 miles from the United States (Hawaii or Alaska). Instructions for form 1040ez Package tours. Instructions for form 1040ez   The air transportation taxes apply to “complimentary” air transportation furnished solely to participants in package holiday tours. Instructions for form 1040ez The amount paid for these package tours includes a charge for air transportation even though it may be advertised as “free. Instructions for form 1040ez ” This rule also applies to the tax on the use of international air travel facilities, discussed later. Instructions for form 1040ez Liability for tax. Instructions for form 1040ez   The person paying for taxable transportation is liable for the tax and, ordinarily, the person receiving the payment collects the tax, files the returns, and pays the tax over to the government. Instructions for form 1040ez However, if payment is made outside the United States for a prepaid order, exchange order, or similar order, the person furnishing the initial transportation provided for under that order must collect the tax. Instructions for form 1040ez    A travel agency that is an independent broker and sells tours on aircraft that it charters must collect the transportation tax, file the returns, and pay the tax over to the government. Instructions for form 1040ez However, a travel agency that sells tours as the agent of an airline must collect the tax and remit it to the airline for the filing of returns and for the payment of the tax over to the government. Instructions for form 1040ez An independent third party that is not under the airline's supervision or control, but is acting on behalf of, and receiving compensation from, a passenger, is not required to collect the tax and pay it to the government. Instructions for form 1040ez For more information on resellers of air transportation, see Revenue Ruling 2006-52. Instructions for form 1040ez You can find Revenue Ruling 2006-52 on page 761 of I. Instructions for form 1040ez R. Instructions for form 1040ez B. Instructions for form 1040ez 2006-43 at www. Instructions for form 1040ez irs. Instructions for form 1040ez gov/pub/irs-irbs/irb06-43. Instructions for form 1040ez pdf. Instructions for form 1040ez   The fact that the aircraft does not use public or commercial airports in taking off and landing has no effect on the tax. Instructions for form 1040ez But see Certain helicopter uses, later. Instructions for form 1040ez   For taxable transportation that begins and ends in the United States, the tax applies regardless of whether the payment is made in or outside the United States. Instructions for form 1040ez   If the tax is not paid when payment for the transportation is made, the air carrier providing the initial segment of the transportation that begins or ends in the United States becomes liable for the tax. Instructions for form 1040ez Exemptions. Instructions for form 1040ez   The tax on transportation of persons by air does not apply in the following situations. Instructions for form 1040ez See also Special Rules on Transportation Taxes, later. Instructions for form 1040ez Military personnel on international trips. Instructions for form 1040ez   When traveling in uniform at their own expense, United States military personnel on authorized leave are deemed to be traveling in uninterrupted international air transportation (defined earlier) even if the scheduled interval between arrival and departure at any station in the United States is actually more than 12 hours. Instructions for form 1040ez However, such personnel must buy their tickets within 12 hours after landing at the first domestic airport and accept the first available accommodation of the type called for by their tickets. Instructions for form 1040ez The trip must begin or end outside the United States and the 225-mile zone. Instructions for form 1040ez Certain helicopter uses. Instructions for form 1040ez   The tax does not apply to air transportation by helicopter if the helicopter is used for any of the following purposes. Instructions for form 1040ez Transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, oil, or gas. Instructions for form 1040ez Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Instructions for form 1040ez Providing emergency medical transportation. Instructions for form 1040ez   However, during a use described in items (1) or (2), the tax applies if the helicopter takes off from, or lands at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise uses services provided under section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Instructions for form 1040ez For item (1), treat each flight segment as a separate flight. Instructions for form 1040ez Fixed-wing aircraft uses. Instructions for form 1040ez   The tax does not apply to air transportation by fixed-wing aircraft if the fixed-wing aircraft is used for any of the following purposes. Instructions for form 1040ez Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Instructions for form 1040ez Providing emergency medical transportation. Instructions for form 1040ez The aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services. Instructions for form 1040ez   However, during a use described in item (1), the tax applies if the fixed-wing aircraft takes off from, or lands at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise uses services provided under section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Instructions for form 1040ez Skydiving. Instructions for form 1040ez   The tax does not apply to any air transportation exclusively for the purpose of skydiving. Instructions for form 1040ez Seaplanes. Instructions for form 1040ez   The tax does not apply to any air transportation by seaplane for any segment consisting of a takeoff from, and a landing on, water if the places where the takeoff and landing occur are not receiving financial assistance from the Airport and Airways Trust Fund. Instructions for form 1040ez Bonus tickets. Instructions for form 1040ez   The tax does not apply to free bonus tickets issued by an airline company to its customers who have satisfied all requirements to qualify for the bonus tickets. Instructions for form 1040ez However, the tax applies to amounts paid by customers for advance bonus tickets when customers have traveled insufficient mileage to fully qualify for the free advance bonus tickets. Instructions for form 1040ez International Air Travel Facilities A tax per person is imposed (whether in or outside the United States) for international flights that begin or end in the United States. Instructions for form 1040ez However, for a domestic segment that begins or ends in Alaska or Hawaii, a reduced tax per person applies only to departures. Instructions for form 1040ez This tax does not apply if all the transportation is subject to the percentage tax, discussed earlier. Instructions for form 1040ez It also doesn't apply if the surtax on fuel used in a fractional ownership program aircraft (discussed earlier) is imposed. Instructions for form 1040ez See the Instructions for Form 720 for the tax rates. Instructions for form 1040ez Transportation of Property by Air A tax of 6. Instructions for form 1040ez 25% is imposed on amounts paid (whether in or outside the United States) for transportation of property by air. Instructions for form 1040ez The fact that the aircraft may not use public or commercial airports in taking off and landing has no effect on the tax. Instructions for form 1040ez The tax applies only to amounts paid to a person engaged in the business of transporting property by air for hire. Instructions for form 1040ez The tax applies only to transportation (including layover time and movement of aircraft in deadhead service) that begins and ends in the United States. Instructions for form 1040ez Thus, the tax does not apply to transportation of property by air that begins or ends outside the United States. Instructions for form 1040ez Exemptions. Instructions for form 1040ez   The tax on transportation of property by air does not apply in the following situations. Instructions for form 1040ez See also Special Rules on Transportation Taxes, later. Instructions for form 1040ez Cropdusting and firefighting service. Instructions for form 1040ez   The tax does not apply to amounts paid for cropdusting or aerial firefighting service. Instructions for form 1040ez Exportation. Instructions for form 1040ez    The tax does not apply to payments for transportation of property by air in the course of exportation (including to United States possessions) by continuous movement, as evidenced by the execution of Form 1363, Export Exemption Certificate. Instructions for form 1040ez See Form 1363 for more information. Instructions for form 1040ez Certain helicopter and fixed-wing air ambulance uses. Instructions for form 1040ez   The tax does not apply to amounts paid for the use of helicopters in construction to set heating and air conditioning units on roofs of buildings, to dismantle tower cranes, and to aid in construction of power lines and ski lifts. Instructions for form 1040ez   The tax also does not apply to air transportation by helicopter or fixed-wing aircraft for the purpose of providing emergency medical services. Instructions for form 1040ez The fixed-wing aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services. Instructions for form 1040ez Skydiving. Instructions for form 1040ez   The tax does not apply to any air transportation exclusively for the purpose of skydiving. Instructions for form 1040ez Excess baggage. Instructions for form 1040ez    The tax does not apply to excess baggage accompanying a passenger on an aircraft operated on an established line. Instructions for form 1040ez Surtax on fuel used in a fractional ownership program aircraft. Instructions for form 1040ez   The tax does not apply if the surtax on fuel used in a fractional ownership program aircraft (discussed earlier) is imposed. Instructions for form 1040ez Alaska and Hawaii. Instructions for form 1040ez   For transportation of property to and from Alaska and Hawaii, the tax in general does not apply to the portion of the transportation that is entirely outside the continental United States (or the 225-mile zone if the aircraft departs from or arrives at an airport in the 225-mile zone). Instructions for form 1040ez But the tax applies to flights between ports or stations in Alaska and the Aleutian Islands, as well as between ports or stations in Hawaii. Instructions for form 1040ez The tax applies even though parts of the flights may be over international waters or over Canada, if no point on a line drawn from where the route of transportation leaves the United States (Alaska) to where it reenters the United States (Alaska) is more than 225 miles from the United States. Instructions for form 1040ez Liability for tax. Instructions for form 1040ez   The person paying for taxable transportation is liable for the tax and, ordinarily, the person engaged in the business of transporting property by air for hire receives the payment, collects the tax, files the returns, and pays the tax over to the government. Instructions for form 1040ez   If tax is not paid when a payment is made outside the United States, the person furnishing the last segment of taxable transportation collects the tax from the person to whom the property is delivered in the United States. Instructions for form 1040ez Special Rules on Transportation Taxes In certain circumstances, special rules apply to the taxes on transportation of persons and property by air. Instructions for form 1040ez Aircraft used by affiliated corporations. Instructions for form 1040ez   The taxes do not apply to payments received by one member of an affiliated group of corporations from another member for services furnished in connection with the use of an aircraft. Instructions for form 1040ez However, the aircraft must be owned or leased by a member of the affiliated group and cannot be available for hire by a nonmember of the affiliated group. Instructions for form 1040ez Determine whether an aircraft is available for hire by a nonmember of an affiliated group on a flight-by-flight basis. Instructions for form 1040ez   For this rule, an affiliated group of corporations is any group of corporations connected with a common parent corporation through 80% or more of stock ownership. Instructions for form 1040ez Small aircraft. Instructions for form 1040ez   The taxes do not apply to transportation furnished by an aircraft having a maximum certificated takeoff weight of 6,000 pounds or less. Instructions for form 1040ez However, the taxes do apply if the aircraft is operated on an established line. Instructions for form 1040ez “Operated on an established line” means the aircraft operates with some degree of regularity between definite points. Instructions for form 1040ez However, it does not include any time an aircraft is being operated on a flight that is solely for sightseeing. Instructions for form 1040ez   Consider an aircraft to be operated on an established line if it is operated on a charter basis between two cities also served by that carrier on a regularly scheduled basis. Instructions for form 1040ez   Also, the taxes apply if the aircraft is jet-powered, regardless of its maximum certificated takeoff weight or whether or not it is operated on an established line. Instructions for form 1040ez Mixed load of persons and property. Instructions for form 1040ez   If a single amount is paid for air transportation of persons and property, the payment must be allocated between the amount subject to the tax on transportation of persons and the amount subject to the tax on transportation of property. Instructions for form 1040ez The allocation must be reasonable and supported by adequate records. Instructions for form 1040ez Credits or refunds. Instructions for form 1040ez   If tax is collected and paid over for air transportation that is not taxable air transportation, the collector may claim a credit or refund if it has repaid the tax to the person from whom the tax was collected or obtained the consent of that person to the allowance of the credit or refund. Instructions for form 1040ez Alternatively, the person who paid the tax may claim a refund. Instructions for form 1040ez For information on how to file for credits or refunds, see the Instructions for Form 720 or Form 8849. 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Medical advances have resulted in an increased need for nursing home care and assisted living. Most health insurance plans and Medicare severely limit or exclude long-term care. You should consider these costs as you plan for retirement. Here are some questions to ask when considering a separate long-term care insurance policy.

  • What qualifies you for benefits? Some insurers say you must be unable to perform a specific number of the following activities of daily living: eating, walking, getting from bed to a chair, dressing, bathing, using a toilet and remaining continent.
  • What type of care is covered? Does the policy cover nursing home care? What about coverage for assisted living facilities that provide less client care than a nursing home? If you want to stay in your home, will it pay for care provided by visiting nurses and therapists? What about help with food preparation and housecleaning?
  • What will the benefit amount be? Most plans are written to provide a specific dollar benefit per day. The benefit for home care is usually about half the nursing-home benefit. But some policies pay the same for both forms of care. Other plans pay only for your actual expenses.
  • What is the benefit period? It is possible to get a policy with lifetime benefits but this can be very expensive. Other options for coverage are from one to six years. The average nursing home stay is about 2.5 years.
  • Is the benefit adjusted for inflation? If you buy a policy prior to age 60, you face the risk that a fixed daily benefit will not be enough by the time you need it.
  • Is there a waiting period before benefits begin? A 20 to 100 day period is not unusual.

Other Insurance

  • Travel Insurance. There are four kinds of travel insurance: Travel Cancellation Insurance, Baggage or Personal Effects Coverage, Emergency Medical Coverage and Accidental Death. One helpful website is insuremytrip.com.
  • Identity Theft Insurance. This type of insurance provides reimbursement to crime victims for the cost of restoring their identity and repairing credit reports. Some companies now include this as part of their homeowner's insurance policy. Others sell it as a stand-alone policy. Ask your homeowner policy company for information.
  • International Healthcare Insurance. A policy that provides health coverage no matter where you are in the world. The policy term is flexible so you can purchase only for the time you will be out of the country. Contact your current healthcare provider for coverage information.
  • Catastrophic Health Care Insurance. A health plan that only cover certain types of expensive care, like hospitalizations.
  • Liability Insurance. Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person. Search online or ask your personal insurance agent for more information.
  • Umbrella insurance A policy that supplements the insurance you already have for home, auto, and other personal property. can help cover costs that exceed the limits of other policies.

The Instructions For Form 1040ez

Instructions for form 1040ez 2. Instructions for form 1040ez   American Opportunity Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible StudentException. Instructions for form 1040ez Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Refundable Part of Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Instructions for form 1040ez They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). Instructions for form 1040ez This chapter explains: Who can claim the American opportunity credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Instructions for form 1040ez What is the tax benefit of the American opportunity credit. Instructions for form 1040ez   For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. Instructions for form 1040ez   A tax credit reduces the amount of income tax you may have to pay. Instructions for form 1040ez Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Instructions for form 1040ez Forty percent of the American opportunity credit may be refundable. Instructions for form 1040ez This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. Instructions for form 1040ez   Your allowable American opportunity credit may be limited by the amount of your income. Instructions for form 1040ez Also, the nonrefundable part of the credit may be limited by the amount of your tax. Instructions for form 1040ez Overview of the American opportunity credit. Instructions for form 1040ez   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. Instructions for form 1040ez The details are discussed in this chapter. Instructions for form 1040ez Can you claim more than one education credit this year. Instructions for form 1040ez   For each student, you can elect for any year only one of the credits. Instructions for form 1040ez For example, if you elect to take the American opportunity credit for a child on your 2013 tax return, you cannot use that same child's qualified education expenses to figure the lifetime learning credit for 2013. Instructions for form 1040ez   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity credit on a per-student, per-year basis. Instructions for form 1040ez If you pay qualified education expenses for a student (or students) for whom you do not claim the American opportunity credit, you can use the adjusted qualified education expenses of that student (or those students) in figuring your lifetime learning credit. Instructions for form 1040ez This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Instructions for form 1040ez Differences between the American opportunity and lifetime learning credits. Instructions for form 1040ez   There are several differences between these two credits. Instructions for form 1040ez For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope Scholarship Credit for that student. Instructions for form 1040ez However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Instructions for form 1040ez The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Instructions for form 1040ez If you claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or the lifetime learning credit. Instructions for form 1040ez If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. Instructions for form 1040ez Table 2-1. Instructions for form 1040ez Overview of the American Opportunity Credit Maximum credit Up to $2,500 credit per eligible student Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) Hope Scholarship Credit was claimed) Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period that begins during the tax year Felony drug conviction As of the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return. Instructions for form 1040ez Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. Instructions for form 1040ez You pay qualified education expenses of higher education. Instructions for form 1040ez You pay the education expenses for an eligible student. Instructions for form 1040ez The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Instructions for form 1040ez Student qualifications. Instructions for form 1040ez   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. Instructions for form 1040ez As of the beginning of 2013, the student had not completed the first four years of postsecondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution. Instructions for form 1040ez For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. Instructions for form 1040ez Neither the American opportunity credit nor the Hope Scholarship Credit has been claimed (by you or anyone else) for this student for any four tax years before 2013. Instructions for form 1040ez If the American opportunity credit (and Hope Scholarship Credit) has been claimed for this student for any three or fewer tax years before 2013, this requirement is met. Instructions for form 1040ez For at least one academic period beginning (or treated as beginning) in 2013, the student both: Was enrolled in a program that leads to a degree, certificate, or other recognized educational credential; and Carried at least one-half the normal full-time workload for his or her course of study. Instructions for form 1040ez The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Instructions for form 1040ez However, the standard may not be lower than any of those established by the U. Instructions for form 1040ez S. Instructions for form 1040ez Department of Education under the Higher Education Act of 1965. Instructions for form 1040ez For purposes of whether the student satisfies this third requirement for 2013, treat an academic period beginning in the first three months of 2014 as if it began in 2013 if qualified education expenses for the student were paid in 2013 for that academic period. Instructions for form 1040ez See Prepaid expenses, later. Instructions for form 1040ez As of the end of 2013, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance. Instructions for form 1040ez Example 1. Instructions for form 1040ez Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. Instructions for form 1040ez Her parents claimed the Hope Scholarship Credit for Sharon on their tax returns for 2007 and 2008 and claimed the American opportunity credit for Sharon on their 2010 tax return. Instructions for form 1040ez Sharon claimed the American opportunity credit on her 2012 tax return. Instructions for form 1040ez The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. Instructions for form 1040ez Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. Instructions for form 1040ez If Sharon were to file Form 8863 for 2013, she would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit. Instructions for form 1040ez Example 2. Instructions for form 1040ez Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. Instructions for form 1040ez His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. Instructions for form 1040ez No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. Instructions for form 1040ez The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. Instructions for form 1040ez Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. Instructions for form 1040ez If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. Instructions for form 1040ez If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. Instructions for form 1040ez Example 3. Instructions for form 1040ez Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. Instructions for form 1040ez Glenda pays her tuition for the 2014 Spring semester in December 2013. Instructions for form 1040ez Because the tuition Glenda paid in 2013 relates to an academic period that begins in the first 3 months of 2014, her eligibility to claim an American opportunity credit in 2013 is determined as if the 2014 Spring semester began in 2013. Instructions for form 1040ez If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. Instructions for form 1040ez You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Instructions for form 1040ez Note. Instructions for form 1040ez Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. Instructions for form 1040ez “Qualified education expenses” are defined later under Qualified Education Expenses . Instructions for form 1040ez “Eligible students” are defined later under Who Is an Eligible Student . Instructions for form 1040ez A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Instructions for form 1040ez You may find Figure 2-1, Can You Claim the American Opportunity Credit for 2013 , later, helpful in determining if you can claim an American opportunity credit on your tax return. Instructions for form 1040ez This image is too large to be displayed in the current screen. Instructions for form 1040ez Please click the link to view the image. Instructions for form 1040ez Figure 2-1 Can you claim the American opportunity credit for 2012? Who Cannot Claim the Credit You cannot claim the American opportunity credit for 2013 if any of the following apply. Instructions for form 1040ez Your filing status is married filing separately. Instructions for form 1040ez You are listed as a dependent on another person's tax return (such as your parents'). Instructions for form 1040ez See Who Can Claim a Dependent's Expenses , later. Instructions for form 1040ez Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). Instructions for form 1040ez MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Instructions for form 1040ez You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Instructions for form 1040ez More information on nonresident aliens can be found in Publication 519, U. Instructions for form 1040ez S. Instructions for form 1040ez Tax Guide for Aliens. Instructions for form 1040ez What Expenses Qualify The American opportunity credit is based on adjusted qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Instructions for form 1040ez Generally, the credit is allowed for adjusted qualified education expenses paid in 2013 for an academic period beginning in 2013 or beginning in the first three months of 2014. Instructions for form 1040ez For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning January 2014, you can use that $1,500 in figuring your 2013 credit. Instructions for form 1040ez Academic period. Instructions for form 1040ez   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Instructions for form 1040ez In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Instructions for form 1040ez Paid with borrowed funds. Instructions for form 1040ez   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. Instructions for form 1040ez Use the expenses to figure the American opportunity credit for the year in which the expenses are paid, not the year in which the loan is repaid. Instructions for form 1040ez Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Instructions for form 1040ez Student withdraws from class(es). Instructions for form 1040ez   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. Instructions for form 1040ez Qualified Education Expenses For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Instructions for form 1040ez Eligible educational institution. Instructions for form 1040ez   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Instructions for form 1040ez S. Instructions for form 1040ez Department of Education. Instructions for form 1040ez It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Instructions for form 1040ez The educational institution should be able to tell you if it is an eligible educational institution. Instructions for form 1040ez   Certain educational institutions located outside the United States also participate in the U. Instructions for form 1040ez S. Instructions for form 1040ez Department of Education's Federal Student Aid (FSA) programs. Instructions for form 1040ez Related expenses. Instructions for form 1040ez   Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Instructions for form 1040ez   However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution. Instructions for form 1040ez Prepaid expenses. Instructions for form 1040ez   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Instructions for form 1040ez See Academic period, earlier. Instructions for form 1040ez For example, if you pay $2,000 in December 2013, for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Instructions for form 1040ez    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Instructions for form 1040ez   In the following examples, assume that each student is an eligible student at an eligible educational institution. Instructions for form 1040ez Example 1. Instructions for form 1040ez Jefferson is a sophomore in University V's degree program in dentistry. Instructions for form 1040ez This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Instructions for form 1040ez Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. Instructions for form 1040ez Example 2. Instructions for form 1040ez Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Instructions for form 1040ez The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Instructions for form 1040ez William bought his books from a friend; Grace bought hers at College W's bookstore. Instructions for form 1040ez Both are qualified education expenses for the American opportunity credit. Instructions for form 1040ez Example 3. Instructions for form 1040ez When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Instructions for form 1040ez This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. Instructions for form 1040ez No portion of the fee covers personal expenses. Instructions for form 1040ez Although labeled as a student activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense. Instructions for form 1040ez No Double Benefit Allowed You cannot do any of the following. Instructions for form 1040ez Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an American opportunity credit based on those same expenses. Instructions for form 1040ez Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. Instructions for form 1040ez Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. Instructions for form 1040ez Figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP) using the same expenses you used to figure the American opportunity credit. Instructions for form 1040ez See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Instructions for form 1040ez Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Instructions for form 1040ez See Adjustments to Qualified Education Expenses, next. Instructions for form 1040ez Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Instructions for form 1040ez The result is the amount of adjusted qualified education expenses for each student. Instructions for form 1040ez Tax-free educational assistance. Instructions for form 1040ez   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Instructions for form 1040ez See Academic period, earlier. Instructions for form 1040ez   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Instructions for form 1040ez This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Instructions for form 1040ez   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Instructions for form 1040ez If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Instructions for form 1040ez   Tax-free educational assistance includes: The tax-free parts of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Instructions for form 1040ez Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Instructions for form 1040ez Generally, any scholarship or fellowship is treated as tax free. Instructions for form 1040ez However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Instructions for form 1040ez The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Instructions for form 1040ez The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Instructions for form 1040ez You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Instructions for form 1040ez For examples, see Coordination with Pell grants and other scholarships, later. Instructions for form 1040ez Refunds. Instructions for form 1040ez   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Instructions for form 1040ez Some tax-free educational assistance received after 2013 may be treated as a refund. Instructions for form 1040ez See Tax-free educational assistance, earlier. Instructions for form 1040ez Refunds received in 2013. Instructions for form 1040ez   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Instructions for form 1040ez Refunds received after 2013 but before your income tax return is filed. Instructions for form 1040ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Instructions for form 1040ez Refunds received after 2013 and after your income tax return is filed. Instructions for form 1040ez   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Instructions for form 1040ez See Credit recapture, next. Instructions for form 1040ez Credit recapture. Instructions for form 1040ez    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Instructions for form 1040ez You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Instructions for form 1040ez You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you claimed the refigured credit(s). Instructions for form 1040ez Include that amount as an additional tax for the year the refund or tax-free assistance was received. Instructions for form 1040ez Example. Instructions for form 1040ez   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. Instructions for form 1040ez You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. Instructions for form 1040ez After you filed your return, you received a refund of $4,000. Instructions for form 1040ez You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. Instructions for form 1040ez The refigured credit is $2,250. Instructions for form 1040ez The increase to your tax liability is also $250. Instructions for form 1040ez Include the difference of $250 as additional tax on your 2014 tax return. Instructions for form 1040ez See the instructions for your 2014 income tax return to determine where to include this tax. Instructions for form 1040ez If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Instructions for form 1040ez Amounts that do not reduce qualified education expenses. Instructions for form 1040ez   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Instructions for form 1040ez   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Instructions for form 1040ez The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Instructions for form 1040ez The use of the money is not restricted. Instructions for form 1040ez Example 1. Instructions for form 1040ez Joan paid $3,000 for tuition and $5,000 for room and board at University X. Instructions for form 1040ez The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Instructions for form 1040ez To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Instructions for form 1040ez The terms of the scholarship state that it can be used to pay any of Joan's college expenses. Instructions for form 1040ez University X applies the $2,000 scholarship against Joan's $8,000 total bill, and Joan pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Instructions for form 1040ez Joan does not report any portion of the scholarship as income on her tax return. Instructions for form 1040ez In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. Instructions for form 1040ez The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Instructions for form 1040ez Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). Instructions for form 1040ez Example 2. Instructions for form 1040ez The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. Instructions for form 1040ez Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Instructions for form 1040ez Joan is treated as having paid $3,000 in qualified education expenses. Instructions for form 1040ez Coordination with Pell grants and other scholarships. Instructions for form 1040ez   In some cases, you may be able to reduce your tax liability by including scholarships in income. Instructions for form 1040ez If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Instructions for form 1040ez The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Instructions for form 1040ez Example 1—No scholarship. Instructions for form 1040ez Bill Pass, age 28 and unmarried, enrolled full-time in 2013 as a first-year student at a local college to earn a degree in law enforcement. Instructions for form 1040ez This was his first year of postsecondary education. Instructions for form 1040ez During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. Instructions for form 1040ez He and the college meet all the requirements for the American opportunity credit. Instructions for form 1040ez Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. Instructions for form 1040ez Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. Instructions for form 1040ez His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. Instructions for form 1040ez He figures his American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500 and tax after credits of $99. Instructions for form 1040ez Example 2—Scholarship excluded from income. Instructions for form 1040ez The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. Instructions for form 1040ez Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. Instructions for form 1040ez If Bill excludes the scholarship from income, he will be deemed (for purposes of computing his education credit) to have used the scholarship to pay for tuition, required fees, and course materials. Instructions for form 1040ez His adjusted qualified education expenses will be zero and he will not have an education credit. Instructions for form 1040ez Therefore, Bill's tax after credits would be $2,599. Instructions for form 1040ez Example 3—Scholarship partially included in income. Instructions for form 1040ez The facts are the same as in Example 2—Scholarship excluded from income. Instructions for form 1040ez If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have used that amount to pay for room and board. Instructions for form 1040ez The remaining $1,600 of the $5,600 scholarship will reduce his qualified education expenses and his adjusted qualified education expenses will be $4,000. Instructions for form 1040ez Bill's AGI will increase to $34,000, his taxable income will increase to $24,250, and his tax before credits will increase to $3,199. Instructions for form 1040ez Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity tax credit of $2,500 and his tax after credits would be $699. Instructions for form 1040ez Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Instructions for form 1040ez This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Instructions for form 1040ez Sports, games, hobbies, and noncredit courses. Instructions for form 1040ez   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Instructions for form 1040ez However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Instructions for form 1040ez Comprehensive or bundled fees. Instructions for form 1040ez   Some eligible educational institutions combine all of their fees for an academic period into one amount. Instructions for form 1040ez If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed earlier, contact the institution. Instructions for form 1040ez The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. Instructions for form 1040ez See Figuring the Credit , later, for more information about Form 1098-T. Instructions for form 1040ez Who Is an Eligible Student To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. Instructions for form 1040ez This is a student who meets all of the following requirements. Instructions for form 1040ez The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. Instructions for form 1040ez This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. Instructions for form 1040ez The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. Instructions for form 1040ez For at least one academic period beginning in 2013, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Instructions for form 1040ez The student has not been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2013. Instructions for form 1040ez These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. Instructions for form 1040ez Completion of first 4 years. Instructions for form 1040ez   A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework completed by the student before 2013. Instructions for form 1040ez This student generally would not be an eligible student for purposes of the American opportunity credit. Instructions for form 1040ez Exception. Instructions for form 1040ez   Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education. Instructions for form 1040ez Enrolled at least half-time. Instructions for form 1040ez   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Instructions for form 1040ez   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Instructions for form 1040ez However, the standard may not be lower than any of those established by the U. Instructions for form 1040ez S. Instructions for form 1040ez Department of Education under the Higher Education Act of 1965. Instructions for form 1040ez Please click here for the text description of the image. Instructions for form 1040ez Figure 2-2 Example 1. Instructions for form 1040ez Mack graduated from high school in June 2012. Instructions for form 1040ez In September, he enrolled in an undergraduate degree program at College U, and attended full-time for both the 2012 fall and 2013 spring semesters. Instructions for form 1040ez For the 2013 fall semester, Mack was enrolled less than half-time. Instructions for form 1040ez Because Mack was enrolled in an undergraduate degree program on at least a half-time basis for at least one academic period that began during 2012 and at least one academic period that began during 2013, he is an eligible student for tax years 2012 and 2013 (including the 2013 fall semester when he enrolled at College U on less than a half-time basis). Instructions for form 1040ez Example 2. Instructions for form 1040ez After taking classes at College V on a part-time basis for a few years, Shelly became a full-time student for the 2013 spring semester. Instructions for form 1040ez College V classified Shelly as a second-semester senior (fourth year) for the 2013 spring semester and as a first-semester graduate student (fifth year) for the 2013 fall semester. Instructions for form 1040ez Because College V did not classify Shelly as having completed the first 4 years of postsecondary education as of the beginning of 2013, Shelly is an eligible student for tax year 2013. Instructions for form 1040ez Therefore, the qualified education expenses paid for the 2013 spring semester and the 2013 fall semester are taken into account in calculating the American opportunity credit for 2013. Instructions for form 1040ez Example 3. Instructions for form 1040ez During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. Instructions for form 1040ez Larry was not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. Instructions for form 1040ez Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. Instructions for form 1040ez Example 4. Instructions for form 1040ez The facts are the same as in Example 3. Instructions for form 1040ez During the 2013 spring semester, Larry again attended College X but not as part of a degree program. Instructions for form 1040ez Larry graduated from high school in June 2013. Instructions for form 1040ez For the 2013 fall semester, Larry enrolled as a full-time student in College X as part of a degree program, and College X awarded Larry credit for his prior coursework at College X. Instructions for form 1040ez Because Larry was enrolled in a degree program at College X for the 2013 fall term on at least a half-time basis, Larry is an eligible student for all of tax year 2013. Instructions for form 1040ez Therefore, the qualified education expenses paid for classes taken at College X during both the 2013 spring semester (during which Larry was not enrolled in a degree program) and the 2013 fall semester are taken into account in computing any American opportunity credit. Instructions for form 1040ez Example 5. Instructions for form 1040ez Dee graduated from high school in June 2012. Instructions for form 1040ez In January 2013, Dee enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a travel agent. Instructions for form 1040ez Dee completed the program in December 2013, and was awarded a certificate. Instructions for form 1040ez In January 2014, she enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a computer programmer. Instructions for form 1040ez Dee is an eligible student for both tax years 2013 and 2014 because she meets the degree requirement, the work load requirement, and the year of study requirement for those years. Instructions for form 1040ez Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim an American opportunity credit for your dependent's expenses for that year. Instructions for form 1040ez For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. Instructions for form 1040ez You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Instructions for form 1040ez IF you. Instructions for form 1040ez . Instructions for form 1040ez . Instructions for form 1040ez THEN only. Instructions for form 1040ez . Instructions for form 1040ez . Instructions for form 1040ez claim an exemption on  your tax return for a  dependent who is an  eligible student you can claim the American opportunity credit based on that dependent's expenses. Instructions for form 1040ez The dependent cannot claim the credit. Instructions for form 1040ez do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the American opportunity credit. Instructions for form 1040ez You cannot claim the credit based on this dependent's expenses. Instructions for form 1040ez Expenses paid by dependent. Instructions for form 1040ez   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Instructions for form 1040ez Include these expenses when figuring the amount of your American opportunity credit. Instructions for form 1040ez    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Instructions for form 1040ez Expenses paid by you. Instructions for form 1040ez   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the American opportunity credit. Instructions for form 1040ez If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the American opportunity credit. Instructions for form 1040ez Expenses paid by others. Instructions for form 1040ez   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Instructions for form 1040ez In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Instructions for form 1040ez If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Instructions for form 1040ez Example. Instructions for form 1040ez In 2013, Ms. Instructions for form 1040ez Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Instructions for form 1040ez For purposes of claiming an American opportunity credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Instructions for form 1040ez Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim an American opportunity credit. Instructions for form 1040ez If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim an American opportunity credit. Instructions for form 1040ez If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. Instructions for form 1040ez Tuition reduction. Instructions for form 1040ez    When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Instructions for form 1040ez If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Instructions for form 1040ez For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Instructions for form 1040ez Figuring the Credit The amount of the American opportunity credit (per eligible student) is the sum of: 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and 25% of the next $2,000 of qualified education expenses you paid for that student. Instructions for form 1040ez The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. Instructions for form 1040ez You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. Instructions for form 1040ez However, the credit may be reduced based on your MAGI. Instructions for form 1040ez See Effect of the Amount of Your Income on the Amount of Your Credit , later. Instructions for form 1040ez Example. Instructions for form 1040ez Jack and Kay Ford are married and file a joint tax return. Instructions for form 1040ez For 2013, they claim an exemption for their dependent daughter on their tax return. Instructions for form 1040ez Their MAGI is $70,000. Instructions for form 1040ez Their daughter is in her junior (third) year of studies at the local university. Instructions for form 1040ez Jack and Kay paid qualified education expenses of $4,300 in 2013. Instructions for form 1040ez Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. Instructions for form 1040ez Jack and Kay can claim a $2,500 American opportunity credit in 2013. Instructions for form 1040ez This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. Instructions for form 1040ez Form 1098-T. Instructions for form 1040ez   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. Instructions for form 1040ez Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Instructions for form 1040ez An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Instructions for form 1040ez However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. Instructions for form 1040ez When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Instructions for form 1040ez   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Instructions for form 1040ez    The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. Instructions for form 1040ez Effect of the Amount of Your Income on the Amount of Your Credit The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). Instructions for form 1040ez You cannot claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). Instructions for form 1040ez Modified adjusted gross income (MAGI). Instructions for form 1040ez   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Instructions for form 1040ez MAGI when using Form 1040A. Instructions for form 1040ez   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Instructions for form 1040ez MAGI when using Form 1040. Instructions for form 1040ez   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Instructions for form 1040ez You can use Worksheet 2-1, next, to figure your MAGI. Instructions for form 1040ez    Worksheet 2-1. Instructions for form 1040ez MAGI for the American Opportunity Credit 1. Instructions for form 1040ez Enter your adjusted gross income  (Form 1040, line 38)   1. Instructions for form 1040ez   2. Instructions for form 1040ez Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Instructions for form 1040ez       3. Instructions for form 1040ez Enter your foreign housing deduction (Form 2555, line 50)   3. Instructions for form 1040ez       4. Instructions for form 1040ez Enter the amount of income from Puerto Rico you are excluding   4. Instructions for form 1040ez       5. Instructions for form 1040ez Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Instructions for form 1040ez       6. Instructions for form 1040ez Add the amounts on lines 2, 3, 4, and 5   6. Instructions for form 1040ez   7. Instructions for form 1040ez Add the amounts on lines 1 and 6. Instructions for form 1040ez  This is your modified adjusted  gross income. Instructions for form 1040ez Enter here and  on Form 8863, line 3   7. Instructions for form 1040ez   Phaseout. Instructions for form 1040ez   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 2-7, of Form 8863, Part I. Instructions for form 1040ez The same method is shown in the following example. Instructions for form 1040ez Example. Instructions for form 1040ez You are filing a joint return and your MAGI is $165,000. Instructions for form 1040ez In 2013, you paid $5,000 of qualified education expenses. Instructions for form 1040ez You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses). Instructions for form 1040ez Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. Instructions for form 1040ez The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. Instructions for form 1040ez The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). Instructions for form 1040ez The result is the amount of your phased out (reduced) American opportunity credit ($1,875). Instructions for form 1040ez      $2,500 × $180,000 − $165,000  $20,000 = $1,875   Refundable Part of Credit Forty percent of the American opportunity credit is refundable for most taxpayers. Instructions for form 1040ez However, if you were under age 24 at the end of 2013 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instructions for form 1040ez Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. Instructions for form 1040ez You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. Instructions for form 1040ez You were: Under age 18 at the end of 2013, or Age 18 at the end of 2013 and your earned income (defined below) was less than one-half of your support (defined below), or Over age 18 and under age 24 at the end of 2013 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below). Instructions for form 1040ez At least one of your parents was alive at the end of 2013. Instructions for form 1040ez You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. Instructions for form 1040ez Earned income. Instructions for form 1040ez   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Instructions for form 1040ez Earned income includes the part of any scholarship or fellowship that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship. Instructions for form 1040ez Earned income does not include that part of the compensation for personal services rendered to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. Instructions for form 1040ez   If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). Instructions for form 1040ez However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. Instructions for form 1040ez Support. Instructions for form 1040ez   Your support includes food, shelter, clothing, medical and dental care, education, and the like. Instructions for form 1040ez Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. Instructions for form 1040ez If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. Instructions for form 1040ez However, a scholarship received by you is not considered support if you are a full-time student. Instructions for form 1040ez See Publication 501 for details. Instructions for form 1040ez Full-time student. Instructions for form 1040ez   You are a full-time student for 2013 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency. Instructions for form 1040ez Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Instructions for form 1040ez Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. Instructions for form 1040ez Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. Instructions for form 1040ez A filled-in Form 8863 is shown at the end of this publication. Instructions for form 1040ez Note. Instructions for form 1040ez In Appendix A. Instructions for form 1040ez at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Instructions for form 1040ez Prev  Up  Next   Home   More Online Publications