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Nj 1040ez

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Nj 1040ez

Nj 1040ez Publication 555 - Main Content Table of Contents Domicile Community or Separate Property and Income Identifying Income, Deductions, and CreditsIncome Exemptions Deductions Credits, Taxes, and Payments Community Property Laws DisregardedRequesting relief. Nj 1040ez Equitable relief. Nj 1040ez Earned income. Nj 1040ez Trade or business income. Nj 1040ez Partnership income or loss. Nj 1040ez Separate property income. Nj 1040ez Social security benefits. Nj 1040ez Other income. Nj 1040ez End of the Community Preparing a Federal Income Tax ReturnJoint Return Versus Separate Returns Separate Return Preparation How To Get Tax HelpLow Income Taxpayer Clinics Domicile Whether you have community property and community income depends on the state where you are domiciled. Nj 1040ez If you and your spouse (or your registered domestic partner) have different domiciles, check the laws of each to see whether you have community property or community income. Nj 1040ez You have only one domicile even if you have more than one home. Nj 1040ez Your domicile is a permanent legal home that you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. Nj 1040ez The question of your domicile is mainly a matter of your intention as indicated by your actions. Nj 1040ez You must be able to show that you intend a given place or state to be your permanent home. Nj 1040ez If you move into or out of a community property state during the year, you may or may not have community income. Nj 1040ez Factors considered in determining domicile include: Where you pay state income tax, Where you vote, Location of property you own, Your citizenship, Length of residence, and Business and social ties to the community. Nj 1040ez Amount of time spent. Nj 1040ez    The amount of time spent in one place does not always explain the difference between home and domicile. Nj 1040ez A temporary home or residence may continue for months or years while a domicile may be established the first moment you occupy the property. Nj 1040ez Your intent is the determining factor in proving where you have your domicile. Nj 1040ez    Note. Nj 1040ez When this publication refers to where you live, it means your domicile. Nj 1040ez Community or Separate Property and Income If you file a federal tax return separately from your spouse, you must report half of all community income and all of your separate income. Nj 1040ez Likewise, a registered domestic partner must report half of all community income and all of his or her separate income on his or her federal tax return. Nj 1040ez You each must attach your Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return. Nj 1040ez Generally, the laws of the state in which you are domiciled govern whether you have community property and community income or separate property and separate income for federal tax purposes. Nj 1040ez The following is a summary of the general rules. Nj 1040ez These rules are also shown in Table 1. Nj 1040ez Community property. Nj 1040ez    Generally, community property is property: That you, your spouse (or your registered domestic partner), or both acquire during your marriage (or registered domestic partnership) while you and your spouse (or your registered domestic partner) are domiciled in a community property state. Nj 1040ez That you and your spouse (or your registered domestic partner) agreed to convert from separate to community property. Nj 1040ez That cannot be identified as separate property. Nj 1040ez Community income. Nj 1040ez    Generally, community income is income from: Community property. Nj 1040ez Salaries, wages, and other pay received for the services performed by you, your spouse (or your registered domestic partner), or both during your marriage (or registered domestic partnership) while domiciled in a community property state. Nj 1040ez Real estate that is treated as community property under the laws of the state where the property is located. Nj 1040ez Note Separate property. Nj 1040ez    Generally, separate property is: Property that you or your spouse (or your registered domestic partner) owned separately before your marriage (or registered domestic partnership). Nj 1040ez Money earned while domiciled in a noncommunity property state. Nj 1040ez Property that you or your spouse (or your registered domestic partner) received separately as a gift or inheritance during your marriage (or registered domestic partnership). Nj 1040ez Property that you or your spouse (or your registered domestic partner) bought with separate funds, or acquired in exchange for separate property, during your marriage (or registered domestic partnership). Nj 1040ez Property that you and your spouse (or your registered domestic partner) converted from community property to separate property through an agreement valid under state law. Nj 1040ez The part of property bought with separate funds, if part was bought with community funds and part with separate funds. Nj 1040ez Separate income. Nj 1040ez    Generally, income from separate property is the separate income of the spouse (or the registered domestic partner) who owns the property. Nj 1040ez    In Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is community income. Nj 1040ez Table 1. Nj 1040ez General Rules — Property and Income: Community or Separate? Community property is property: That you, your spouse (or your registered domestic partner), or both acquire during your marriage (or registered domestic partnership) while you and your spouse (or your registered domestic partner) are domiciled in a community property state. Nj 1040ez (Includes the part of property bought with community property funds if part was bought with community funds and part with separate funds. Nj 1040ez ) That you and your spouse (or your registered domestic partner) agreed to convert from separate to community property. Nj 1040ez That cannot be identified as separate property. Nj 1040ez Separate property is: Property that you or your spouse (or your registered domestic partner) owned separately before your marriage (or registered domestic partnership). Nj 1040ez Money earned while domiciled in a noncommunity property state. Nj 1040ez Property either of you received as a gift or inherited separately during your marriage (or registered domestic partnership). Nj 1040ez Property bought with separate funds, or exchanged for separate property, during your marriage (or registered domestic partnership). Nj 1040ez Property that you and your spouse (or your registered domestic partner) agreed to convert from community to separate property through an agreement valid under state law. Nj 1040ez The part of property bought with separate funds, if part was bought with community funds and part with separate funds. Nj 1040ez Community income 1,2,3 is income from: Community property. Nj 1040ez Salaries, wages, or pay for services of you, your spouse (or your registered domestic partner), or both during your marriage (or registered domestic partnership) while domiciled in a community property state. Nj 1040ez Real estate that is treated as community property under the laws of the state where the property is located. Nj 1040ez Separate income 1,2 is income from: Separate property which belongs to the spouse (or registered domestic partner) who owns the property. Nj 1040ez 1In Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is community income. Nj 1040ez 2Check your state law if you are separated but do not meet the conditions discussed in Spouses living apart all year , later. Nj 1040ez In some states, the income you earn after you are separated and before a divorce decree is issued continues to be community income. Nj 1040ez In other states, it is separate income. Nj 1040ez 3Under special rules, income that can otherwise be characterized as community income may not be treated as community income for federal income tax purposes in certain situations. Nj 1040ez See Community Property Laws Disregarded , later. Nj 1040ez Identifying Income, Deductions, and Credits If you file separate returns, you and your spouse (or your registered domestic partner) each must attach your Form 8958 to your Form 1040 to identify your community and separate income, deductions, credits, and other return amounts according to the laws of your state. Nj 1040ez Under special rules, income that can otherwise be characterized as community income may not be treated as community income for federal income tax purposes in certain situations. Nj 1040ez See Community Property Laws Disregarded, later. Nj 1040ez Check your state law if you are separated but do not meet the conditions discussed in Spouses living apart all year, later. Nj 1040ez In some states, the income you earn after you are separated and before a divorce decree is issued continues to be community income. Nj 1040ez In other states, it is separate income. Nj 1040ez Income The following is a discussion of the general effect of community property laws on the federal income tax treatment of certain items of income. Nj 1040ez Wages, earnings, and profits. Nj 1040ez    A spouse's (or your registered domestic partner's) wages, earnings, and net profits from a sole proprietorship are community income and must be evenly split. Nj 1040ez Dividends, interest, and rents. Nj 1040ez    Dividends, interest, and rents from community property are community income and must be evenly split. Nj 1040ez Dividends, interest, and rents from separate property are characterized in accordance with the discussion under Income from separate property , later. Nj 1040ez Example. Nj 1040ez If you and your spouse (or your registered domestic partner) buy a bond that is considered community property under your state laws, half the bond interest belongs to you and half belongs to your spouse. Nj 1040ez You each must show the bond interest and the split of that interest on your Form 8958, and report half the interest on your Form 1040. Nj 1040ez Attach your Form 8958 to your Form 1040. Nj 1040ez Alimony received. Nj 1040ez    Alimony or separate maintenance payments made prior to divorce are taxable to the payee spouse only to the extent they exceed 50% (his or her share) of the reportable community income. Nj 1040ez This is so because the payee spouse is already required to report half of the community income. Nj 1040ez See also Alimony paid , later. Nj 1040ez Gains and losses. Nj 1040ez    Gains and losses are classified as separate or community depending on how the property is held. Nj 1040ez For example, a loss on separate property, such as stock held separately, is a separate loss. Nj 1040ez On the other hand, a loss on community property, such as a casualty loss to your home held as community property, is a community loss. Nj 1040ez See Publication 544, Sales and Other Dispositions of Assets, for information on gains and losses. Nj 1040ez See Publication 547, Casualties, Disasters, and Thefts, for information on losses due to a casualty or theft. Nj 1040ez Withdrawals from individual retirement arrangements (IRAs) and Coverdell Education Savings Accounts (ESAs). Nj 1040ez    There are several kinds of individual retirement arrangements (IRAs). Nj 1040ez They are traditional IRAs (including SEP-IRAs), SIMPLE IRAs, and Roth IRAs. Nj 1040ez IRAs and ESAs by law are deemed to be separate property. Nj 1040ez Therefore, taxable IRA and ESA distributions are separate property, even if the funds in the account would otherwise be community property. Nj 1040ez These distributions are wholly taxable to the spouse (or registered domestic partner) whose name is on the account. Nj 1040ez That spouse (or registered domestic partner) is also liable for any penalties and additional taxes on the distributions. Nj 1040ez Pensions. Nj 1040ez    Generally, distributions from pensions will be characterized as community or separate income depending on the respective periods of participation in the pension while married (or during the registered domestic partnership) and domiciled in a community property state or in a noncommunity property state during the total period of participation in the pension. Nj 1040ez See the example under Civil service retirement , later. Nj 1040ez These rules may vary between states. Nj 1040ez Check your state law. Nj 1040ez Lump-sum distributions. Nj 1040ez    If you were born before January 2, 1936, and receive a lump-sum distribution from a qualified retirement plan, you may be able to choose an optional method of figuring the tax on the distribution. Nj 1040ez For the 10-year tax option, you must disregard community property laws. Nj 1040ez For more information, see Publication 575, Pension and Annuity Income, and Form 4972, Tax on Lump-Sum Distributions. Nj 1040ez Civil service retirement. Nj 1040ez    For income tax purposes, community property laws apply to annuities payable under the Civil Service Retirement Act (CSRS) or Federal Employee Retirement System (FERS). Nj 1040ez   Whether a civil service annuity is separate or community income depends on your marital status (or your status as a registered domestic partner) and domicile of the employee when the services were performed for which the annuity is paid. Nj 1040ez Even if you now live in a noncommunity property state and you receive a civil service annuity, it may be community income if it is based on services you performed while married (or during the registered domestic partnership) and domiciled in a community property state. Nj 1040ez   If a civil service annuity is a mixture of community income and separate income, it must be divided between the two kinds of income. Nj 1040ez The division is based on the employee's domicile and marital status (or registered domestic partnership) in community and noncommunity property states during his or her periods of service. Nj 1040ez Example. Nj 1040ez Henry Wright retired this year after 30 years of civil service. Nj 1040ez He and his wife were domiciled in a community property state during the past 15 years. Nj 1040ez Since half the service was performed while the Wrights were married and domiciled in a community property state, half the civil service retirement pay is considered to be community income. Nj 1040ez If Mr. Nj 1040ez Wright receives $1,000 a month in retirement pay, $500 is considered community income—half ($250) is his income and half ($250) is his wife's. Nj 1040ez Military retirement pay. Nj 1040ez    State community property laws apply to military retirement pay. Nj 1040ez Generally, the pay is either separate or community income based on the marital status and domicile of the couple while the member of the Armed Forces was in active military service. Nj 1040ez For example, military retirement pay for services performed during marriage and domicile in a community property state is community income. Nj 1040ez   Active military pay earned while married and domiciled in a community property state is also community income. Nj 1040ez This income is considered to be received half by the member of the Armed Forces and half by the spouse. Nj 1040ez Partnership income. Nj 1040ez    If an interest is held in a partnership, and income from the partnership is attributable to the efforts of either spouse (or registered domestic partner), the partnership income is community property. Nj 1040ez If it is merely a passive investment in a separate property partnership, the partnership income will be characterized in accordance with the discussion under Income from separate property , later. Nj 1040ez Tax-exempt income. Nj 1040ez    For spouses, community income exempt from federal tax generally keeps its exempt status for both spouses. Nj 1040ez For example, under certain circumstances, income earned outside the United States is tax exempt. Nj 1040ez If you earned income and met the conditions that made it exempt, the income is also exempt for your spouse even though he or she may not have met the conditions. Nj 1040ez Registered domestic partners should consult the particular exclusion provision to see if the exempt status applies to both. Nj 1040ez Income from separate property. Nj 1040ez    In some states, income from separate property is separate income. Nj 1040ez These states include Arizona, California, Nevada, New Mexico, and Washington. Nj 1040ez Other states characterize income from separate property as community income. Nj 1040ez These states include Idaho, Louisiana, Texas, and Wisconsin. Nj 1040ez Exemptions When you file separate returns, you must claim your own exemption amount for that year. Nj 1040ez (See your tax return instructions. Nj 1040ez ) You cannot divide the amount allowed as an exemption for a dependent between you and your spouse (or your registered domestic partner). Nj 1040ez When community funds provide support for more than one person, each of whom otherwise qualifies as a dependent, you and your spouse (or your registered domestic partner) may divide the number of dependency exemptions as explained in the following example. Nj 1040ez Example. Nj 1040ez Ron and Diane White have three dependent children and live in Nevada. Nj 1040ez If Ron and Diane file separately, only Ron can claim his own exemption, and only Diane can claim her own exemption. Nj 1040ez Ron and Diane can agree that one of them will claim the exemption for one, two, or all of their children and the other will claim any remaining exemptions. Nj 1040ez They cannot each claim half of the total exemption amount for their three children. Nj 1040ez Deductions If you file separate returns, your deductions generally depend on whether the expenses involve community or separate income. Nj 1040ez Business and investment expenses. Nj 1040ez    If you file separate returns, expenses incurred to earn or produce community business or investment income are generally divided equally between you and your spouse (or your registered domestic partner). Nj 1040ez Each of you is entitled to deduct one-half of the expenses on your separate returns. Nj 1040ez Expenses incurred by a spouse (or registered domestic partner) to produce separate business or investment income is deductible by the spouse (or the registered domestic partner) who earns the corresponding separate business or investment income. Nj 1040ez    Other limits may also apply to business and investment expenses. Nj 1040ez For more information, see Publication 535, Business Expenses, and Publication 550, Investment Income and Expenses. Nj 1040ez Alimony paid. Nj 1040ez    Payments that may otherwise qualify as alimony are not deductible by the payer if they are the recipient spouse's part of community income. Nj 1040ez They are deductible as alimony only to the extent they are more than that spouse's part of community income. Nj 1040ez Example. Nj 1040ez You live in a community property state. Nj 1040ez You are separated but the special rules explained later under Spouses living apart all year do not apply. Nj 1040ez Under a written agreement, you pay your spouse $12,000 of your $20,000 total yearly community income. Nj 1040ez Your spouse receives no other community income. Nj 1040ez Under your state law, earnings of a spouse living separately and apart from the other spouse continue as community property. Nj 1040ez On your separate returns, each of you must report $10,000 of the total community income. Nj 1040ez In addition, your spouse must report $2,000 as alimony received. Nj 1040ez You can deduct $2,000 as alimony paid. Nj 1040ez IRA deduction. Nj 1040ez    Deductions for IRA contributions cannot be split between spouses (or registered domestic partners). Nj 1040ez The deduction for each spouse (or each registered domestic partner) is figured separately and without regard to community property laws. Nj 1040ez Personal expenses. Nj 1040ez   Expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. Nj 1040ez If these expenses are paid from community funds, divide the deduction equally between you and your spouse. Nj 1040ez Credits, Taxes, and Payments The following is a discussion of the general effect of community property laws on the treatment of certain credits, taxes, and payments on your separate return. Nj 1040ez Child tax credit. Nj 1040ez    You may be entitled to a child tax credit for each of your qualifying children. Nj 1040ez You must provide the name and identification number (usually the social security number) of each qualifying child on your return. Nj 1040ez See your tax return instructions for the maximum amount of the credit you can claim for each qualifying child. Nj 1040ez Limit on credit. Nj 1040ez    The credit is limited if your modified adjusted gross income (modified AGI) is above a certain amount. Nj 1040ez The amount at which the limitation (phaseout) begins depends on your filing status. Nj 1040ez Generally, your credit is limited to your tax liability unless you have three or more qualifying children. Nj 1040ez See your tax return instructions for more information. Nj 1040ez Self-employment tax. Nj 1040ez    For the effect of community property laws on the income tax treatment of income from a sole proprietorship and partnerships, see Wages, earnings, and profits and Partnership income , earlier. Nj 1040ez The following rules only apply to persons married for federal tax purposes. Nj 1040ez Registered domestic partners report community income for self-employment tax purposes the same way they do for income tax purposes. Nj 1040ez Sole proprietorship. Nj 1040ez    With regard to net income from a trade or business (other than a partnership) that is community income, self-employment tax is imposed on the spouse carrying on the trade or business. Nj 1040ez Partnerships. Nj 1040ez    All of the distributive share of a married partner's income or loss from a partnership trade or business is attributable to the partner for computing any self-employment tax, even if a portion of the partner's distributive share of income or loss is community income or loss that is otherwise attributable to the partner's spouse for income tax purposes. Nj 1040ez If both spouses are partners, any self-employment tax is allocated based on their distributive shares. Nj 1040ez Federal income tax withheld. Nj 1040ez    Report the credit for federal income tax withheld on community wages in the same manner as your wages. Nj 1040ez If you and your spouse file separate returns on which each of you reports half the community wages, each of you is entitled to credit for half the income tax withheld on those wages. Nj 1040ez Likewise, each registered domestic partner is entitled to credit for half the income tax withheld on those wages. Nj 1040ez Estimated tax payments. Nj 1040ez    In determining whether you must pay estimated tax, apply the estimated tax rules to your estimated income. Nj 1040ez These rules are explained in Publication 505. Nj 1040ez   If you think you may owe estimated tax and want to pay the tax separately (registered domestic partners must pay the tax separately), determine whether you must pay it by taking into account: Half the community income and deductions, All of your separate income and deductions, and Your own exemption and any exemptions for dependents that you may claim. Nj 1040ez   Whether you and your spouse pay estimated tax jointly or separately will not affect your choice of filing joint or separate income tax returns. Nj 1040ez   If you and your spouse paid estimated tax jointly but file separate income tax returns, either of you can claim all of the estimated tax paid, or you may divide it between you in any way that you agree upon. Nj 1040ez   If you cannot agree on how to divide it, the estimated tax you can claim equals the total estimated tax paid times the tax shown on your separate return, divided by the total of the tax shown on your return and your spouse's return. Nj 1040ez   If you paid your estimated taxes separately, you get credit for only the estimated taxes you paid. Nj 1040ez Earned income credit. Nj 1040ez    You may be entitled to an earned income credit (EIC). Nj 1040ez You cannot claim this credit if your filing status is married filing separately. Nj 1040ez   If you are married, but qualify to file as head of household under rules for married taxpayers living apart (see Publication 501, Exemptions, Standard Deduction, and Filing Information), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under community property laws. Nj 1040ez That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Nj 1040ez Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. Nj 1040ez The same rule applies to registered domestic partners. Nj 1040ez    This rule does not apply when determining your adjusted gross income (AGI) for the EIC. Nj 1040ez Your AGI includes that part of both your and your spouse's (or your registered domestic partner's) wages that you are required to include in gross income shown on your tax return. Nj 1040ez   For more information about the EIC, see Publication 596, Earned Income Credit (EIC). Nj 1040ez Overpayments. Nj 1040ez    The amount of an overpayment on a joint return is allocated under the community property laws of the state in which you are domiciled. Nj 1040ez If, under the laws of your state, community property is subject to premarital or other separate debts of either spouse, the full joint overpayment may be used to offset the obligation. Nj 1040ez If, under the laws of your state, community property is not subject to premarital or other separate debts of either spouse, only the portion of the joint overpayment allocated to the spouse liable for the obligation can be used to offset that liability. Nj 1040ez The portion allocated to the other spouse can be refunded. Nj 1040ez Community Property Laws Disregarded The following discussions are situations where special rules apply to community property and community income for spouses. Nj 1040ez These rules do not apply to registered domestic partners. Nj 1040ez Certain community income not treated as community income by one spouse. Nj 1040ez    Community property laws may not apply to an item of community income that you received but did not treat as community income. Nj 1040ez You are responsible for reporting all of that income item if: You treat the item as if only you are entitled to the income, and You do not notify your spouse of the nature and amount of the income by the due date for filing the return (including extensions). Nj 1040ez Relief from liability arising from community property law. Nj 1040ez    You are not responsible for the tax relating to an item of community income if all the following conditions are met. Nj 1040ez You did not file a joint return for the tax year. Nj 1040ez You did not include an item of community income in gross income. Nj 1040ez The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. Nj 1040ez Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. Nj 1040ez Your spouse's (or former spouse's) distributive share of partnership income. Nj 1040ez Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Nj 1040ez Use the appropriate community property law to determine what is separate property. Nj 1040ez Any other income that belongs to your spouse (or former spouse) under community property law. Nj 1040ez You establish that you did not know of, and had no reason to know of, that community income. Nj 1040ez Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. Nj 1040ez Requesting relief. Nj 1040ez    For information on how and when to request relief from liabilities arising from community property laws, see Community Property Laws in Publication 971, Innocent Spouse Relief. Nj 1040ez Equitable relief. Nj 1040ez    If you do not qualify for the relief discussed earlier under Relief from liability arising from community property law and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief. Nj 1040ez To request equitable relief, you must file Form 8857, Request for Innocent Spouse Relief. Nj 1040ez Also see Publication 971. Nj 1040ez Spousal agreements. Nj 1040ez    In some states a married couple may enter into an agreement that affects the status of property or income as community or separate property. Nj 1040ez Check your state law to determine how it affects you. Nj 1040ez Nonresident alien spouse. Nj 1040ez    If you are a U. Nj 1040ez S. Nj 1040ez citizen or resident alien and you choose to treat your nonresident alien spouse as a U. Nj 1040ez S. Nj 1040ez resident for tax purposes and you are domiciled in a community property state or country, use the community property rules. Nj 1040ez You must file a joint return for the year you make the choice. Nj 1040ez You can file separate returns in later years. Nj 1040ez For details on making this choice, see Publication 519, U. Nj 1040ez S. Nj 1040ez Tax Guide for Aliens. Nj 1040ez   If you are a U. Nj 1040ez S. Nj 1040ez citizen or resident alien and do not choose to treat your nonresident alien spouse as a U. Nj 1040ez S. Nj 1040ez resident for tax purposes, treat your community income as explained next under Spouses living apart all year. Nj 1040ez However, you do not have to meet the four conditions discussed there. Nj 1040ez Spouses living apart all year. Nj 1040ez    If you are married at any time during the calendar year, special rules apply for reporting certain community income. Nj 1040ez You must meet all the following conditions for these special rules to apply. Nj 1040ez You and your spouse lived apart all year. Nj 1040ez You and your spouse did not file a joint return for a tax year beginning or ending in the calendar year. Nj 1040ez You and/or your spouse had earned income for the calendar year that is community income. Nj 1040ez You and your spouse have not transferred, directly or indirectly, any of the earned income in condition (3) above between yourselves before the end of the year. Nj 1040ez Do not take into account transfers satisfying child support obligations or transfers of very small amounts or value. Nj 1040ez If all these conditions are met, you and your spouse must report your community income as discussed next. Nj 1040ez See also Certain community income not treated as community income by one spouse , earlier. Nj 1040ez Earned income. Nj 1040ez    Treat earned income that is not trade or business or partnership income as the income of the spouse who performed the services to earn the income. Nj 1040ez Earned income is wages, salaries, professional fees, and other pay for personal services. Nj 1040ez   Earned income does not include amounts paid by a corporation that are a distribution of earnings and profits rather than a reasonable allowance for personal services rendered. Nj 1040ez Trade or business income. Nj 1040ez    Treat income and related deductions from a trade or business that is not a partnership as those of the spouse carrying on the trade or business. Nj 1040ez Partnership income or loss. Nj 1040ez    Treat income or loss from a trade or business carried on by a partnership as the income or loss of the spouse who is the partner. Nj 1040ez Separate property income. Nj 1040ez    Treat income from the separate property of one spouse as the income of that spouse. Nj 1040ez Social security benefits. Nj 1040ez    Treat social security and equivalent railroad retirement benefits as the income of the spouse who receives the benefits. Nj 1040ez Other income. Nj 1040ez    Treat all other community income, such as dividends, interest, rents, royalties, or gains, as provided under your state's community property law. Nj 1040ez Example. Nj 1040ez George and Sharon were married throughout the year but did not live together at any time during the year. Nj 1040ez Both domiciles were in a community property state. Nj 1040ez They did not file a joint return or transfer any of their earned income between themselves. Nj 1040ez During the year their incomes were as follows:   George Sharon Wages $20,000 $22,000 Consulting business 5,000   Partnership   10,000 Dividends from separate property 1,000 2,000 Interest from community property 500 500 Total $26,500 $34,500 Under the community property law of their state, all the income is considered community income. Nj 1040ez (Some states treat income from separate property as separate income—check your state law. Nj 1040ez ) Sharon did not take part in George's consulting business. Nj 1040ez Ordinarily, on their separate returns they would each report $30,500, half the total community income of $61,000 ($26,500 + $34,500). Nj 1040ez But because they meet the four conditions listed earlier under Spouses living apart all year , they must disregard community property law in reporting all their income (except the interest income) from community property. Nj 1040ez They each report on their returns only their own earnings and other income, and their share of the interest income from community property. Nj 1040ez George reports $26,500 and Sharon reports $34,500. Nj 1040ez Other separated spouses. Nj 1040ez    If you and your spouse are separated but do not meet the four conditions discussed earlier under Spouses living apart all year , you must treat your income according to the laws of your state. Nj 1040ez In some states, income earned after separation but before a decree of divorce continues to be community income. Nj 1040ez In other states, it is separate income. Nj 1040ez End of the Community The marital community may end in several ways. Nj 1040ez When the marital community ends, the community assets (money and property) are divided between the spouses. Nj 1040ez Similarly, a registered domestic partnership may end in several ways and the community assets must be divided between the registered domestic partners. Nj 1040ez Death of spouse. Nj 1040ez    If you own community property and your spouse dies, the total fair market value (FMV) of the community property, including the part that belongs to you, generally becomes the basis of the entire property. Nj 1040ez For this rule to apply, at least half the value of the community property interest must be includible in your spouse's gross estate, whether or not the estate must file a return (this rule does not apply to registered domestic partners). Nj 1040ez Example. Nj 1040ez Bob and Ann owned community property that had a basis of $80,000. Nj 1040ez When Bob died, his and Ann's community property had an FMV of $100,000. Nj 1040ez One-half of the FMV of their community interest was includible in Bob's estate. Nj 1040ez The basis of Ann's half of the property is $50,000 after Bob died (half of the $100,000 FMV). Nj 1040ez The basis of the other half to Bob's heirs is also $50,000. Nj 1040ez   For more information about the basis of assets, see Publication 551, Basis of Assets. Nj 1040ez    The above basis rule does not apply if your spouse died in 2010 and the spouse's executor elected out of the estate tax, in which case section 1022 will apply. Nj 1040ez See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for additional information. Nj 1040ez Divorce or separation. Nj 1040ez    If spouses divorce or separate, the (equal or unequal) division of community property in connection with the divorce or property settlement does not result in a gain or loss. Nj 1040ez For registered domestic partners, an unequal division of community property in a property settlement may result in a gain or loss. Nj 1040ez For information on the tax consequences of the division of property under a property settlement or divorce decree, see Publication 504. Nj 1040ez   Each spouse (or each registered domestic partner) is taxed on half the community income for the part of the year before the community ends. Nj 1040ez However, see Spouses living apart all year , earlier. Nj 1040ez Any income received after the community ends is separate income. Nj 1040ez This separate income is taxable only to the spouse (or the registered domestic partner) to whom it belongs. Nj 1040ez   An absolute decree of divorce or annulment ends the marital community in all community property states. Nj 1040ez A decree of annulment, even though it holds that no valid marriage ever existed, usually does not nullify community property rights arising during the “marriage. Nj 1040ez ” However, you should check your state law for exceptions. Nj 1040ez   A decree of legal separation or of separate maintenance may or may not end the marital community. Nj 1040ez The court issuing the decree may terminate the marital community and divide the property between the spouses. Nj 1040ez   A separation agreement may divide the community property between you and your spouse. Nj 1040ez It may provide that this property, along with future earnings and property acquired, will be separate property. Nj 1040ez This agreement may end the community. Nj 1040ez   In some states, the marital community ends when the spouses permanently separate, even if there is no formal agreement. Nj 1040ez Check your state law. Nj 1040ez   If you are a registered domestic partner, you should check your state law to determine when the community ends. Nj 1040ez Preparing a Federal Income Tax Return The following discussion does not apply to spouses who meet the conditions under Spouses living apart all year , discussed earlier. Nj 1040ez Those spouses must report their community income as explained in that discussion. Nj 1040ez Joint Return Versus Separate Returns Ordinarily, filing a joint return will give you a greater tax advantage than filing a separate return. Nj 1040ez But in some cases, your combined income tax on separate returns may be less than it would be on a joint return. Nj 1040ez This discussion concerning joint versus separate returns does not apply to registered domestic partners. Nj 1040ez The following rules apply if your filing status is married filing separately. Nj 1040ez You should itemize deductions if your spouse itemizes deductions, because you cannot claim the standard deduction. Nj 1040ez You cannot take the credit for child and dependent care expenses in most instances. Nj 1040ez You cannot take the earned income credit. Nj 1040ez You cannot exclude any interest income from qualified U. Nj 1040ez S. Nj 1040ez savings bonds that you used for higher education expenses. Nj 1040ez You cannot take the credit for the elderly or the disabled unless you lived apart from your spouse all year. Nj 1040ez You may have to include in income more of any social security benefits (including any equivalent railroad retirement benefits) you received during the year than you would on a joint return. Nj 1040ez You cannot deduct interest paid on a qualified student loan. Nj 1040ez You cannot take the education credits. Nj 1040ez You may have a smaller child tax credit than you would on a joint return. Nj 1040ez You cannot take the exclusion or credit for adoption expenses in most instances. Nj 1040ez Figure your tax both on a joint return and on separate returns under the community property laws of your state. Nj 1040ez You can then compare the tax figured under both methods and use the one that results in less tax. Nj 1040ez Separate Return Preparation If you file separate returns, you and your spouse must each report half of your combined community income and deductions in addition to your separate income and deductions. Nj 1040ez Each of you must complete and attach Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return. Nj 1040ez On the appropriate lines of your separate Form 1040, list only your share of the income and deductions on the appropriate lines of your separate tax returns (wages, interest, dividends, etc. Nj 1040ez ). Nj 1040ez The same reporting rule applies to registered domestic partners. Nj 1040ez For a discussion of the effect of community property laws on certain items of income, deductions, credits, and other return amounts, see Identifying Income, Deductions, and Credits , earlier. Nj 1040ez Attach your Form 8958 to your separate return showing how you figured the income, deductions, and federal income tax withheld that each of you reported. Nj 1040ez Form 8958 is used for married spouses in community property states who choose to file married filing separately. Nj 1040ez Form 8958 is also used for registered domestic partners who are domiciled in Nevada, Washington, or California. Nj 1040ez A registered domestic partner in Nevada, Washington, or California must follow state community property laws and report half the combined community income of the individual and his or her registered domestic partner. Nj 1040ez Extension of time to file. Nj 1040ez    An extension of time for filing your separate return does not extend the time for filing your spouse's (or your registered domestic partner's) separate return. Nj 1040ez If you and your spouse file a joint return, you cannot file separate returns after the due date for filing either separate return has passed. Nj 1040ez How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Nj 1040ez Free help with your tax return. Nj 1040ez    You can get free help preparing your return nationwide from IRS-certified volunteers. Nj 1040ez The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Nj 1040ez The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Nj 1040ez Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Nj 1040ez In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Nj 1040ez To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Nj 1040ez gov, download the IRS2Go app, or call 1-800-906-9887. Nj 1040ez   As part of the TCE program, AARP offers the Tax-Aide counseling program. Nj 1040ez To find the nearest AARP Tax-Aide site, visit AARP's website at www. Nj 1040ez aarp. Nj 1040ez org/money/taxaide or call 1-888-227-7669. Nj 1040ez For more information on these programs, go to IRS. Nj 1040ez gov and enter “VITA” in the search box. Nj 1040ez Internet. Nj 1040ez    IRS. Nj 1040ez gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Nj 1040ez Download the free IRS2Go app from the iTunes app store or from Google Play. Nj 1040ez Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Nj 1040ez Check the status of your 2013 refund with the Where's My Refund? application on IRS. Nj 1040ez gov or download the IRS2Go app and select the Refund Status option. Nj 1040ez The IRS issues more than 9 out of 10 refunds in less than 21 days. Nj 1040ez Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Nj 1040ez You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Nj 1040ez The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Nj 1040ez Use the Interactive Tax Assistant (ITA) to research your tax questions. Nj 1040ez No need to wait on the phone or stand in line. Nj 1040ez The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Nj 1040ez When you reach the response screen, you can print the entire interview and the final response for your records. Nj 1040ez New subject areas are added on a regular basis. Nj 1040ez  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Nj 1040ez gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Nj 1040ez You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Nj 1040ez The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Nj 1040ez When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Nj 1040ez Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Nj 1040ez You can also ask the IRS to mail a return or an account transcript to you. Nj 1040ez Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Nj 1040ez gov or by calling 1-800-908-9946. Nj 1040ez Tax return and tax account transcripts are generally available for the current year and the past three years. Nj 1040ez Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Nj 1040ez Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Nj 1040ez If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Nj 1040ez Check the status of your amended return using Where's My Amended Return? Go to IRS. Nj 1040ez gov and enter Where's My Amended Return? in the search box. Nj 1040ez You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Nj 1040ez It can take up to 3 weeks from the date you mailed it to show up in our system. Nj 1040ez Make a payment using one of several safe and convenient electronic payment options available on IRS. Nj 1040ez gov. Nj 1040ez Select the Payment tab on the front page of IRS. Nj 1040ez gov for more information. Nj 1040ez Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Nj 1040ez Figure your income tax withholding with the IRS Withholding Calculator on IRS. Nj 1040ez gov. Nj 1040ez Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Nj 1040ez Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Nj 1040ez gov. Nj 1040ez Request an Electronic Filing PIN by going to IRS. Nj 1040ez gov and entering Electronic Filing PIN in the search box. Nj 1040ez Download forms, instructions and publications, including accessible versions for people with disabilities. Nj 1040ez Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Nj 1040ez gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Nj 1040ez An employee can answer questions about your tax account or help you set up a payment plan. Nj 1040ez Before you visit, check the Office Locator on IRS. Nj 1040ez gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Nj 1040ez If you have a special need, such as a disability, you can request an appointment. Nj 1040ez Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Nj 1040ez Apply for an Employer Identification Number (EIN). Nj 1040ez Go to IRS. Nj 1040ez gov and enter Apply for an EIN in the search box. Nj 1040ez Read the Internal Revenue Code, regulations, or other official guidance. Nj 1040ez Read Internal Revenue Bulletins. Nj 1040ez Sign up to receive local and national tax news and more by email. Nj 1040ez Just click on “subscriptions” above the search box on IRS. Nj 1040ez gov and choose from a variety of options. Nj 1040ez    Phone. Nj 1040ez You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Nj 1040ez Download the free IRS2Go app from the iTunes app store or from Google Play. Nj 1040ez Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Nj 1040ez gov, or download the IRS2Go app. Nj 1040ez Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Nj 1040ez The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Nj 1040ez Most VITA and TCE sites offer free electronic filing. Nj 1040ez Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Nj 1040ez Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Nj 1040ez Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Nj 1040ez If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Nj 1040ez The IRS issues more than 9 out of 10 refunds in less than 21 days. Nj 1040ez Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Nj 1040ez Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Nj 1040ez The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Nj 1040ez Note, the above information is for our automated hotline. Nj 1040ez Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Nj 1040ez Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Nj 1040ez You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Nj 1040ez It can take up to 3 weeks from the date you mailed it to show up in our system. Nj 1040ez Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Nj 1040ez You should receive your order within 10 business days. Nj 1040ez Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Nj 1040ez If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Nj 1040ez Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Nj 1040ez The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Nj 1040ez These individuals can also contact the IRS through relay services such as the Federal Relay Service. Nj 1040ez    Walk-in. Nj 1040ez You can find a selection of forms, publications and services — in-person. Nj 1040ez Products. Nj 1040ez You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Nj 1040ez Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Nj 1040ez Services. Nj 1040ez You can walk in to your local TAC for face-to-face tax help. Nj 1040ez An employee can answer questions about your tax account or help you set up a payment plan. Nj 1040ez Before visiting, use the Office Locator tool on IRS. Nj 1040ez gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Nj 1040ez    Mail. Nj 1040ez You can send your order for forms, instructions, and publications to the address below. Nj 1040ez You should receive a response within 10 business days after your request is received. Nj 1040ez Internal Revenue Service 1201 N. Nj 1040ez Mitsubishi Motorway Bloomington, IL 61705-6613   The Taxpayer Advocate Service Is Here to Help You. Nj 1040ez The Taxpayer Advocate Service (TAS) is your voice at the IRS. Nj 1040ez Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Nj 1040ez   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Nj 1040ez We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Nj 1040ez You face (or your business is facing) an immediate threat of adverse action. Nj 1040ez You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Nj 1040ez   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Nj 1040ez Here's why we can help: TAS is an independent organization within the IRS. Nj 1040ez Our advocates know how to work with the IRS. Nj 1040ez Our services are free and tailored to meet your needs. Nj 1040ez We have offices in every state, the District of Columbia, and Puerto Rico. Nj 1040ez   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at www. Nj 1040ez irs. Nj 1040ez gov/advocate, or call us toll-free at 1-877-777-4778. Nj 1040ez   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Nj 1040ez If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. Nj 1040ez irs. Nj 1040ez gov/sams. Nj 1040ez Low Income Taxpayer Clinics Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. Nj 1040ez Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Nj 1040ez Visit www. Nj 1040ez irs. Nj 1040ez gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List. Nj 1040ez Prev  Up  Next   Home   More Online Publications
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Nj 1040ez 4. Nj 1040ez   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. Nj 1040ez Loan secured by benefits. Nj 1040ez Waiver of survivor benefits. Nj 1040ez Waiver of 30-day waiting period before annuity starting date. Nj 1040ez Involuntary cash-out of benefits not more than dollar limit. Nj 1040ez Exception for certain loans. Nj 1040ez Exception for QDRO. Nj 1040ez SIMPLE and safe harbor 401(k) plan exception. Nj 1040ez Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. Nj 1040ez Installment percentage. Nj 1040ez Extended period for making contributions. Nj 1040ez ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. Nj 1040ez Caution: Form 5500-EZ not required. Nj 1040ez Form 5500. Nj 1040ez Electronic filing of Forms 5500 and 5500-SF. Nj 1040ez Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. Nj 1040ez dol. Nj 1040ez gov/ebsa/pdf/2013-5500. Nj 1040ez pdf www. Nj 1040ez dol. Nj 1040ez gov/ebsa/pdf/2013-5500-SF. Nj 1040ez pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Nj 1040ez 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Nj 1040ez 1040 U. Nj 1040ez S. Nj 1040ez Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. Nj 1040ez For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. Nj 1040ez For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. Nj 1040ez R. Nj 1040ez 10 plans. Nj 1040ez A sole proprietor or a partnership can set up one of these plans. Nj 1040ez A common-law employee or a partner cannot set up one of these plans. Nj 1040ez The plans described here can also be set up and maintained by employers that are corporations. Nj 1040ez All the rules discussed here apply to corporations except where specifically limited to the self-employed. Nj 1040ez The plan must be for the exclusive benefit of employees or their beneficiaries. Nj 1040ez These qualified plans can include coverage for a self-employed individual. Nj 1040ez As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Nj 1040ez The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Nj 1040ez Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. Nj 1040ez You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. Nj 1040ez Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. Nj 1040ez It provides benefits to a participant largely based on the amount contributed to that participant's account. Nj 1040ez Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. Nj 1040ez A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. Nj 1040ez Profit-sharing plan. Nj 1040ez   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). Nj 1040ez A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. Nj 1040ez An employer may even make no contribution to the plan for a given year. Nj 1040ez   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. Nj 1040ez   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). Nj 1040ez Money purchase pension plan. Nj 1040ez   Contributions to a money purchase pension plan are fixed and are not based on your business profits. Nj 1040ez For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. Nj 1040ez This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. Nj 1040ez Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. Nj 1040ez Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Nj 1040ez Actuarial assumptions and computations are required to figure these contributions. Nj 1040ez Generally, you will need continuing professional help to have a defined benefit plan. Nj 1040ez Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. Nj 1040ez Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. Nj 1040ez The following is a brief overview of important qualification rules that generally have not yet been discussed. Nj 1040ez It is not intended to be all-inclusive. Nj 1040ez See Setting Up a Qualified Plan , later. Nj 1040ez Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. Nj 1040ez A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. Nj 1040ez Plan assets must not be diverted. Nj 1040ez   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. Nj 1040ez As a general rule, the assets cannot be diverted to the employer. Nj 1040ez Minimum coverage requirement must be met. Nj 1040ez   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. Nj 1040ez 50 employees, or The greater of: 40% of all employees, or Two employees. Nj 1040ez If there is only one employee, the plan must benefit that employee. Nj 1040ez Contributions or benefits must not discriminate. Nj 1040ez   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. Nj 1040ez Contributions and benefits must not be more than certain limits. Nj 1040ez   Your plan must not provide for contributions or benefits that are more than certain limits. Nj 1040ez The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. Nj 1040ez These limits are discussed later in this chapter under Contributions. Nj 1040ez Minimum vesting standard must be met. Nj 1040ez   Your plan must satisfy certain requirements regarding when benefits vest. Nj 1040ez A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. Nj 1040ez A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. Nj 1040ez Special rules apply to forfeited benefit amounts. Nj 1040ez In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. Nj 1040ez   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. Nj 1040ez Forfeitures must be used instead to reduce employer contributions. Nj 1040ez Participation. Nj 1040ez   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. Nj 1040ez Has reached age 21. Nj 1040ez Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). Nj 1040ez A plan cannot exclude an employee because he or she has reached a specified age. Nj 1040ez Leased employee. Nj 1040ez   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. Nj 1040ez These rules include those in all the following areas. Nj 1040ez Nondiscrimination in coverage, contributions, and benefits. Nj 1040ez Minimum age and service requirements. Nj 1040ez Vesting. Nj 1040ez Limits on contributions and benefits. Nj 1040ez Top-heavy plan requirements. Nj 1040ez Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. Nj 1040ez Benefit payment must begin when required. Nj 1040ez   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. Nj 1040ez The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. Nj 1040ez The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. Nj 1040ez The plan year in which the participant separates from service. Nj 1040ez Early retirement. Nj 1040ez   Your plan can provide for payment of retirement benefits before the normal retirement age. Nj 1040ez If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. Nj 1040ez Satisfies the service requirement for the early retirement benefit. Nj 1040ez Separates from service with a nonforfeitable right to an accrued benefit. Nj 1040ez The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. Nj 1040ez Required minimum distributions. Nj 1040ez   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. Nj 1040ez See Required Distributions , under Distributions, later. Nj 1040ez Survivor benefits. Nj 1040ez   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. Nj 1040ez A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. Nj 1040ez A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. Nj 1040ez   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. Nj 1040ez The participant does not choose benefits in the form of a life annuity. Nj 1040ez The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. Nj 1040ez The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. Nj 1040ez Loan secured by benefits. Nj 1040ez   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. Nj 1040ez Waiver of survivor benefits. Nj 1040ez   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. Nj 1040ez The plan also must allow the participant to withdraw the waiver. Nj 1040ez The spouse's consent must be witnessed by a plan representative or notary public. Nj 1040ez Waiver of 30-day waiting period before annuity starting date. Nj 1040ez    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. Nj 1040ez   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. Nj 1040ez Involuntary cash-out of benefits not more than dollar limit. Nj 1040ez   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. Nj 1040ez   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. Nj 1040ez If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. Nj 1040ez   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. Nj 1040ez   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. Nj 1040ez A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. Nj 1040ez See Section 402(f) Notice under Distributions, later, for more details. Nj 1040ez Consolidation, merger, or transfer of assets or liabilities. Nj 1040ez   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. Nj 1040ez (if the plan had then terminated). Nj 1040ez Benefits must not be assigned or alienated. Nj 1040ez   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. Nj 1040ez Exception for certain loans. Nj 1040ez   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. Nj 1040ez A disqualified person is defined later in this chapter under Prohibited Transactions. Nj 1040ez Exception for QDRO. Nj 1040ez   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. Nj 1040ez   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. Nj 1040ez Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. Nj 1040ez No benefit reduction for social security increases. Nj 1040ez   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. Nj 1040ez This rule also applies to plans supplementing the benefits provided by other federal or state laws. Nj 1040ez Elective deferrals must be limited. Nj 1040ez   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. Nj 1040ez See Limit on Elective Deferrals later in this chapter. Nj 1040ez Top-heavy plan requirements. Nj 1040ez   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. Nj 1040ez   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. Nj 1040ez Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Nj 1040ez   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. Nj 1040ez These qualification requirements for top-heavy plans are explained in section 416 and its regulations. Nj 1040ez SIMPLE and safe harbor 401(k) plan exception. Nj 1040ez   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. Nj 1040ez QACAs (discussed later) also are not subject to top-heavy requirements. Nj 1040ez Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. Nj 1040ez First you adopt a written plan. Nj 1040ez Then you invest the plan assets. Nj 1040ez You, the employer, are responsible for setting up and maintaining the plan. Nj 1040ez If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. Nj 1040ez If you have employees, see Participation, under Qualification Rules, earlier. Nj 1040ez Set-up deadline. Nj 1040ez   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). Nj 1040ez Credit for startup costs. Nj 1040ez   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. Nj 1040ez For more information, see Credit for startup costs under Reminders, earlier. Nj 1040ez Adopting a Written Plan You must adopt a written plan. Nj 1040ez The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. Nj 1040ez Or it can be an individually designed plan. Nj 1040ez Written plan requirement. Nj 1040ez   To qualify, the plan you set up must be in writing and must be communicated to your employees. Nj 1040ez The plan's provisions must be stated in the plan. Nj 1040ez It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. Nj 1040ez Master or prototype plans. Nj 1040ez   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. Nj 1040ez Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). Nj 1040ez Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. Nj 1040ez Under a prototype plan, a separate trust or custodial account is established for each employer. Nj 1040ez Plan providers. Nj 1040ez   The following organizations generally can provide IRS-approved master or prototype plans. Nj 1040ez Banks (including some savings and loan associations and federally insured credit unions). Nj 1040ez Trade or professional organizations. Nj 1040ez Insurance companies. Nj 1040ez Mutual funds. Nj 1040ez Individually designed plan. Nj 1040ez   If you prefer, you can set up an individually designed plan to meet specific needs. Nj 1040ez Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. Nj 1040ez You may need professional help for this. Nj 1040ez See Rev. Nj 1040ez Proc. Nj 1040ez 2014-6, 2014-1 I. Nj 1040ez R. Nj 1040ez B. Nj 1040ez 198, available at www. Nj 1040ez irs. Nj 1040ez gov/irb/2014-1_IRB/ar10. Nj 1040ez html, as annually updated, that may help you decide whether to apply for approval. Nj 1040ez Internal Revenue Bulletins are available on the IRS website at IRS. Nj 1040ez gov They are also available at most IRS offices and at certain libraries. Nj 1040ez User fee. Nj 1040ez   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. Nj 1040ez At least one of them must be a non-highly compensated employee participating in the plan. Nj 1040ez The fee does not apply to requests made by the later of the following dates. Nj 1040ez The end of the 5th plan year the plan is in effect. Nj 1040ez The end of any remedial amendment period for the plan that begins within the first 5 plan years. Nj 1040ez The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. Nj 1040ez   For more information about whether the user fee applies, see Rev. Nj 1040ez Proc. Nj 1040ez 2014-8, 2014-1 I. Nj 1040ez R. Nj 1040ez B. Nj 1040ez 242, available at www. Nj 1040ez irs. Nj 1040ez gov/irb/2014-1_IRB/ar12. Nj 1040ez html, as may be annually updated; Notice 2003-49, 2003-32 I. Nj 1040ez R. Nj 1040ez B. Nj 1040ez 294, available at www. Nj 1040ez irs. Nj 1040ez gov/irb/2003-32_IRB/ar13. Nj 1040ez html; and Notice 2011-86, 2011-45 I. Nj 1040ez R. Nj 1040ez B. Nj 1040ez 698, available at www. Nj 1040ez irs. Nj 1040ez gov/irb/2011-45_IRB/ar11. Nj 1040ez html. Nj 1040ez Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. Nj 1040ez You can establish a trust or custodial account to invest the funds. Nj 1040ez You, the trust, or the custodial account can buy an annuity contract from an insurance company. Nj 1040ez Life insurance can be included only if it is incidental to the retirement benefits. Nj 1040ez You set up a trust by a legal instrument (written document). Nj 1040ez You may need professional help to do this. Nj 1040ez You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. Nj 1040ez You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. Nj 1040ez If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. Nj 1040ez Other plan requirements. Nj 1040ez   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. Nj 1040ez Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. Nj 1040ez Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. Nj 1040ez For information on this funding requirement, see section 412 and its regulations. Nj 1040ez Quarterly installments of required contributions. Nj 1040ez   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. Nj 1040ez If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. Nj 1040ez Due dates. Nj 1040ez   The due dates for the installments are 15 days after the end of each quarter. Nj 1040ez For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). Nj 1040ez Installment percentage. Nj 1040ez   Each quarterly installment must be 25% of the required annual payment. Nj 1040ez Extended period for making contributions. Nj 1040ez   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. Nj 1040ez Contributions A qualified plan is generally funded by your contributions. Nj 1040ez However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. Nj 1040ez See Employee Contributions and Elective Deferrals later. Nj 1040ez Contributions deadline. Nj 1040ez   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. Nj 1040ez Self-employed individual. Nj 1040ez   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. Nj 1040ez Your net earnings must be from your personal services, not from your investments. Nj 1040ez If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. Nj 1040ez Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. Nj 1040ez There are also limits on the amount you can deduct. Nj 1040ez See Deduction Limits , later. Nj 1040ez Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. Nj 1040ez The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. Nj 1040ez Defined benefit plan. Nj 1040ez   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. Nj 1040ez 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Nj 1040ez $205,000 ($210,000 for 2014). Nj 1040ez Defined contribution plan. Nj 1040ez   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. Nj 1040ez 100% of the participant's compensation. Nj 1040ez $51,000 ($52,000 for 2014). Nj 1040ez   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. Nj 1040ez Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. Nj 1040ez Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. Nj 1040ez Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. Nj 1040ez See Regulations sections 1. Nj 1040ez 401(k)-2 and 1. Nj 1040ez 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Nj 1040ez When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. Nj 1040ez But you can apply them to the previous year if all the following requirements are met. Nj 1040ez You make them by the due date of your tax return for the previous year (plus extensions). Nj 1040ez The plan was established by the end of the previous year. Nj 1040ez The plan treats the contributions as though it had received them on the last day of the previous year. Nj 1040ez You do either of the following. Nj 1040ez You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. Nj 1040ez You deduct the contributions on your tax return for the previous year. Nj 1040ez A partnership shows contributions for partners on Form 1065. Nj 1040ez Employer's promissory note. Nj 1040ez   Your promissory note made out to the plan is not a payment that qualifies for the deduction. Nj 1040ez Also, issuing this note is a prohibited transaction subject to tax. Nj 1040ez See Prohibited Transactions , later. Nj 1040ez Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Nj 1040ez The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Nj 1040ez Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. Nj 1040ez Defined contribution plans. Nj 1040ez   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. Nj 1040ez If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. Nj 1040ez See Deduction Limit for Self-Employed Individuals , later. Nj 1040ez   When figuring the deduction limit, the following rules apply. Nj 1040ez Elective deferrals (discussed later) are not subject to the limit. Nj 1040ez Compensation includes elective deferrals. Nj 1040ez The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). Nj 1040ez Defined benefit plans. Nj 1040ez   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Nj 1040ez Consequently, an actuary must figure your deduction limit. Nj 1040ez    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. Nj 1040ez Table 4–1. Nj 1040ez Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. Nj 1040ez Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. Nj 1040ez Compensation is your net earnings from self-employment, defined in chapter 1. Nj 1040ez This definition takes into account both the following items. Nj 1040ez The deduction for the deductible part of your self-employment tax. Nj 1040ez The deduction for contributions on your behalf to the plan. Nj 1040ez The deduction for your own contributions and your net earnings depend on each other. Nj 1040ez For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. Nj 1040ez To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Nj 1040ez Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Nj 1040ez Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Nj 1040ez For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. Nj 1040ez Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Nj 1040ez (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. Nj 1040ez ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Nj 1040ez Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. Nj 1040ez For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. Nj 1040ez However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. Nj 1040ez See Deduction Limit for Self-Employed Individuals, earlier. Nj 1040ez The amount you carry over and deduct may be subject to the excise tax discussed next. Nj 1040ez Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. Nj 1040ez Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. Nj 1040ez In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. Nj 1040ez Special rule for self-employed individuals. Nj 1040ez   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. Nj 1040ez Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. Nj 1040ez See Minimum Funding Requirement , earlier. Nj 1040ez Reporting the tax. Nj 1040ez   You must report the tax on your nondeductible contributions on Form 5330. Nj 1040ez Form 5330 includes a computation of the tax. Nj 1040ez See the separate instructions for completing the form. Nj 1040ez Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. Nj 1040ez A plan with this type of arrangement is popularly known as a “401(k) plan. Nj 1040ez ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. Nj 1040ez ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. Nj 1040ez In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. Nj 1040ez A profit-sharing plan. Nj 1040ez A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. Nj 1040ez Partnership. Nj 1040ez   A partnership can have a 401(k) plan. Nj 1040ez Restriction on conditions of participation. Nj 1040ez   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. Nj 1040ez Matching contributions. Nj 1040ez   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. Nj 1040ez For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. Nj 1040ez Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. Nj 1040ez Nonelective contributions. Nj 1040ez   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. Nj 1040ez These are called nonelective contributions. Nj 1040ez Employee compensation limit. Nj 1040ez   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. Nj 1040ez This limit is $260,000 in 2014. Nj 1040ez SIMPLE 401(k) plan. Nj 1040ez   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. Nj 1040ez A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. Nj 1040ez For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. Nj 1040ez Distributions. Nj 1040ez   Certain rules apply to distributions from 401(k) plans. Nj 1040ez See Distributions From 401(k) Plans , later. Nj 1040ez Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. Nj 1040ez This limit applies without regard to community property laws. Nj 1040ez Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. Nj 1040ez For 2013 and 2014, the basic limit on elective deferrals is $17,500. Nj 1040ez This limit applies to all salary reduction contributions and elective deferrals. Nj 1040ez If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. Nj 1040ez Catch-up contributions. Nj 1040ez   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Nj 1040ez The catch-up contribution limit for 2013 and 2014 is $5,500. Nj 1040ez Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). Nj 1040ez However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Nj 1040ez The catch-up contribution limit. Nj 1040ez The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Nj 1040ez Treatment of contributions. Nj 1040ez   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. Nj 1040ez Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. Nj 1040ez Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. Nj 1040ez Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Nj 1040ez Forfeiture. Nj 1040ez   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. Nj 1040ez Reporting on Form W-2. Nj 1040ez   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Nj 1040ez You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Nj 1040ez You must also include them in box 12. Nj 1040ez Mark the “Retirement plan” checkbox in box 13. Nj 1040ez For more information, see the Form W-2 instructions. Nj 1040ez Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. Nj 1040ez Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. Nj 1040ez These contributions are elective deferrals. Nj 1040ez An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). Nj 1040ez For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. Nj 1040ez Eligible automatic contribution arrangement. Nj 1040ez   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. Nj 1040ez This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). Nj 1040ez There is no required deferral percentage. Nj 1040ez Withdrawals. Nj 1040ez   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. Nj 1040ez The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. Nj 1040ez The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. Nj 1040ez   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. Nj 1040ez The additional 10% tax on early distributions will not apply to the distribution. Nj 1040ez Notice requirement. Nj 1040ez   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. Nj 1040ez The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. Nj 1040ez The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. Nj 1040ez The notice also must explain how contributions will be invested in the absence of an investment election by the employee. Nj 1040ez Qualified automatic contribution arrangement. Nj 1040ez    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. Nj 1040ez It contains an automatic enrollment feature, and mandatory employer contributions are required. Nj 1040ez If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). Nj 1040ez Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. Nj 1040ez Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. Nj 1040ez In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). Nj 1040ez If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. Nj 1040ez It must be applied uniformly. Nj 1040ez It must not exceed 10%. Nj 1040ez It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. Nj 1040ez It must increase to at least 4% in the following plan year. Nj 1040ez It must increase to at least 5% in the following plan year. Nj 1040ez It must increase to at least 6% in subsequent plan years. Nj 1040ez Matching or nonelective contributions. Nj 1040ez   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. Nj 1040ez Matching contributions. Nj 1040ez You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. Nj 1040ez An amount equal to 100% of elective deferrals, up to 1% of compensation. Nj 1040ez An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. Nj 1040ez Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. Nj 1040ez The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Nj 1040ez Nonelective contributions. Nj 1040ez You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. Nj 1040ez Vesting requirements. Nj 1040ez   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. Nj 1040ez These contributions are subject to special withdrawal restrictions, discussed later. Nj 1040ez Notice requirements. Nj 1040ez   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. Nj 1040ez The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. Nj 1040ez The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. Nj 1040ez Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. Nj 1040ez The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. Nj 1040ez Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. Nj 1040ez He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. Nj 1040ez The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. Nj 1040ez Excess withdrawn by April 15. Nj 1040ez   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. Nj 1040ez However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. Nj 1040ez The distribution is not subject to the additional 10% tax on early distributions. Nj 1040ez   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. Nj 1040ez   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. Nj 1040ez Excess not withdrawn by April 15. Nj 1040ez   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. Nj 1040ez In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Nj 1040ez Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. Nj 1040ez Reporting corrective distributions on Form 1099-R. Nj 1040ez   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. Nj 1040ez For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. Nj 1040ez Tax on excess contributions of highly compensated employees. Nj 1040ez   The law provides tests to detect discrimination in a plan. Nj 1040ez If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. Nj 1040ez Report the tax on Form 5330. Nj 1040ez The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. Nj 1040ez Also, the ACP test does not apply to these plans if certain additional requirements are met. Nj 1040ez   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. Nj 1040ez Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. Nj 1040ez   See Regulations sections 1. Nj 1040ez 401(k)-2 and 1. Nj 1040ez 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Nj 1040ez    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. Nj 1040ez Safe harbor 401(k) plan. Nj 1040ez If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. Nj 1040ez For your plan to be a safe harbor plan, you must meet the following conditions. Nj 1040ez Matching or nonelective contributions. Nj 1040ez You must make matching or nonelective contributions according to one of the following formulas. Nj 1040ez Matching contributions. Nj 1040ez You must make matching contributions according to the following rules. Nj 1040ez You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. Nj 1040ez You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. Nj 1040ez The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Nj 1040ez Nonelective contributions. Nj 1040ez You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. Nj 1040ez These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. Nj 1040ez Notice requirement. Nj 1040ez You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. Nj 1040ez The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. Nj 1040ez Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Nj 1040ez Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. Nj 1040ez However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. Nj 1040ez Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. Nj 1040ez Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. Nj 1040ez Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. Nj 1040ez An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. Nj 1040ez The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. Nj 1040ez Rollover. Nj 1040ez   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. Nj 1040ez For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Nj 1040ez R. Nj 1040ez B. Nj 1040ez 872, available at www. Nj 1040ez irs. Nj 1040ez gov/irb/2010-51_IRB/ar11. Nj 1040ez html, and Notice 2013-74. Nj 1040ez A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Nj 1040ez Rollover amounts do not apply toward the annual deferral limit. Nj 1040ez Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. Nj 1040ez See the Form W-2 and 1099-R instructions for detailed information. Nj 1040ez Distributions Amounts paid to plan participants from a qualified plan are called distributions. Nj 1040ez Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. Nj 1040ez Also, certain loans may be treated as distributions. Nj 1040ez See Loans Treated as Distributions in Publication 575. Nj 1040ez Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). Nj 1040ez These distribution rules apply individually to each qualified plan. Nj 1040ez You cannot satisfy the requirement for one plan by taking a distribution from another. Nj 1040ez The plan must provide that these rules override any inconsistent distribution options previously offered. Nj 1040ez Minimum distribution. Nj 1040ez   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. Nj 1040ez This minimum is figured by dividing the account balance by the applicable life expectancy. Nj 1040ez The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. Nj 1040ez For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. Nj 1040ez Required beginning date. Nj 1040ez   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. Nj 1040ez   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. Nj 1040ez Calendar year in which he or she reaches age 70½. Nj 1040ez Calendar year in which he or she retires from employment with the employer maintaining the plan. Nj 1040ez However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. Nj 1040ez   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. Nj 1040ez For more information, see Tax on Excess Accumulation in Publication 575. Nj 1040ez Distributions after the starting year. Nj 1040ez   The distribution required to be made by April 1 is treated as a distribution for the starting year. Nj 1040ez (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. Nj 1040ez ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. Nj 1040ez If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). Nj 1040ez Distributions after participant's death. Nj 1040ez   See Publication 575 for the special rules covering distributions made after the death of a participant. Nj 1040ez Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. Nj 1040ez The employee retires, dies, becomes disabled, or otherwise severs employment. Nj 1040ez The plan ends and no other defined contribution plan is established or continued. Nj 1040ez In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. Nj 1040ez For the rules on hardship distributions, including the limits on them, see Regulations section 1. Nj 1040ez 401(k)-1(d). Nj 1040ez The employee becomes eligible for a qualified reservist distribution (defined next). Nj 1040ez Certain distributions listed above may be subject to the tax on early distributions discussed later. Nj 1040ez Qualified reservist distributions. Nj 1040ez   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. Nj 1040ez All or part of a qualified reservist distribution can be recontributed to an IRA. Nj 1040ez The additional 10% tax on early distributions does not apply to a qualified reservist distribution. Nj 1040ez Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Nj 1040ez Since most recipients have no cost basis, a distribution is generally fully taxable. Nj 1040ez An exception is a distribution that is properly rolled over as discussed under Rollover, next. Nj 1040ez The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. Nj 1040ez See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. Nj 1040ez Note. Nj 1040ez A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. Nj 1040ez Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. Nj 1040ez See Qualified distributions under Qualified Roth Contribution Program, earlier. Nj 1040ez Rollover. Nj 1040ez   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. Nj 1040ez However, it may be subject to withholding as discussed under Withholding requirement, later. Nj 1040ez A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. Nj 1040ez Eligible rollover distribution. Nj 1040ez   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. Nj 1040ez A required minimum distribution. Nj 1040ez See Required Distributions , earlier. Nj 1040ez Any of a series of substantially equal payments made at least once a year over any of the following periods. Nj 1040ez The employee's life or life expectancy. Nj 1040ez The joint lives or life expectancies of the employee and beneficiary. Nj 1040ez A period of 10 years or longer. Nj 1040ez A hardship distribution. Nj 1040ez The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. Nj 1040ez See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. Nj 1040ez Loans treated as distributions. Nj 1040ez Dividends on employer securities. Nj 1040ez The cost of any life insurance coverage provided under a qualified retirement plan. Nj 1040ez Similar items designated by the IRS in published guidance. Nj 1040ez See, for example, the Instructions for Forms 1099-R and 5498. Nj 1040ez Rollover of nontaxable amounts. Nj 1040ez   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. Nj 1040ez If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. Nj 1040ez If the rollover is to an IRA, the transfer can be made by any rollover method. Nj 1040ez Note. Nj 1040ez A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. Nj 1040ez If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). Nj 1040ez More information. Nj 1040ez   For more information about rollovers, see Rollovers in Pubs. Nj 1040ez 575 and 590. Nj 1040ez Withholding requirement. Nj 1040ez   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. Nj 1040ez Exceptions. Nj 1040ez   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. Nj 1040ez   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. Nj 1040ez Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). Nj 1040ez However, the participant can choose not to have tax withheld from these distributions. Nj 1040ez If the participant does not make this choice, the following withholding rules apply. Nj 1040ez For periodic distributions, withholding is based on their treatment as wages. Nj 1040ez For nonperiodic distributions, 10% of the taxable part is withheld. Nj 1040ez Estimated tax payments. Nj 1040ez   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. Nj 1040ez For more information, see Withholding Tax and Estimated Tax in Publication 575. Nj 1040ez Section 402(f) Notice. Nj 1040ez   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. Nj 1040ez That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. Nj 1040ez That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. Nj 1040ez That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. Nj 1040ez Certain other rules that may be applicable. Nj 1040ez   Notice 2009-68, 2009-39 I. Nj 1040ez R. Nj 1040ez B. Nj 1040ez 423, available at www. Nj 1040ez irs. Nj 1040ez gov/irb/2009-39_IRB/ar14. Nj 1040ez html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. Nj 1040ez If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. Nj 1040ez Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. Nj 1040ez Timing of notice. Nj 1040ez   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. Nj 1040ez Method of notice. Nj 1040ez   The written notice must be provided individually to each distributee of an eligible rollover distribution. Nj 1040ez Posting of the notice is not sufficient. Nj 1040ez However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. Nj 1040ez See Regulations section 1. Nj 1040ez 401(a)-21. Nj 1040ez Tax on failure to give notice. Nj 1040ez   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. Nj 1040ez The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. Nj 1040ez Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. Nj 1040ez This tax applies to the amount received that the employee must include in income. Nj 1040ez Exceptions. Nj 1040ez   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. Nj 1040ez Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. Nj 1040ez Made due to the employee having a qualifying disability. Nj 1040ez Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. Nj 1040ez (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. Nj 1040ez ) Made to an employee after separation from service if the separation occurred during o