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State Free File

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State Free File

State free file 2. State free file   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. State free file The pay may be in cash, property, or services. State free file It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. State free file For information about deducting employment taxes, see chapter 5. State free file You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. State free file Empowerment zone employment credit (Form 8844). State free file Indian employment credit (Form 8845). State free file Work opportunity credit (Form 5884). State free file Credit for employer differential wage payments (Form 8932). State free file Reduce your deduction for employee wages by the amount of employment credits you claim. State free file For more information about these credits, see the form on which the credit is claimed. State free file Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. State free file Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. State free file These and other requirements that apply to all business expenses are explained in chapter 1. State free file In addition, the pay must meet both of the following tests. State free file Test 1. State free file It must be reasonable. State free file Test 2. State free file It must be for services performed. State free file The form or method of figuring the pay does not affect its deductibility. State free file For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. State free file Test 1—Reasonableness You must be able to prove that the pay is reasonable. State free file Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. State free file If the pay is excessive, the excess pay is disallowed as a deduction. State free file Factors to consider. State free file   Determine the reasonableness of pay by the facts and circumstances. State free file Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. State free file   To determine if pay is reasonable, also consider the following items and any other pertinent facts. State free file The duties performed by the employee. State free file The volume of business handled. State free file The character and amount of responsibility. State free file The complexities of your business. State free file The amount of time required. State free file The cost of living in the locality. State free file The ability and achievements of the individual employee performing the service. State free file The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. State free file Your policy regarding pay for all your employees. State free file The history of pay for each employee. State free file Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. State free file Employee-shareholder salaries. State free file   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. State free file The excessive part of the salary would not be allowed as a salary deduction by the corporation. State free file For more information on corporate distributions to shareholders, see Publication 542, Corporations. State free file Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. State free file For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. State free file Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. State free file If you give property to an employee as an employee achievement award, your deduction may be limited. State free file Achievement awards. State free file   An achievement award is an item of tangible personal property that meets all the following requirements. State free file It is given to an employee for length of service or safety achievement. State free file It is awarded as part of a meaningful presentation. State free file It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. State free file Length-of-service award. State free file    An award will qualify as a length-of-service award only if either of the following applies. State free file The employee receives the award after his or her first 5 years of employment. State free file The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. State free file Safety achievement award. State free file    An award for safety achievement will qualify as an achievement award unless one of the following applies. State free file It is given to a manager, administrator, clerical employee, or other professional employee. State free file During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). State free file Deduction limit. State free file   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. State free file $400 for awards that are not qualified plan awards. State free file $1,600 for all awards, whether or not qualified plan awards. State free file   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. State free file   A highly compensated employee is an employee who meets either of the following tests. State free file The employee was a 5% owner at any time during the year or the preceding year. State free file The employee received more than $115,000 in pay for the preceding year. State free file You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. State free file   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. State free file To figure this average cost, ignore awards of nominal value. State free file Deduct achievement awards as a nonwage business expense on your return or business schedule. State free file You may not owe employment taxes on the value of some achievement awards you provide to an employee. State free file See Publication 15-B. State free file Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. State free file However, the total bonuses, salaries, and other pay must be reasonable for the services performed. State free file If the bonus is paid in property, see Property , later. State free file Gifts of nominal value. State free file    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. State free file Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. State free file For more information on this deduction limit, see Meals and lodging , later. State free file Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. State free file Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. State free file For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. State free file Fringe Benefits A fringe benefit is a form of pay for the performance of services. State free file You can generally deduct the cost of fringe benefits. State free file You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. State free file You also may not owe employment taxes on the value of the fringe benefits. State free file See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. State free file Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. State free file Certain fringe benefits are discussed next. State free file See Publication 15-B for more details on these and other fringe benefits. State free file Meals and lodging. State free file   You can usually deduct the cost of furnishing meals and lodging to your employees. State free file Deduct the cost in whatever category the expense falls. State free file For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. State free file If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. State free file Deduction limit on meals. State free file   You can generally deduct only 50% of the cost of furnishing meals to your employees. State free file However, you can deduct the full cost of the following meals. State free file Meals whose value you include in an employee's wages. State free file Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. State free file This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. State free file Meals you furnish to your employees at the work site when you operate a restaurant or catering service. State free file Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. State free file Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). State free file This does not include meals you furnish on vessels primarily providing luxury water transportation. State free file Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. State free file This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. State free file Employee benefit programs. State free file   Employee benefit programs include the following. State free file Accident and health plans. State free file Adoption assistance. State free file Cafeteria plans. State free file Dependent care assistance. State free file Education assistance. State free file Life insurance coverage. State free file Welfare benefit funds. State free file   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. State free file For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. State free file ). State free file Life insurance coverage. State free file   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. State free file See Regulations section 1. State free file 264-1 for more information. State free file Welfare benefit funds. State free file   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. State free file Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. State free file   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. State free file If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. State free file   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. State free file The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. State free file The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. State free file These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. State free file   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. State free file Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. State free file However, if the employee performs no services, treat the amount you advanced as a loan. State free file If the employee does not repay the loan, treat it as income to the employee. State free file Below-market interest rate loans. State free file   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. State free file See Below-Market Loans in chapter 4. State free file Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. State free file The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. State free file You can claim the deduction only for the tax year in which your employee includes the property's value in income. State free file Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. State free file You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. State free file Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. State free file These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. State free file Restricted property. State free file   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. State free file However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. State free file    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. State free file This means that the recipient is not likely to have to give up his or her rights in the property in the future. State free file Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. State free file However, your deduction may be limited. State free file If you make the payment under an accountable plan, deduct it in the category of the expense paid. State free file For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. State free file If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. State free file See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. State free file Sick and Vacation Pay Sick pay. State free file   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. State free file However, your deduction is limited to amounts not compensated by insurance or other means. State free file Vacation pay. State free file   Vacation pay is an employee benefit. State free file It includes amounts paid for unused vacation leave. State free file You can deduct vacation pay only in the tax year in which the employee actually receives it. State free file This rule applies regardless of whether you use the cash or accrual method of accounting. State free file Prev  Up  Next   Home   More Online Publications
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Understanding your CP259H Notice

We sent you this notice because our records indicate you are a tax-exempt political organization and you did not file a required Form 990/990-EZ, Return of Organization Exempt From Income Tax.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).
 


What you need to do

  • Disregard this notice if you have filed the return within the last four weeks using the same name and EIN listed on the notice.
  • Otherwise, file your required Form 990 or Form 990-EZ immediately according to the instructions on the notice.
    • If you don't think you need to file, complete the Response form enclosed with your notice and mail it to us using the envelope provided.
    • If you filed more than four weeks ago or used a different name or EIN, complete the Response form enclosed with your notice and mail it to us in the envelope provided along with a signed and dated copy of the return.

You may want to...


Answers to Common Questions

Which political organizations must file a Form 990 or Form 990-EZ?
A tax-exempt political organization must file Form 990 or 990-EZ if it has gross receipts of $25,000 or more, unless excepted. A political organization that is a qualified state or local political organization must file Form 990 or 990-EZ only if it has gross receipts of $100,000 or more. Political organizations may not submit Form 990-N.

When is Form 990 or Form 990-EZ due?
Form 990 or 990-EZ is due by the 15th day of the 5th month after the end of the tax year. Thus, for a calendar year taxpayer, Form 990 or Form 990-EZ is due on May 15 of the following year. If any due date falls on a Saturday, Sunday or legal holiday, the organization can file the return on the next business day.

Can I get help over the phone?
If you have questions and/or need help completing the form, please call 1-877-829-5500. Personal assistance is available Monday through Friday, 7:00 a.m. to 7:00 p.m. CT.

Where can I go for more information about tax-exempt organizations?
For more information on tax-exempt organizations see Tax Information for Charities & Other Non-Profits.


Tips for next year

Review the political organization resources at Tax Information for Political Organizations.


Understanding your notice

Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP259H, Page 1

Notice CP259H, Page 2

Notice CP259H, Page 3

Notice CP259H, Page 4

Page Last Reviewed or Updated: 29-Mar-2014

The State Free File

State free file 4. State free file   Limit on Elective Deferrals Table of Contents Excess elective deferrals. State free file General Limit 15-Year RuleYears of Service Figuring the Limit on Elective DeferralsExample The second and final component of MAC is the limit on elective deferrals. State free file This is a limit on the amount of contributions that can be made to your account through a salary reduction agreement. State free file A salary reduction agreement is an agreement between you and your employer that allows for a portion of your compensation to be directly invested in a 403(b) account on your behalf. State free file You can enter into more than one salary reduction agreement during a year. State free file More than one 403(b) account. State free file If, for any year, elective deferrals are contributed to more than one 403(b) account for you (whether or not with the same employer), you must combine all the elective deferrals to determine whether the total is more than the limit for that year. State free file 403(b) plan and another retirement plan. State free file If, during the year, contributions in the form of elective deferrals are made to other retirement plans on your behalf, you must combine all of the elective deferrals to determine if they are more than your limit on elective deferrals. State free file The limit on elective deferrals applies to amounts contributed to: 401(k) plans, to the extent excluded from income, Roth contribution programs, Section 501(c)(18) plans, to the extent excluded from income, Savings incentive match plan for employees (SIMPLE plans), Simplified employee pension (SEP) plans, and All 403(b) plans. State free file Roth contribution program. State free file   Your 403(b) plan may allow you to designate all or a portion of your elective deferrals as Roth contributions. State free file Elective deferrals designated as Roth contributions must be maintained in a separate Roth account and are not excludable from your gross income. State free file   The maximum amount of contributions allowed under a Roth contribution program is your limit on elective deferrals, less your elective deferrals not designated as Roth contributions. State free file For more information on the Roth contribution program, see Publication 560, Retirement Plans for Small Business. State free file Excess elective deferrals. State free file   If the amount contributed is more than the allowable limit, you must include the excess that is not a Roth contribution in your gross income for the year contributed. State free file General Limit Under the general limit on elective deferrals, the most that can be contributed to your 403(b) account through a salary reduction agreement is $17,500 for 2013 and 2014. State free file This limit applies without regard to community property laws. State free file 15-Year Rule If you have at least 15 years of service with an educational organization (such as a public or private school), hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization), the limit on elective deferrals to your 403(b) account is increased by the least of: $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in prior years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. State free file If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013 and 2014. State free file To determine whether you have 15 years of service with your employer, see Years of Service , next. State free file Years of Service To determine if you are eligible for the increased limit on elective deferrals, you will first need to figure your years of service. State free file How you figure your years of service depends on whether you were a full-time or a part-time employee, whether you worked for the full year or only part of the year, and whether you have worked for your employer for an entire year. State free file You must figure years of service for each year during which you worked for the employer who is maintaining your 403(b) account. State free file If more than one employer maintains a 403(b) account for you in the same year, you must figure years of service separately for each employer. State free file Definition Your years of service are the total number of years you have worked as a full time employee for the employer maintaining your 403(b) account as of the end of the year. State free file Figuring Your Years of Service Take the following rules into account when figuring your years of service. State free file Status of employer. State free file   Your years of service include only periods during which your employer was a qualified employer. State free file Your plan administrator can tell you whether or not your employer was qualified during all your periods of service. State free file Service with one employer. State free file   Generally, you cannot count service for any employer other than the one who maintains your 403(b) account. State free file Church employee. State free file   If you are a church employee, treat all of your years of service with related church organizations as years of service with the same employer. State free file For more information about church employees, see chapter 5. State free file Self-employed ministers. State free file   If you are a self-employed minister, your years of service include full and part years in which you have been treated as employed by a tax-exempt organization that is a qualified employer. State free file Total years of service. State free file   When figuring prior years of service, figure each year individually and then add the individual years of service to determine your total years of service. State free file Example. State free file The annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. State free file Marsha began working with ABC schools in September 2009. State free file She has always worked full-time for each annual work period. State free file At the end of 2013, Marsha had 4. State free file 5 years of service with ABC Public Schools, as shown in Table 4-1. State free file Table 4-1. State free file Marsha's Years of Service Note. State free file This table shows how Marsha figures her years of service, as explained in the previous example. State free file Year Period Worked Portion of Work Period Years of Service 2009 Sept. State free file –Dec. State free file . State free file 5 year . State free file 5 year 2010 Feb. State free file –May . State free file 5 year 1 year Sept. State free file –Dec. State free file . State free file 5 year 2011 Feb. State free file –May . State free file 5 year 1 year Sept. State free file –Dec. State free file . State free file 5 year 2012 Feb. State free file –May . State free file 5 year 1 year Sept. State free file –Dec. State free file . State free file 5 year 2013 Feb. State free file –May . State free file 5 year 1 year Sept. State free file –Dec. State free file . State free file 5 year Total years of service 4. State free file 5 years Full-time or part-time. State free file   To figure your years of service, you must analyze each year individually and determine whether you worked full-time for the full year or something other than full-time. State free file When determining whether you worked full-time or something other than full-time, use your employer's annual work period as the standard. State free file Employer's annual work period. State free file   Your employer's annual work period is the usual amount of time an individual working full-time in a specific position is required to work. State free file Generally, this period of time is expressed in days, weeks, months, or semesters, and can span 2 calendar years. State free file Note. State free file You cannot accumulate more than 1 year of service in a 12-month period. State free file Example. State free file All full-time teachers at ABC Public Schools are required to work both the September through December semester and the February through May semester. State free file Therefore, the annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. State free file Teachers at ABC Public Schools who work both semesters in the same calendar year are considered working a full year of service in that calendar year. State free file Full-Time Employee for the Full Year Count each full year during which you were employed full-time as 1 year of service. State free file In determining whether you were employed full-time, compare the amount of work you were required to perform with the amount of work normally required of others who held the same position with the same employer and who generally received most of their pay from the position. State free file How to compare. State free file   You can use any method that reasonably and accurately reflects the amount of work required. State free file For example, if you are a teacher, you can use the number of hours of classroom instruction as a measure of the amount of work required. State free file   In determining whether positions with the same employer are the same, consider all of the facts and circumstances concerning the positions, including the work performed, the methods by which pay is determined, and the descriptions (or titles) of the positions. State free file Example. State free file An assistant professor employed in the English department of a university will be considered a full-time employee if the amount of work that he or she is required to perform is the same as the amount of work normally required of assistant professors of English at that university who get most of their pay from that position. State free file   If no one else works for your employer in the same position, compare your work with the work normally required of others who held the same position with similar employers or similar positions with your employer. State free file Full year of service. State free file   A full year of service for a particular position means the usual annual work period of anyone employed full-time in that general type of work at that place of employment. State free file Example. State free file If a doctor works for a hospital 12 months of a year except for a 1-month vacation, the doctor will be considered as employed for a full year if the other doctors at that hospital also work 11 months of the year with a 1-month vacation. State free file Similarly, if the usual annual work period at a university consists of the fall and spring semesters, an instructor at that university who teaches these semesters will be considered as working a full year. State free file Other Than Full-Time for the Full Year If, during any year, you were employed full-time for only part of your employer's annual work period, part-time for the entire annual work period, or part-time for only part of the work period, your year of service for that year is a fraction of your employer's annual work period. State free file Full-time for part of the year. State free file   If, during a year, you were employed full-time for only part of your employer's annual work period, figure the fraction for that year as follows: The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee. State free file The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position. State free file Example. State free file Jason was employed as a full-time instructor by a local college for the 4 months of the 2013 spring semester (February 2013 through May 2013). State free file The annual work period for the college is 8 months (February through May and July through October). State free file Given these facts, Jason was employed full-time for part of the annual work period and provided ½ of a year of service. State free file Jason's years of service computation for 2013 is as follows: Number of months Jason worked = 4 = 1 Number of months in annual work period 8 2 Part-time for the full year. State free file   If, during a year, you were employed part-time for the employer's entire annual work period, you figure the fraction for that year as follows: The numerator (top number) is the number of hours or days you worked. State free file The denominator (bottom number) is the number of hours or days normally required of someone holding the same position who works full-time. State free file Example. State free file Vance teaches one course at a local medical school. State free file He teaches 3 hours per week for two semesters. State free file Other faculty members at the same school teach 9 hours per week for two semesters. State free file The annual work period of the medical school is two semesters. State free file An instructor teaching 9 hours a week for two semesters is considered a full-time employee. State free file Given these facts, Vance has worked part-time for a full annual work period. State free file Vance has completed 1/3 of a year of service, figured as shown below. State free file Number of hours per week Vance worked = 3 = 1 Number of hours per week considered full-time 9 3 Part-time for part of the year. State free file   If, during any year, you were employed part-time for only part of your employer's annual work period, you figure your fraction for that year by multiplying two fractions. State free file   Figure the first fraction as though you had worked full-time for part of the annual work period. State free file The fraction is as follows: The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee. State free file The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position. State free file   Figure the second fraction as though you had worked part-time for the entire annual work period. State free file The fraction is as follows: The numerator (top number) is the number of hours or days you worked. State free file The denominator (bottom number) is the number of hours or days normally required of someone holding the same position who works full-time. State free file   Once you have figured these two fractions, multiply them together to determine the fraction representing your partial year of service for the year. State free file Example. State free file Maria, an attorney, teaches a course for one semester at a law school. State free file She teaches 3 hours per week. State free file The annual work period for teachers at the school is two semesters. State free file All full-time instructors at the school are required to teach 12 hours per week. State free file Based on these facts, Maria is employed part-time for part of the annual work period. State free file Her year of service for this year is determined by multiplying two fractions. State free file Her computation is as follows: Maria's first fraction Number of semesters Maria worked = 1 Number of semesters in annual work period 2 Maria's second fraction Number of hours Maria worked per week = 3 = 1 Number of hours per week considered full-time 12 4 Maria would multiply these fractions to obtain the fractional year of service: 1 x 1 = 1         2 4 8         Figuring the Limit on Elective Deferrals You can use Part II of Worksheet 1 in chapter 9 to figure the limit on elective deferrals. State free file Example Floyd has figured his limit on annual additions. State free file The only other component needed before he can determine his MAC for 2014 is his limit on elective deferrals. State free file Figuring Floyd's limit on elective deferrals. State free file   Floyd has been employed with his current employer for less than 15 years. State free file He is not eligible for the special 15-year increase. State free file Therefore, his limit on elective deferrals for 2014 is $17,500 as shown in Table 4-2. State free file Floyd's employer will not make any nonelective contributions to his 403(b) account and Floyd will not make any after-tax contributions. State free file Additionally, Floyd's employer does not offer a Roth contribution program. State free file Figuring Floyd's MAC Floyd has determined that his limit on annual additions for 2014 is $52,000 and his limit on elective deferrals is $17,500. State free file Because elective deferrals are the only contributions made to Floyd's account, the maximum amount that can be contributed to a 403(b) account on Floyd's behalf in 2014 is $17,500, the lesser of both limits. State free file Table 4-2. State free file Worksheet 1. State free file Maximum Amount Contributable (MAC) Note. State free file Use this worksheet to figure your MAC. State free file Part I. State free file Limit on Annual Additions     1. State free file Enter your includible compensation for your most recent year of service 1. State free file $70,475 2. State free file Maximum: For 2013 enter $51,000 For 2014 enter $52,000 2. State free file 52,000 3. State free file Enter the lesser of line 1 or line 2. State free file This is your limit on annual additions 3. State free file 52,000   Caution: If you had only nonelective contributions, skip Part II and enter the amount from line 3 on line 18. State free file     Part II. State free file Limit on Elective Deferrals     4. State free file Maximum contribution: For 2013, enter $17,500 For 2014, enter $17,500 4. State free file 17,500   Note. State free file If you have at least 15 years of service with a qualifying organization, complete lines 5 through 17. State free file If not, enter zero (-0-) on line 16 and go to line 17. State free file     5. State free file Amount per year of service 5. State free file 5,000 6. State free file Enter your years of service 6. State free file   7. State free file Multiply line 5 by line 6 7. State free file   8. State free file Enter the total of all elective deferrals made for you by the qualifying organization for prior years 8. State free file   9. State free file Subtract line 8 from line 7. State free file If zero or less, enter zero (-0-) 9. State free file   10. State free file Maximum increase in limit for long service 10. State free file 15,000 11. State free file Enter the total of additional pre-tax elective deferrals made in prior years under the 15-year rule 11. State free file   12. State free file Enter the aggregate amount of all designated Roth contributions permitted for prior years under the 15-year rule 12. State free file   13. State free file Add lines 11 and 12 13. State free file   14. State free file Subtract line 13 from line 10 14. State free file   15. State free file Maximum additional contributions 15. State free file 3,000 16. State free file Enter the least of lines 9, 14, or 15. State free file This is your increase in the limit for long service 16. State free file -0- 17. State free file Add lines 4 and 16. State free file This is your limit on elective deferrals 17. State free file 17,500   Part III. State free file Maximum Amount Contributable     18. State free file If you had only nonelective contributions, enter the amount from line 3. State free file This is your MAC. State free file    If you had only elective deferrals, enter the lesser of lines 3 or 17. State free file This is your MAC. State free file    If you had both elective deferrals and nonelective contributions, enter the amount from line 3. State free file This is your MAC. State free file (Use the amount on line 17 to determine if you have excess elective deferrals as explained in chapter 7. State free file ) 18. State free file $17,500 Prev  Up  Next   Home   More Online Publications