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Tax Admendment

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Tax Admendment

Tax admendment 1. Tax admendment   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Tax admendment  You can set up and make contributions to an IRA if you receive taxable compensation. Tax admendment Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Tax admendment For more information about IRAs, see Publication 590. Tax admendment Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Tax admendment The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Tax admendment Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Tax admendment Many types of educational assistance are tax free if they meet the requirements discussed here. Tax admendment Special rules apply to U. Tax admendment S. Tax admendment citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Tax admendment For information about these rules, see Publication 54, Tax Guide for U. Tax admendment S. Tax admendment Citizens and Resident Aliens Abroad. Tax admendment Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Tax admendment A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Tax admendment Amount of scholarship or fellowship. Tax admendment   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Tax admendment This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Tax admendment The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Tax admendment Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Tax admendment Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Tax admendment A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Tax admendment (But for exceptions, see Payment for services,later. Tax admendment Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Tax admendment Candidate for a degree. Tax admendment   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Tax admendment Eligible educational institution. Tax admendment   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Tax admendment Qualified education expenses. Tax admendment   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Tax admendment These items must be required of all students in your course of instruction. Tax admendment Expenses that do not qualify. Tax admendment   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Tax admendment Payment for services. Tax admendment   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Tax admendment This applies even if all candidates for a degree must perform the services to receive the degree. Tax admendment (See exceptions next. Tax admendment ) Exceptions. Tax admendment   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax admendment Example 1. Tax admendment You received a scholarship of $2,500. Tax admendment The scholarship was not received under either of the exceptions mentioned above. Tax admendment As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Tax admendment Of the $2,500 scholarship, $1,000 represents payment for teaching. Tax admendment The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Tax admendment Your qualified education expenses were at least $1,500. Tax admendment Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Tax admendment The $1,000 you received for teaching is taxable. Tax admendment Example 2. Tax admendment You are a candidate for a degree at a medical school. Tax admendment You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Tax admendment The terms of your scholarship require you to perform future services. Tax admendment A substantial penalty applies if you do not comply. Tax admendment The entire amount of your grant is taxable as payment for services in the year it is received. Tax admendment Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Tax admendment Worksheet 1-1. Tax admendment    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Tax admendment    Worksheet 1-1. Tax admendment Taxable Scholarship and Fellowship Income 1. Tax admendment Enter the total amount of any scholarship or fellowship for 2013. Tax admendment See Amount of scholarship or fellowship, earlier. Tax admendment 1. Tax admendment       If you are a degree candidate at an eligible educational institution, go to line 2. Tax admendment If you are not a degree candidate at an eligible educational institution, stop here. Tax admendment The entire amount is taxable. Tax admendment For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Tax admendment       2. Tax admendment Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Tax admendment (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax admendment ) 2. Tax admendment     3. Tax admendment Subtract line 2 from line 1 3. Tax admendment     4. Tax admendment Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Tax admendment     5. Tax admendment Subtract line 4 from line 3 5. Tax admendment     6. Tax admendment Enter the amount of your qualified education expenses 6. Tax admendment     7. Tax admendment Enter the smaller of line 5 or line 6. Tax admendment This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Tax admendment     8. Tax admendment Subtract line 7 from line 5 8. Tax admendment     9. Tax admendment Taxable part. Tax admendment Add lines 2, 4, and 8. Tax admendment See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Tax admendment     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Tax admendment You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Tax admendment Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Tax admendment If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Tax admendment If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Tax admendment You must report the taxable amount whether or not you received a Form W-2. Tax admendment If you receive an incorrect Form W-2, ask the payer for a corrected one. Tax admendment For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Tax admendment How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Tax admendment Form 1040EZ. Tax admendment   If you file Form 1040EZ, include the taxable amount in the total on line 1. Tax admendment If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Tax admendment Form 1040A. Tax admendment   If you file Form 1040A, include the taxable amount in the total on line 7. Tax admendment If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Tax admendment Form 1040. Tax admendment   If you file Form 1040, include the taxable amount in the total on line 7. Tax admendment If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Tax admendment Schedule SE (Form 1040). Tax admendment   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Tax admendment If your net earnings are $400 or more, you must pay self-employment tax. Tax admendment Use Schedule SE, Self-Employment Tax, to figure this tax. Tax admendment Form 1040NR. Tax admendment   If you file Form 1040NR, report the taxable amount on line 12. Tax admendment Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Tax admendment S. Tax admendment Source Income Subject to Withholding. Tax admendment See the Instructions for Form 1040NR for more information. Tax admendment Form 1040NR-EZ. Tax admendment   If you file Form 1040NR-EZ, report the taxable amount on line 5. Tax admendment Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Tax admendment See the Instructions for Form 1040NR-EZ for more information. Tax admendment Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Tax admendment Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Tax admendment Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Tax admendment They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Tax admendment Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Tax admendment Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Tax admendment Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Tax admendment Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Tax admendment Do not include these payments as income on your federal tax return. Tax admendment If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Tax admendment This applies only to the part of your VA payments that is required to be used for education expenses. Tax admendment You may want to visit the Veteran's Administration website at www. Tax admendment gibill. Tax admendment va. Tax admendment gov for specific information about the various VA benefits for education. Tax admendment Example. Tax admendment You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Tax admendment Neither of these benefits is taxable and you do not report them on your tax return. Tax admendment You also want to claim an American opportunity credit on your return. Tax admendment You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Tax admendment To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Tax admendment You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Tax admendment Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Tax admendment This is called a “tuition reduction. Tax admendment ” You do not have to include a qualified tuition reduction in your income. Tax admendment A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Tax admendment You do not have to use the tuition reduction at the eligible educational institution from which you received it. Tax admendment In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Tax admendment The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Tax admendment You must include in your income any tuition reduction you receive that is payment for your services. Tax admendment Eligible educational institution. Tax admendment   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Tax admendment Officers, owners, and highly compensated employees. Tax admendment   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Tax admendment This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Tax admendment The group must be defined under a reasonable classification set up by the employer. Tax admendment The classification must not discriminate in favor of owners, officers, or highly compensated employees. Tax admendment Payment for services. Tax admendment   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Tax admendment This applies even if all candidates for a degree must perform the services to receive the degree. Tax admendment (See below for exceptions. Tax admendment ) Exceptions. Tax admendment   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax admendment Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Tax admendment You are an employee of the eligible educational institution. Tax admendment You were an employee of the eligible educational institution, but you retired or left on disability. Tax admendment You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Tax admendment You are the dependent child or spouse of an individual described in (1) through (3), above. Tax admendment Child of deceased parents. Tax admendment   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Tax admendment Child of divorced parents. Tax admendment   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Tax admendment Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Tax admendment It is provided by an eligible educational institution. Tax admendment You are a graduate student who performs teaching or research activities for the educational institution. Tax admendment You must include in income any other tuition reductions for graduate education that you receive. Tax admendment How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Tax admendment Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Tax admendment Prev  Up  Next   Home   More Online Publications
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Problem Alerts

Consumer Alerts

Please note that the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

  • ‪If you get an unsolicited email that appears to be from the IRS or a specific IRS component, such as EFTPS, please report it by sending it to phishing@irs.gov. ‪
  • If you find a suspicious website that claims to be the IRS, please send the site’s URL by email to phishing@irs.gov, using the subject line: suspicious website.

For more information on phishing scams, please see Protect Your Personal Information and  Suspicious e-Mails and Identity Theft.

October 2012
Don't Fall for Phony IRS Websites

The IRS warns consumers about a new tax scam that uses a website that mimics the IRS e-Services online registration page.

‪The actual IRS e-Services page offers web-based products for tax preparers, not the general public. The phony web page looks almost identical to the real one.

The IRS gets many reports of fake websites like this. Criminals use these sites to lure people into providing personal and financial information that may be used to steal the victim’s money or identity.

June 2012
Beware of Phony Email from DFAS

Taxpayers should be on the lookout for a new, email-based phishing scam circulating that targets Department of Defense military members, retirees and civilian employees. The email appears to come from Defense Finance and Accounting Services and displays a .mil email address. The email states that those receiving disability compensation from the Department of Veterans Affairs (VA) may be able to obtain additional funds from the IRS. Email recipients are then asked to send various VA and IRS documents containing their personal and financial information, such as copies of VA award letters or their income tax returns, to an address in Florida.

The information on these documents is then used by the scammers to commit identity theft. Typically, identity thieves use someone’s personal data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards or apply for new loans, credit cards, services or benefits in the victim’s name.

For more information on phishing scams, please see Suspicious e-Mails and Identity Theft.

November 2011
The IRS Warns of Scam Emails

Update Nov. 10, 2011 — A suspected phishing email on the Employer Identification Number (EIN), claiming to come from the IRS Office of Professional Responsibility, is currently circulating. This email was not sent by the IRS. For more information, see Latest News from Office of Professional Responsibility (OPR).

The IRS does not send unsolicited e-mail to taxpayers either about their tax accounts or requesting sensitive personal and financial information.       

Nevertheless, taxpayers do receive e-mails claiming to come from the IRS, sometimes containing a real or made-up employee name, address and similar information to make an e-mail seem credible.    

These e-mails usually are scams whose purpose is to obtain personal and financial information — such as name, Social Security number, bank account and credit card or even PIN numbers — from taxpayers which can be used by the scammers to commit identity theft. Identity thieves use the data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns and more.

Typically, IRS-impersonation scam e-mails state that the IRS needs certain personal and financial information to process a tax return, tax payment or refund. They may claim the e-mail recipient is being audited. They may mention specific monetary amounts or genuine programs, such as the Electronic Federal Tax Payment System (EFTPS), to add credible detail to the scam. The e-mails often contain links or attachments to what appears to be the IRS web site or an IRS form. However genuine in appearance, these phonies are designed to elicit the information the scammers are looking for.

Alternatively, a link in a scam e-mail may download malicious software onto the taxpayer's computer when clicked. The software is often designed to search out and send back to the scammer personal and financial information contained on the taxpayer's computer or obtained through keystrokes that the scammer can use to commit identity theft.             

 



 

Page Last Reviewed or Updated: 27-Sep-2013

The Tax Admendment

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