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Taxact2011 7. Taxact2011 Ship Passenger Tax Table of Contents A tax of $3 per passenger is imposed on certain ship voyages, as explained later under Taxable situations. Taxact2011 The tax is imposed only once for each passenger, either at the time of first embarkation or disembarkation in the United States. Taxact2011 The person providing the voyage (the operator of the vessel) is liable for the tax. Taxact2011 Voyage. Taxact2011 A voyage is the vessel's journey that includes the outward and homeward trips or passages. Taxact2011 The voyage starts when the vessel begins to load passengers and continues until the vessel has completed at least one outward and one homeward passage. Taxact2011 The tax may be imposed even if a passenger does not make both an outward and a homeward passage as long as the voyage begins or ends in the United States. Taxact2011 Passenger. Taxact2011 A passenger is an individual carried on the vessel other than the Master or a crew member or other individual engaged in the business of the vessel or its owners. Taxact2011 Example 1. Taxact2011 John Smith works as a guest lecturer. Taxact2011 The cruise line hired him for the benefit of the passengers. Taxact2011 Therefore, he is engaged in the business of the vessel and is not a passenger. Taxact2011 Example 2. Taxact2011 Marian Green is a travel agent. Taxact2011 She is taking the cruise as a promotional trip to determine if she wants to offer it to her clients. Taxact2011 She is a passenger. Taxact2011 Taxable situations. Taxact2011 There are two taxable situations. Taxact2011 The first situation involves voyages on commercial passenger vessels extending over one or more nights. Taxact2011 A voyage extends over one or more nights if it extends for more than 24 hours. Taxact2011 A passenger vessel is any vessel with stateroom or berth accommodations for more than 16 passengers. Taxact2011 The second situation involves voyages on a commercial vessel transporting passengers engaged in gambling on the vessel beyond the territorial waters of the United States. Taxact2011 Territorial waters of the United States are those waters within the international boundary line between the United States and any contiguous foreign country or within 3 nautical miles (3. Taxact2011 45 statute miles) from low tide on the coastline. Taxact2011 If passengers participate as players in any policy game or other lottery, or any other game of chance for money or other thing of value that the owner or operator of the vessel (or their employee, agent, or franchisee) conducts, sponsors, or operates, the voyage is subject to the ship passenger tax. Taxact2011 The tax applies regardless of the duration of the voyage. Taxact2011 A casual, friendly game of chance with other passengers that is not conducted, sponsored, or operated by the owner or operator is not gambling for determining if the voyage is subject to the ship passenger tax. Taxact2011 Exemptions. Taxact2011 The tax does not apply when a vessel is on a voyage of less than 12 hours between 2 points in the United States or if a vessel is owned or operated by a state or local government. Taxact2011 Prev Up Next Home More Online Publications
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Taxact2011 Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. Taxact2011 Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. Taxact2011 Method 2. Taxact2011 How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. Taxact2011 In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Taxact2011 You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. Taxact2011 Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. Taxact2011 If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Taxact2011 These wages must be included on line 7 of Form 1040. Taxact2011 See Form 8919 for more information. Taxact2011 Childcare providers. Taxact2011 If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Taxact2011 If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Taxact2011 You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Taxact2011 Babysitting. Taxact2011 If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Taxact2011 Bankruptcy. Taxact2011 If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. Taxact2011 Your W-2 will show your total wages and withheld income tax for the year. Taxact2011 On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. Taxact2011 Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. Taxact2011 If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. Taxact2011 The only exception is for purposes of figuring your self-employment tax, if you are self-employed. Taxact2011 For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. Taxact2011 You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. Taxact2011 The statement must show the allocation and describe the method used to make the allocation. Taxact2011 For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. Taxact2011 R. Taxact2011 B. Taxact2011 596, available at www. Taxact2011 irs. Taxact2011 gov/irb/2006-40_IRB/ar12. Taxact2011 html. Taxact2011 Miscellaneous Compensation This section discusses many types of employee compensation. Taxact2011 The subjects are arranged in alphabetical order. Taxact2011 Advance commissions and other earnings. Taxact2011 If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Taxact2011 If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Taxact2011 If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. Taxact2011 See Repayments , later. Taxact2011 Allowances and reimbursements. Taxact2011 If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Taxact2011 If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Taxact2011 Back pay awards. Taxact2011 Include in income amounts you are awarded in a settlement or judgment for back pay. Taxact2011 These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Taxact2011 They should be reported to you by your employer on Form W-2. Taxact2011 Bonuses and awards. Taxact2011 Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Taxact2011 These include prizes such as vacation trips for meeting sales goals. Taxact2011 If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Taxact2011 However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Taxact2011 Employee achievement award. Taxact2011 If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Taxact2011 However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Taxact2011 Your employer can tell you whether your award is a qualified plan award. Taxact2011 Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Taxact2011 However, the exclusion does not apply to the following awards. Taxact2011 A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Taxact2011 A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Taxact2011 Example. Taxact2011 Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Taxact2011 Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Taxact2011 However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. Taxact2011 Differential wage payments. Taxact2011 This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. Taxact2011 These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Taxact2011 The payments are reported as wages on Form W-2. Taxact2011 Government cost-of-living allowances. Taxact2011 Most payments received by U. Taxact2011 S. Taxact2011 Government civilian employees for working abroad are taxable. Taxact2011 However, certain cost-of-living allowances are tax free. Taxact2011 Publication 516, U. Taxact2011 S. Taxact2011 Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Taxact2011 Nonqualified deferred compensation plans. Taxact2011 Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Taxact2011 This amount is shown on Form W-2, box 12, using code Y. Taxact2011 This amount is not included in your income. Taxact2011 However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Taxact2011 This amount is included in your wages shown on Form W-2, box 1. Taxact2011 It is also shown on Form W-2, box 12, using code Z. Taxact2011 Nonqualified deferred compensation plans of nonqualified entities. Taxact2011 In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. Taxact2011 For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. Taxact2011 A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. Taxact2011 Note received for services. Taxact2011 If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Taxact2011 When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Taxact2011 Do not include that part again in your income. Taxact2011 Include the rest of the payment in your income in the year of payment. Taxact2011 If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Taxact2011 Severance pay. Taxact2011 You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Taxact2011 Accrued leave payment. Taxact2011 If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Taxact2011 If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Taxact2011 You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Taxact2011 Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. Taxact2011 Outplacement services. Taxact2011 If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Taxact2011 However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Taxact2011 Sick pay. Taxact2011 Pay you receive from your employer while you are sick or injured is part of your salary or wages. Taxact2011 In addition, you must include in your income sick pay benefits received from any of the following payers. Taxact2011 A welfare fund. Taxact2011 A state sickness or disability fund. Taxact2011 An association of employers or employees. Taxact2011 An insurance company, if your employer paid for the plan. Taxact2011 However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Taxact2011 For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. Taxact2011 Social security and Medicare taxes paid by employer. Taxact2011 If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Taxact2011 The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Taxact2011 However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Taxact2011 Stock appreciation rights. Taxact2011 Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Taxact2011 When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Taxact2011 You include the cash payment in income in the year you use the right. Taxact2011 Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Taxact2011 Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Taxact2011 See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. Taxact2011 Recipient of fringe benefit. Taxact2011 You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. Taxact2011 You are considered to be the recipient even if it is given to another person, such as a member of your family. Taxact2011 An example is a car your employer gives to your spouse for services you perform. Taxact2011 The car is considered to have been provided to you and not to your spouse. Taxact2011 You do not have to be an employee of the provider to be a recipient of a fringe benefit. Taxact2011 If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. Taxact2011 Provider of benefit. Taxact2011 Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. Taxact2011 The provider can be a client or customer of an independent contractor. Taxact2011 Accounting period. Taxact2011 You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Taxact2011 Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Taxact2011 The general rule: benefits are reported for a full calendar year (January 1–December 31). Taxact2011 The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Taxact2011 For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Taxact2011 Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Taxact2011 You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Taxact2011 Form W-2. Taxact2011 Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Taxact2011 Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Taxact2011 However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Taxact2011 Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Taxact2011 Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . Taxact2011 For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Taxact2011 Long-term care coverage. Taxact2011 Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Taxact2011 However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Taxact2011 This amount will be reported as wages in box 1 of your Form W-2. Taxact2011 Archer MSA contributions. Taxact2011 Contributions by your employer to your Archer MSA generally are not included in your income. Taxact2011 Their total will be reported in box 12 of Form W-2, with code R. Taxact2011 You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Taxact2011 File the form with your return. Taxact2011 Health flexible spending arrangement (health FSA). Taxact2011 If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Taxact2011 Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Taxact2011 The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Taxact2011 For more information, see Notice 2012-40, 2012-26 I. Taxact2011 R. Taxact2011 B. Taxact2011 1046, available at www. Taxact2011 irs. Taxact2011 gov/irb/2012-26 IRB/ar09. Taxact2011 html. Taxact2011 Health reimbursement arrangement (HRA). Taxact2011 If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Taxact2011 Health savings accounts (HSA). Taxact2011 If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Taxact2011 Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Taxact2011 Contributions made by your employer are not included in your income. Taxact2011 Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Taxact2011 Distributions not used for qualified medical expenses are included in your income. Taxact2011 See Publication 969 for the requirements of an HSA. Taxact2011 Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Taxact2011 The contributions are treated as a distribution of money and are not included in the partner's gross income. Taxact2011 Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Taxact2011 In both situations, the partner can deduct the contribution made to the partner's HSA. Taxact2011 Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Taxact2011 The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Taxact2011 Qualified HSA funding distribution. Taxact2011 You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Taxact2011 See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. Taxact2011 Failure to maintain eligibility. Taxact2011 If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Taxact2011 If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Taxact2011 This income is also subject to an additional 10% tax. Taxact2011 Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Taxact2011 See Instructions for Form 8839, Qualified Adoption Expenses, for more information. Taxact2011 Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Taxact2011 They also are included as social security and Medicare wages in boxes 3 and 5. Taxact2011 However, they are not included as wages in box 1. Taxact2011 To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Taxact2011 File the form with your return. Taxact2011 Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. Taxact2011 The gym must be used primarily by employees, their spouses, and their dependent children. Taxact2011 If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. Taxact2011 De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Taxact2011 In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Taxact2011 Also see Employee Discounts , later. Taxact2011 Holiday gifts. Taxact2011 If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Taxact2011 However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Taxact2011 Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Taxact2011 Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. Taxact2011 The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Taxact2011 Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. Taxact2011 Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. Taxact2011 To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. Taxact2011 See the Instructions for Form 2441 for more information. Taxact2011 Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Taxact2011 For more information, see Publication 970. Taxact2011 Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. Taxact2011 The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. Taxact2011 However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). Taxact2011 The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. Taxact2011 For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. Taxact2011 (Ask your employer for this percentage. Taxact2011 ) For a discount on services, 20%. Taxact2011 Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. Taxact2011 If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). Taxact2011 Qualified retirement planning services paid for you by your employer may be excluded from your income. Taxact2011 For more information, see Retirement Planning Services , later. Taxact2011 Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Taxact2011 However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Taxact2011 For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. Taxact2011 If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Taxact2011 Also, it is shown separately in box 12 with code C. Taxact2011 Group-term life insurance. Taxact2011 This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Taxact2011 Permanent benefits. Taxact2011 If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Taxact2011 Your employer should be able to tell you the amount to include in your income. Taxact2011 Accidental death benefits. Taxact2011 Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Taxact2011 Former employer. Taxact2011 If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Taxact2011 Also, it is shown separately in box 12 with code C. Taxact2011 Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Taxact2011 You must pay these taxes with your income tax return. Taxact2011 Include them on line 60, Form 1040, and follow the instructions forline 60. Taxact2011 For more information, see the Instructions for Form 1040. Taxact2011 Two or more employers. Taxact2011 Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Taxact2011 If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Taxact2011 You must figure how much to include in your income. Taxact2011 Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Taxact2011 Figuring the taxable cost. Taxact2011 Use the following worksheet to figure the amount to include in your income. Taxact2011 If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. Taxact2011 However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . Taxact2011 Worksheet 1. Taxact2011 Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Taxact2011 Enter the total amount of your insurance coverage from your employer(s) 1. Taxact2011 2. Taxact2011 Limit on exclusion for employer-provided group-term life insurance coverage 2. Taxact2011 50,000 3. Taxact2011 Subtract line 2 from line 1 3. Taxact2011 4. Taxact2011 Divide line 3 by $1,000. Taxact2011 Figure to the nearest tenth 4. Taxact2011 5. Taxact2011 Go to Table 1. Taxact2011 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Taxact2011 6. Taxact2011 Multiply line 4 by line 5 6. Taxact2011 7. Taxact2011 Enter the number of full months of coverage at this cost 7. Taxact2011 8. Taxact2011 Multiply line 6 by line 7 8. Taxact2011 9. Taxact2011 Enter the premiums you paid per month 9. Taxact2011 10. Taxact2011 Enter the number of months you paid the premiums 10. Taxact2011 11. Taxact2011 Multiply line 9 by line 10. Taxact2011 11. Taxact2011 12. Taxact2011 Subtract line 11 from line 8. Taxact2011 Include this amount in your income as wages 12. Taxact2011 Table 1. Taxact2011 Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $ . Taxact2011 05 25 through 29 . Taxact2011 06 30 through 34 . Taxact2011 08 35 through 39 . Taxact2011 09 40 through 44 . Taxact2011 10 45 through 49 . Taxact2011 15 50 through 54 . Taxact2011 23 55 through 59 . Taxact2011 43 60 through 64 . Taxact2011 66 65 through 69 1. Taxact2011 27 70 and older 2. Taxact2011 06 Example. Taxact2011 You are 51 years old and work for employers A and B. Taxact2011 Both employers provide group-term life insurance coverage for you for the entire year. Taxact2011 Your coverage is $35,000 with employer A and $45,000 with employer B. Taxact2011 You pay premiums of $4. Taxact2011 15 a month under the employer B group plan. Taxact2011 You figure the amount to include in your income as follows. Taxact2011 Worksheet 1. Taxact2011 Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. Taxact2011 Enter the total amount of your insurance coverage from your employer(s) 1. Taxact2011 80,000 2. Taxact2011 Limit on exclusion for employer-provided group-term life insurance coverage 2. Taxact2011 50,000 3. Taxact2011 Subtract line 2 from line 1 3. Taxact2011 30,000 4. Taxact2011 Divide line 3 by $1,000. Taxact2011 Figure to the nearest tenth 4. Taxact2011 30. Taxact2011 0 5. Taxact2011 Go to Table 1. Taxact2011 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Taxact2011 . Taxact2011 23 6. Taxact2011 Multiply line 4 by line 5 6. Taxact2011 6. Taxact2011 90 7. Taxact2011 Enter the number of full months of coverage at this cost. Taxact2011 7. Taxact2011 12 8. Taxact2011 Multiply line 6 by line 7 8. Taxact2011 82. Taxact2011 80 9. Taxact2011 Enter the premiums you paid per month 9. Taxact2011 4. Taxact2011 15 10. Taxact2011 Enter the number of months you paid the premiums 10. Taxact2011 12 11. Taxact2011 Multiply line 9 by line 10. Taxact2011 11. Taxact2011 49. Taxact2011 80 12. Taxact2011 Subtract line 11 from line 8. Taxact2011 Include this amount in your income as wages 12. Taxact2011 33. Taxact2011 00 The total amount to include in income for the cost of excess group-term life insurance is $33. Taxact2011 Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. Taxact2011 You must add it to the wages shown on your Forms W-2 and include the total on your return. Taxact2011 Entire cost excluded. Taxact2011 You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Taxact2011 You are permanently and totally disabled and have ended your employment. Taxact2011 Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Taxact2011 A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Taxact2011 (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Taxact2011 ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Taxact2011 Entire cost taxed. Taxact2011 You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. Taxact2011 The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Taxact2011 You are a key employee and your employer's plan discriminates in favor of key employees. Taxact2011 Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Taxact2011 The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. Taxact2011 The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. Taxact2011 (You must accept it in order to be able to properly perform your duties. Taxact2011 ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. Taxact2011 See De Minimis (Minimal) Benefits , earlier. Taxact2011 Faculty lodging. Taxact2011 If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. Taxact2011 However, the lodging must be qualified campus lodging, and you must pay an adequate rent. Taxact2011 Academic health center. Taxact2011 This is an organization that meets the following conditions. Taxact2011 Its principal purpose or function is to provide medical or hospital care or medical education or research. Taxact2011 It receives payments for graduate medical education under the Social Security Act. Taxact2011 One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. Taxact2011 Qualified campus lodging. Taxact2011 Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. Taxact2011 The lodging must be located on or near a campus of the educational institution or academic health center. Taxact2011 Adequate rent. Taxact2011 The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. Taxact2011 If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. Taxact2011 The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. Taxact2011 Example. Taxact2011 Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. Taxact2011 The house is appraised at $200,000. Taxact2011 The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. Taxact2011 Carl pays an annual rent of $11,000. Taxact2011 Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). Taxact2011 If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). Taxact2011 Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. Taxact2011 See Publication 521 for more information. Taxact2011 No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). Taxact2011 In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. Taxact2011 Example. Taxact2011 You are employed as a flight attendant for a company that owns both an airline and a hotel chain. Taxact2011 Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. Taxact2011 The value of the personal flight is not included in your income. Taxact2011 However, the value of the hotel room is included in your income because you do not work in the hotel business. Taxact2011 Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Taxact2011 Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Taxact2011 You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Taxact2011 Also, see Financial Counseling Fees , earlier. Taxact2011 Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Taxact2011 A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Taxact2011 Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Taxact2011 However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Taxact2011 Exclusion limit. Taxact2011 The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Taxact2011 The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Taxact2011 The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Taxact2011 If the benefits have a value that is more than these limits, the excess must be included in your income. Taxact2011 You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Taxact2011 Commuter highway vehicle. Taxact2011 This is a highway vehicle that seats at least six adults (not including the driver). Taxact2011 At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Taxact2011 Transit pass. Taxact2011 This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Taxact2011 Qualified parking. Taxact2011 This is parking provided to an employee at or near the employer's place of business. Taxact2011 It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Taxact2011 It does not include parking at or near the employee's home. Taxact2011 Qualified bicycle commuting. Taxact2011 This is reimbursement based on the number of qualified bicycle commuting months for the year. Taxact2011 A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Taxact2011 The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Taxact2011 Tuition Reduction You can exclude a qualified tuition reduction from your income. Taxact2011 This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. Taxact2011 For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. Taxact2011 Representing 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. Taxact2011 For more information, see Publication 970. Taxact2011 Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. Taxact2011 Example. Taxact2011 You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. Taxact2011 The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. Taxact2011 Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. Taxact2011 For an exception, see Group-Term Life Insurance , earlier. Taxact2011 General valuation rule. Taxact2011 You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. Taxact2011 If you pay fair market value for a fringe benefit, no amount is included in your income. Taxact2011 Fair market value. Taxact2011 The fair market value of a fringe benefit is determined by all the facts and circumstances. Taxact2011 It is the amount you would have to pay a third party to buy or lease the benefit. Taxact2011 This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. Taxact2011 Employer-provided vehicles. Taxact2011 If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. Taxact2011 Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. Taxact2011 An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. Taxact2011 The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. Taxact2011 Flights on employer-provided aircraft. Taxact2011 Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. Taxact2011 If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. Taxact2011 The division must be based on all the facts, including which employee or employees control the use of the aircraft. Taxact2011 Special valuation rules. Taxact2011 You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. Taxact2011 If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. Taxact2011 You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. Taxact2011 If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. Taxact2011 The special valuation rules are the following. Taxact2011 The automobile lease rule. Taxact2011 The vehicle cents-per-mile rule. Taxact2011 The commuting rule. Taxact2011 The unsafe conditions commuting rule. Taxact2011 The employer-operated eating-facility rule. Taxact2011 For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Taxact2011 For information on the non-commercial flight and commercial flight valuation rules, see sections 1. Taxact2011 61-21(g) and 1. Taxact2011 61-21(h) of the regulations. Taxact2011 Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Taxact2011 (Your employer can tell you whether your retirement plan is qualified. Taxact2011 ) However, the cost of life insurance coverage included in the plan may have to be included. Taxact2011 See Group-Term Life Insurance , earlier, under Fringe Benefits. Taxact2011 If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Taxact2011 However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Taxact2011 For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. Taxact2011 S. Taxact2011 Civil Service Retirement Benefits, if you are a federal employee or retiree). Taxact2011 Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Taxact2011 The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Taxact2011 An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Taxact2011 However, it is included in wages subject to social security and Medicare taxes. Taxact2011 Elective deferrals include elective contributions to the following retirement plans. Taxact2011 Cash or deferred arrangements (section 401(k) plans). Taxact2011 The Thrift Savings Plan for federal employees. Taxact2011 Salary reduction simplified employee pension plans (SARSEP). Taxact2011 Savings incentive match plans for employees (SIMPLE plans). Taxact2011 Tax-sheltered annuity plans (403(b) plans). Taxact2011 Section 501(c)(18)(D) plans. Taxact2011 (But see Reporting by employer , later. Taxact2011 ) Section 457 plans. Taxact2011 Qualified automatic contribution arrangements. Taxact2011 Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Taxact2011 You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Taxact2011 The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Taxact2011 You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Taxact2011 Overall limit on deferrals. Taxact2011 For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. Taxact2011 The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. Taxact2011 Amounts deferred under specific plan limits are part of the overall limit on deferrals. Taxact2011 Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Taxact2011 However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Taxact2011 Catch-up contributions. Taxact2011 You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. Taxact2011 For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. Taxact2011 For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. Taxact2011 SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. Taxact2011 Section 457 plans, see Limit for deferrals under section 457 plans , later. Taxact2011 Limit for deferrals under SIMPLE plans. Taxact2011 If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. Taxact2011 Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. Taxact2011 Limit for tax-sheltered annuities. Taxact2011 If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. Taxact2011 However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. Taxact2011 $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax 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. Taxact2011 If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. Taxact2011 For more information, see Publication 571. Taxact2011 Limit for deferral under section 501(c)(18) plans. Taxact2011 If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. Taxact2011 Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. Taxact2011 Limit for deferrals under section 457 plans. Taxact2011 If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. Taxact2011 However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. Taxact2011 See Increased limit , later. Taxact2011 Includible compensation. Taxact2011 This is the pay you received for the year from the employer who maintained the section 457 plan. Taxact2011 In most cases, it includes all the following payments. Taxact2011 Wages and salaries. Taxact2011 Fees for professional services. Taxact2011 The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. Taxact2011 Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. Taxact2011 Commissions and tips. Taxact2011 Fringe benefits. Taxact2011 Bonuses. Taxact2011 Employer contributions (elective deferrals) to: The section 457 plan. Taxact2011 Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. Taxact2011 A salary reduction simplified employee pension (SARSEP). Taxact2011 A tax-sheltered annuity (section 403(b) plan). Taxact2011 A savings incentive match plan for employees (SIMPLE plan). Taxact2011 A section 125 cafeteria plan. Taxact2011 Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. Taxact2011 Your wages as defined for income tax withholding purposes. Taxact2011 Your wages as reported in box 1 of Form W-2. Taxact2011 Your wages that are subject to social security withholding (including elective deferrals). Taxact2011 Increased limit. Taxact2011 During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). Taxact2011 Catch-up contributions. Taxact2011 You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. Taxact2011 If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. Taxact2011 However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. Taxact2011 Designated Roth contributions. Taxact2011 Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Taxact2011 Designated Roth contributions are treated as elective deferrals, except that they are included in income. Taxact2011 Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. Taxact2011 Qualified distributions from a Roth plan are not included in income. Taxact2011 In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. Taxact2011 Reporting by employer. Taxact2011 Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. Taxact2011 Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. Taxact2011 Section 501(c)(18)(D) contributions. Taxact2011 Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. Taxact2011 The amount you contributed should be identified with code “H” in box 12. Taxact2011 You may deduct the amount deferred subject to the limits that apply. Taxact2011 Include your deduction in the total on Form 1040, line 36. Taxact2011 Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. Taxact2011 Designated Roth contributions. Taxact2011 These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. Taxact2011 Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. Taxact2011 Excess deferrals. Taxact2011 If your deferrals exceed the limit, you must notify your plan by the date required by the plan. Taxact2011 If the plan permits, the excess amount will be distributed to you. Taxact2011 If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. Taxact2011 You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. Taxact2011 The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. Taxact2011 You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. Taxact2011 File Form 1040 to add the excess deferral amount to your wages on line 7. Taxact2011 Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. Taxact2011 Excess not distributed. Taxact2011 If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. Taxact2011 Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. Taxact2011 Excess distributed to you. Taxact2011 If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. Taxact2011 If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. Taxact2011 Any income on the excess deferral taken out is taxable in the tax year in which you take it out. Taxact2011 If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. Taxact2011 You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Taxact2011 Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. Taxact2011 If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. Taxact2011 Add the excess deferral amount to your wages on your 2013 tax return. Taxact2011 If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. Taxact2011 Do not add this amount to your wages on your 2013 return. Taxact2011 If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. Taxact2011 If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. Taxact2011 S. Taxact2011 Individual Income Tax Return. Taxact2011 If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. Taxact2011 If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. Taxact2011 Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. Taxact2011 Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Taxact2011 Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. Taxact2011 ” Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Taxact2011 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Taxact2011 Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. Taxact2011 If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. Taxact2011 You must include the excess contributions in your income as wages on Form 1040, line 7. Taxact2011 You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. Taxact2011 If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. Taxact2011 The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. Taxact2011 You should receive a Form 1099-R for the year the excess contributions are distributed to you. Taxact2011 Add the distribution to your wages for that year. Taxact2011 Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Taxact2011 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Taxact2011 Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. Taxact2011 Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. Taxact2011 A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. Taxact2011 A corrective payment consisting of your after-tax contributions is not taxable. Taxact2011 If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. Taxact2011 Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. Taxact2011 Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. Taxact2011 Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Taxact2011 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Taxact2011 Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. Taxact2011 The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. Taxact2011 Your employer can tell you which kind of option you hold. Taxact2011 Nonstatutory Stock Options Grant of option. Taxact2011 If you are granted a nonstatutory stock option, you may have income when you receive the option. Taxact2011 The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. Taxact2011 The fair market value of an option can be readily determined if it is actively traded on an established market. Taxact2011 The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. Taxact2011 You can transfer the option. Taxact2011 You can exercise the option immediately in full. Taxact2011 The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. Taxact2011 The fair market value of the option privilege can be readily determined. Taxact2011 The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. Taxact2011 For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. Taxact2011 The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. Taxact2011 If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. Taxact2011 For more information on the excise tax, see Internal Revenue Code section 4985. Taxact2011 Option with readily determinable value. Taxact2011 If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. Taxact2011 See Restricted Property , later, for rules on how much income to include and when to include it. Taxact2011 However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. Taxact2011 Option without readily determinable value. Taxact2011 If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. Taxact2011 Exercise or transfer of option. Taxact2011 When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. Taxact2011 Option with readily determinable value. Taxact2011 When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. Taxact2011 Option without readily determinable value. Taxact2011 When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope