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Turbotax Freedom Edition

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Turbotax Freedom Edition

Turbotax freedom edition Publication 915 - Main Content Table of Contents Are Any of Your Benefits Taxable?Worksheet A. Turbotax freedom edition Exemption from withholding. Turbotax freedom edition How To Report Your Benefits How Much Is Taxable?Examples Lump-Sum ElectionExample Deductions Related to Your BenefitsRepayments More Than Gross Benefits Worksheets AppendixForm SSA-1099, Social Security Benefit Statement 2013 Form SSA-1042S, Social Security Benefit Statement 2013 (Nonresident Aliens) Form RRB-1099, Payments by the Railroad Retirement Board 2013 Form RRB-1042S, Payments by the Railroad Retirement Board 2013 (Nonresident Aliens) How To Get Tax HelpLow Income Taxpayer Clinics Are Any of Your Benefits Taxable? To find out whether any of your benefits shown on Forms SSA-1099 and RRB-1099 may be taxable, compare the base amount (explained later) for your filing status with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. Turbotax freedom edition When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. Turbotax freedom edition S. Turbotax freedom edition savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned by bona fide residents of American Samoa or Puerto Rico. Turbotax freedom edition Children's benefits. Turbotax freedom edition   The rules in this publication apply to benefits received by children. Turbotax freedom edition See Who is taxed , later. Turbotax freedom edition The SSA issues Form SSA-1099 and Form SSA-1042S. Turbotax freedom edition The RRB issues Form RRB-1099 and Form RRB-1042S. Turbotax freedom edition These forms (tax statements) report the amounts paid and repaid, and taxes withheld for a tax year. Turbotax freedom edition You may receive more than one of these forms for the same tax year. Turbotax freedom edition See the Appendix at the end of this publication for more information. Turbotax freedom edition Each original Form RRB-1099 or Form RRB-1042S is valid unless it has been corrected. Turbotax freedom edition The RRB will issue a corrected Form RRB-1099 or Form RRB-1042S if there is an error in the original. Turbotax freedom edition A corrected Form RRB-1099 or Form RRB-1042S is indicated as “CORRECTED” and replaces the corresponding original Form RRB-1099 or Form RRB-1042S. Turbotax freedom edition You must use the latest corrected Form RRB-1099 or Form RRB-1042S you received and any original Form RRB-1099 or Form RRB-1042S that the RRB has not corrected when you determine what amounts to report on your tax return. Turbotax freedom edition Figuring total income. Turbotax freedom edition   To figure the total of one-half of your benefits plus your other income, use Worksheet A, discussed later. Turbotax freedom edition If the total is more than your base amount, part of your benefits may be taxable. Turbotax freedom edition   If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Turbotax freedom edition Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. Turbotax freedom edition If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. Turbotax freedom edition If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Turbotax freedom edition Base amount. Turbotax freedom edition   Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er), $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $-0- if you are married filing separately and lived with your spouse at any time during 2013. Turbotax freedom edition Worksheet A. Turbotax freedom edition   You can use Worksheet A to figure the amount of income to compare with your base amount. Turbotax freedom edition This is a quick way to check whether some of your benefits may be taxable. Turbotax freedom edition     Worksheet A. Turbotax freedom edition A Quick Way To Check if Your Benefits May Be Taxable Keep for your records A. Turbotax freedom edition Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Turbotax freedom edition Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. Turbotax freedom edition (If you received more than one form, combine the amounts from box 5 and enter the total. Turbotax freedom edition ) A. Turbotax freedom edition   Note. Turbotax freedom edition If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. Turbotax freedom edition B. Turbotax freedom edition Enter one-half of the amount on line A B. Turbotax freedom edition   C. Turbotax freedom edition Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Turbotax freedom edition   D. Turbotax freedom edition Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. Turbotax freedom edition   E. Turbotax freedom edition Add lines B, C, and D E. Turbotax freedom edition   Note. Turbotax freedom edition Compare the amount on line E to your base amount for your filing status. Turbotax freedom edition If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. Turbotax freedom edition If the amount on line E is more than your base amount, some of your benefits may be taxable. Turbotax freedom edition You need to complete Worksheet 1, shown later. Turbotax freedom edition If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits . Turbotax freedom edition   Example. Turbotax freedom edition You and your spouse (both over 65) are filing a joint return for 2013 and you both received social security benefits during the year. Turbotax freedom edition In January 2014, you received a Form SSA-1099 showing net benefits of $7,500 in box 5. Turbotax freedom edition Your spouse received a Form SSA-1099 showing net benefits of $3,500 in box 5. Turbotax freedom edition You also received a taxable pension of $22,800 and interest income of $500. Turbotax freedom edition You did not have any tax-exempt interest income. Turbotax freedom edition Your benefits are not taxable for 2013 because your income, as figured in Worksheet A below, is not more than your base amount ($32,000) for married filing jointly. Turbotax freedom edition   Even though none of your benefits are taxable, you must file a return for 2013 because your taxable gross income ($23,300) exceeds the minimum filing requirement amount for your filing status. Turbotax freedom edition     Filled-in Worksheet A. Turbotax freedom edition A Quick Way To Check if Your Benefits May Be Taxable Keep for your records A. Turbotax freedom edition Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Turbotax freedom edition Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. Turbotax freedom edition (If you received more than one form, combine the amounts from box 5 and enter the total. Turbotax freedom edition ) A. Turbotax freedom edition $11,000 Note. Turbotax freedom edition If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. Turbotax freedom edition B. Turbotax freedom edition Enter one-half of the amount on line A B. Turbotax freedom edition 5,500 C. Turbotax freedom edition Enter your taxable pensions, wages, interest, dividends, and other taxable income C. Turbotax freedom edition 23,300 D. Turbotax freedom edition Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. Turbotax freedom edition -0- E. Turbotax freedom edition Add lines B, C, and D E. Turbotax freedom edition $28,800 Note. Turbotax freedom edition Compare the amount on line E to your base amount for your filing status. Turbotax freedom edition If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. Turbotax freedom edition If the amount on line E is more than your base amount, some of your benefits may be taxable. Turbotax freedom edition You need to complete Worksheet 1, shown later. Turbotax freedom edition If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits . Turbotax freedom edition   Who is taxed. Turbotax freedom edition   Benefits are included in the taxable income (to the extent they are taxable) of the person who has the legal right to receive the benefits. Turbotax freedom edition For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. Turbotax freedom edition One-half of the part that belongs to your child must be added to your child's other income to see whether any of those benefits are taxable to your child. Turbotax freedom edition Repayment of benefits. Turbotax freedom edition   Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. Turbotax freedom edition It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. Turbotax freedom edition If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. Turbotax freedom edition   Your gross benefits are shown in box 3 of Form SSA-1099 or Form RRB-1099. Turbotax freedom edition Your repayments are shown in box 4. Turbotax freedom edition The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). Turbotax freedom edition Use the amount in box 5 to figure whether any of your benefits are taxable. Turbotax freedom edition Example. Turbotax freedom edition In 2012, you received $3,000 in social security benefits, and in 2013 you received $2,700. Turbotax freedom edition In March 2013, SSA notified you that you should have received only $2,500 in benefits in 2012. Turbotax freedom edition During 2013, you repaid $500 to SSA. Turbotax freedom edition The Form SSA-1099 you received for 2013 shows $2,700 in box 3 (gross amount) and $500 in box 4 (repayment). Turbotax freedom edition The amount in box 5 shows your net benefits of $2,200 ($2,700 minus $500). Turbotax freedom edition Tax withholding and estimated tax. Turbotax freedom edition   You can choose to have federal income tax withheld from your social security benefits and/or the SSEB portion of your tier 1 railroad retirement benefits. Turbotax freedom edition If you choose to do this, you must complete a Form W-4V, Voluntary Withholding Statement. Turbotax freedom edition   If you do not choose to have income tax withheld, you may have to request additional withholding from other income or pay estimated tax during the year. Turbotax freedom edition For details, see Publication 505, Tax Withholding and Estimated Tax, or the instructions for Form 1040-ES, Estimated Tax for Individuals. Turbotax freedom edition U. Turbotax freedom edition S. Turbotax freedom edition citizens residing abroad. Turbotax freedom edition   U. Turbotax freedom edition S. Turbotax freedom edition citizens who are residents of the following countries are exempt from U. Turbotax freedom edition S. Turbotax freedom edition tax on their benefits. Turbotax freedom edition Canada. Turbotax freedom edition Egypt. Turbotax freedom edition Germany. Turbotax freedom edition Ireland. Turbotax freedom edition Israel. Turbotax freedom edition Italy. Turbotax freedom edition (You must also be a citizen of Italy for the exemption to apply. Turbotax freedom edition ) Romania. Turbotax freedom edition United Kingdom. Turbotax freedom edition   The SSA will not withhold U. Turbotax freedom edition S. Turbotax freedom edition tax from your benefits if you are a U. Turbotax freedom edition S. Turbotax freedom edition citizen. Turbotax freedom edition   The RRB will withhold U. Turbotax freedom edition S. Turbotax freedom edition tax from your benefits unless you file Form RRB-1001, Nonresident Questionnaire, with the RRB to provide citizenship and residency information. Turbotax freedom edition If you do not file Form RRB-1001, the RRB will consider you a nonresident alien and withhold tax from your railroad retirement benefits at a 30% rate. Turbotax freedom edition Contact the RRB to get this form. Turbotax freedom edition Lawful permanent residents. Turbotax freedom edition   For U. Turbotax freedom edition S. Turbotax freedom edition income tax purposes, lawful permanent residents (green card holders) are considered resident aliens until their lawful permanent resident status under the immigration laws is either taken away or is administratively or judicially determined to have been abandoned. Turbotax freedom edition Social security benefits paid to a green card holder are not subject to 30% withholding. Turbotax freedom edition If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. Turbotax freedom edition SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld. Turbotax freedom edition If SSA cannot refund the taxes withheld, you must file a Form 1040 or 1040A with the Internal Revenue Service Center, Austin, TX 73301 to determine if you are entitled to a refund. Turbotax freedom edition You must also attach the following information to your Form 1040 or 1040A: A copy of the Form SSA-1042S, Social Security Benefit Statement, A copy of the “green card,” and A signed declaration that includes the following statements:    “The SSA should not have withheld federal income tax from my social security benefits because I am a U. Turbotax freedom edition S. Turbotax freedom edition lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Turbotax freedom edition I am filing a U. Turbotax freedom edition S. Turbotax freedom edition income tax return for the tax year as a resident alien reporting all of my worldwide income. Turbotax freedom edition I have not claimed benefits for the tax year under an income tax treaty as a nonresident alien. Turbotax freedom edition ” Nonresident aliens. Turbotax freedom edition   A nonresident alien is an individual who is not a citizen or resident of the United States. Turbotax freedom edition If you are a nonresident alien, the rules discussed in this publication do not apply to you. Turbotax freedom edition Instead, 85% of your benefits are taxed at a 30% rate, unless exempt (or subject to a lower rate) by treaty. Turbotax freedom edition You will receive a Form SSA-1042S or Form RRB-1042S showing the amount of your benefits. Turbotax freedom edition These forms will also show the tax rate and the amount of tax withheld from your benefits. Turbotax freedom edition   Under tax treaties with the following countries, residents of these countries are exempt from U. Turbotax freedom edition S. Turbotax freedom edition tax on their benefits. Turbotax freedom edition Canada. Turbotax freedom edition Egypt. Turbotax freedom edition Germany. Turbotax freedom edition Ireland. Turbotax freedom edition Israel. Turbotax freedom edition Italy. Turbotax freedom edition Japan. Turbotax freedom edition Romania. Turbotax freedom edition United Kingdom. Turbotax freedom edition   Under a treaty with India, benefits paid to individuals who are both residents and nationals of India are exempt from U. Turbotax freedom edition S. Turbotax freedom edition tax if the benefits are for services performed for the United States, its subdivisions, or local government authorities. Turbotax freedom edition   If you are a resident of Switzerland, your total benefit amount will be taxed at a 15% rate. Turbotax freedom edition   For more information on whether you are a nonresident alien, see Publication 519, U. Turbotax freedom edition S. Turbotax freedom edition Tax Guide for Aliens. Turbotax freedom edition Exemption from withholding. Turbotax freedom edition   If your social security benefits are exempt from tax because you are a resident of one of the treaty countries listed, the SSA will not withhold U. Turbotax freedom edition S. Turbotax freedom edition tax from your benefits. Turbotax freedom edition   If your railroad retirement benefits are exempt from tax because you are a resident of one of the treaty countries listed, you can claim an exemption from withholding by filing Form RRB-1001 with the RRB. Turbotax freedom edition Contact the RRB to get this form. Turbotax freedom edition Canadian or German social security benefits paid to U. Turbotax freedom edition S. Turbotax freedom edition residents. Turbotax freedom edition   Under income tax treaties with Canada and Germany, social security benefits paid by those countries to U. Turbotax freedom edition S. Turbotax freedom edition residents are treated for U. Turbotax freedom edition S. Turbotax freedom edition income tax purposes as if they were paid under the social security legislation of the United States. Turbotax freedom edition If you receive social security benefits from Canada or Germany, include them on line 1 of Worksheet 1, shown later. Turbotax freedom edition How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040 or Form 1040A. Turbotax freedom edition You cannot use Form 1040EZ. Turbotax freedom edition Reporting on Form 1040. Turbotax freedom edition   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 20a and the taxable part on line 20b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. Turbotax freedom edition Reporting on Form 1040A. Turbotax freedom edition   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 14a and the taxable part on line 14b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. Turbotax freedom edition Benefits not taxable. Turbotax freedom edition   If you are filing Form 1040EZ, do not report any benefits on your tax return. Turbotax freedom edition If you are filing Form 1040 or Form 1040A, report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition How Much Is Taxable? If part of your benefits are taxable, how much is taxable depends on the total amount of your benefits and other income. Turbotax freedom edition Generally, the higher that total amount, the greater the taxable part of your benefits. Turbotax freedom edition Maximum taxable part. Turbotax freedom edition   Generally, up to 50% of your benefits will be taxable. Turbotax freedom edition However, up to 85% of your benefits can be taxable if either of the following situations applies to you. Turbotax freedom edition The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). Turbotax freedom edition You are married filing separately and lived with your spouse at any time during 2013. Turbotax freedom edition Which worksheet to use. Turbotax freedom edition   A worksheet you can use to figure your taxable benefits is in the instructions for your Form 1040 or 1040A. Turbotax freedom edition You can use either that worksheet or Worksheet 1 in this publication, unless any of the following situations applies to you. Turbotax freedom edition You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse is covered by a retirement plan at work. Turbotax freedom edition In this situation you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. Turbotax freedom edition Situation (1) does not apply and you take an exclusion for interest from qualified U. Turbotax freedom edition S. Turbotax freedom edition savings bonds (Form 8815), for adoption benefits (Form 8839), for foreign earned income or housing (Form 2555 or Form 2555-EZ), or for income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. Turbotax freedom edition In this situation, you must use Worksheet 1 in this publication to figure your taxable benefits. Turbotax freedom edition You received a lump-sum payment for an earlier year. Turbotax freedom edition In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in this publication. Turbotax freedom edition See Lump-Sum Election , later. Turbotax freedom edition Examples A few examples you can use as a guide to figure the taxable part of your benefits follow. Turbotax freedom edition Filled-in Worksheet 1. Turbotax freedom edition Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Turbotax freedom edition None of your benefits are taxable for 2013. Turbotax freedom edition For more information, see Repayments More Than Gross Benefits . Turbotax freedom edition If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Turbotax freedom edition S. Turbotax freedom edition Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Turbotax freedom edition Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Turbotax freedom edition 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Turbotax freedom edition Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Turbotax freedom edition $5,980         2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition 2,990     3. Turbotax freedom edition Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Turbotax freedom edition 28,990     4. Turbotax freedom edition Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Turbotax freedom edition -0-     5. Turbotax freedom edition Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Turbotax freedom edition -0-     6. Turbotax freedom edition Combine lines 2, 3, 4, and 5 6. Turbotax freedom edition 31,980     7. Turbotax freedom edition Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Turbotax freedom edition  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Turbotax freedom edition -0-     8. Turbotax freedom edition Is the amount on line 7 less than the amount on line 6?             No. Turbotax freedom edition None of your social security benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition 31,980     9. Turbotax freedom edition If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Turbotax freedom edition 25,000       Note. Turbotax freedom edition If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Turbotax freedom edition 85) and enter the result on line 17. Turbotax freedom edition Then go to line 18. Turbotax freedom edition         10. Turbotax freedom edition Is the amount on line 9 less than the amount on line 8?             No. Turbotax freedom edition None of your benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 9 from line 8 10. Turbotax freedom edition 6,980     11. Turbotax freedom edition Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Turbotax freedom edition 9,000     12. Turbotax freedom edition Subtract line 11 from line 10. Turbotax freedom edition If zero or less, enter -0- 12. Turbotax freedom edition -0-     13. Turbotax freedom edition Enter the smaller of line 10 or line 11 13. Turbotax freedom edition 6,980     14. Turbotax freedom edition Enter one-half of line 13 14. Turbotax freedom edition 3,490     15. Turbotax freedom edition Enter the smaller of line 2 or line 14 15. Turbotax freedom edition 2,990     16. Turbotax freedom edition Multiply line 12 by 85% (. Turbotax freedom edition 85). Turbotax freedom edition If line 12 is zero, enter -0- 16. Turbotax freedom edition -0-     17. Turbotax freedom edition Add lines 15 and 16 17. Turbotax freedom edition 2,990     18. Turbotax freedom edition Multiply line 1 by 85% (. Turbotax freedom edition 85) 18. Turbotax freedom edition 5,083     19. Turbotax freedom edition Taxable benefits. Turbotax freedom edition Enter the smaller of line 17 or line 18. Turbotax freedom edition Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Turbotax freedom edition $2,990       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Turbotax freedom edition         Example 1. Turbotax freedom edition George White is single and files Form 1040 for 2013. Turbotax freedom edition In addition to receiving social security payments, he received a fully taxable pension of $18,600, wages from a part-time job of $9,400, and taxable interest income of $990, for a total of $28,990. Turbotax freedom edition He received a Form SSA-1099 in January 2014 that shows his net social security benefits of $5,980 in box 5. Turbotax freedom edition   To figure his taxable benefits, George completes Worksheet 1, shown below. Turbotax freedom edition On line 20a of his Form 1040, George enters his net benefits of $5,980. Turbotax freedom edition On line 20b, he enters his taxable benefits of $2,990. Turbotax freedom edition Example 2. Turbotax freedom edition Ray and Alice Hopkins file a joint return on Form 1040A for 2013. Turbotax freedom edition Ray is retired and received a fully taxable pension of $15,500. Turbotax freedom edition He also received social security benefits and his Form SSA-1099 for 2013 shows net benefits of $5,600 in box 5. Turbotax freedom edition Alice worked during the year and had wages of $14,000. Turbotax freedom edition She made a deductible payment to her IRA account of $1,000. Turbotax freedom edition Ray and Alice have two savings accounts with a total of $250 in taxable interest income. Turbotax freedom edition They complete Worksheet 1, entering $29,750 ($15,500 + $14,000 + $250) on line 3. Turbotax freedom edition They find none of Ray's social security benefits are taxable. Turbotax freedom edition On Form 1040A, they enter $5,600 on line 14a and -0- on line 14b. Turbotax freedom edition Filled-in Worksheet 1. Turbotax freedom edition Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Turbotax freedom edition None of your benefits are taxable for 2013. Turbotax freedom edition For more information, see Repayments More Than Gross Benefits . Turbotax freedom edition If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Turbotax freedom edition S. Turbotax freedom edition Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Turbotax freedom edition Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Turbotax freedom edition 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Turbotax freedom edition Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Turbotax freedom edition $5,600         2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition 2,800     3. Turbotax freedom edition Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Turbotax freedom edition 29,750     4. Turbotax freedom edition Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Turbotax freedom edition -0-     5. Turbotax freedom edition Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Turbotax freedom edition -0-     6. Turbotax freedom edition Combine lines 2, 3, 4, and 5 6. Turbotax freedom edition 32,550     7. Turbotax freedom edition Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Turbotax freedom edition  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Turbotax freedom edition 1,000     8. Turbotax freedom edition Is the amount on line 7 less than the amount on line 6?             No. Turbotax freedom edition None of your social security benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition 31,550     9. Turbotax freedom edition If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Turbotax freedom edition 32,000       Note. Turbotax freedom edition If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Turbotax freedom edition 85) and enter the result on line 17. Turbotax freedom edition Then go to line 18. Turbotax freedom edition         10. Turbotax freedom edition Is the amount on line 9 less than the amount on line 8?             No. Turbotax freedom edition None of your benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 9 from line 8 10. Turbotax freedom edition       11. Turbotax freedom edition Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Turbotax freedom edition       12. Turbotax freedom edition Subtract line 11 from line 10. Turbotax freedom edition If zero or less, enter -0- 12. Turbotax freedom edition       13. Turbotax freedom edition Enter the smaller of line 10 or line 11 13. Turbotax freedom edition       14. Turbotax freedom edition Enter one-half of line 13 14. Turbotax freedom edition       15. Turbotax freedom edition Enter the smaller of line 2 or line 14 15. Turbotax freedom edition       16. Turbotax freedom edition Multiply line 12 by 85% (. Turbotax freedom edition 85). Turbotax freedom edition If line 12 is zero, enter -0- 16. Turbotax freedom edition       17. Turbotax freedom edition Add lines 15 and 16 17. Turbotax freedom edition       18. Turbotax freedom edition Multiply line 1 by 85% (. Turbotax freedom edition 85) 18. Turbotax freedom edition       19. Turbotax freedom edition Taxable benefits. Turbotax freedom edition Enter the smaller of line 17 or line 18. Turbotax freedom edition Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Turbotax freedom edition         If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Turbotax freedom edition         Example 3. Turbotax freedom edition Joe and Betty Johnson file a joint return on Form 1040 for 2013. Turbotax freedom edition Joe is a retired railroad worker and in 2013 received the social security equivalent benefit (SSEB) portion of tier 1 railroad retirement benefits. Turbotax freedom edition Joe's Form RRB-1099 shows $10,000 in box 5. Turbotax freedom edition Betty is a retired government worker and received a fully taxable pension of $38,000. Turbotax freedom edition They had $2,300 in taxable interest income plus interest of $200 on a qualified U. Turbotax freedom edition S. Turbotax freedom edition savings bond. Turbotax freedom edition The savings bond interest qualified for the exclusion. Turbotax freedom edition They figure their taxable benefits by completing Worksheet 1 below. Turbotax freedom edition Because they have qualified U. Turbotax freedom edition S. Turbotax freedom edition savings bond interest, they follow the note at the beginning of the worksheet and use the amount from line 2 of their Schedule B (Form 1040A or 1040) on line 3 of the worksheet instead of the amount from line 8a of their Form 1040. Turbotax freedom edition On line 3 of the worksheet, they enter $40,500 ($38,000 + $2,500). Turbotax freedom edition More than 50% of Joe's net benefits are taxable because the income on line 8 of the worksheet ($45,500) is more than $44,000. Turbotax freedom edition (See Maximum taxable part under How Much Is Taxable earlier. Turbotax freedom edition ) Joe and Betty enter $10,000 on Form 1040, line 20a, and $6,275 on Form 1040, line 20b. Turbotax freedom edition Filled-in Worksheet 1. Turbotax freedom edition Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Turbotax freedom edition None of your benefits are taxable for 2013. Turbotax freedom edition For more information, see Repayments More Than Gross Benefits . Turbotax freedom edition If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Turbotax freedom edition S. Turbotax freedom edition Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Turbotax freedom edition Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Turbotax freedom edition 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Turbotax freedom edition Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Turbotax freedom edition $10,000         2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition 5,000     3. Turbotax freedom edition Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Turbotax freedom edition 40,500     4. Turbotax freedom edition Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Turbotax freedom edition -0-     5. Turbotax freedom edition Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Turbotax freedom edition -0-     6. Turbotax freedom edition Combine lines 2, 3, 4, and 5 6. Turbotax freedom edition 45,500     7. Turbotax freedom edition Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Turbotax freedom edition  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Turbotax freedom edition -0-     8. Turbotax freedom edition Is the amount on line 7 less than the amount on line 6?             No. Turbotax freedom edition None of your social security benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition 45,500     9. Turbotax freedom edition If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Turbotax freedom edition 32,000       Note. Turbotax freedom edition If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Turbotax freedom edition 85) and enter the result on line 17. Turbotax freedom edition Then go to line 18. Turbotax freedom edition         10. Turbotax freedom edition Is the amount on line 9 less than the amount on line 8?             No. Turbotax freedom edition None of your benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 9 from line 8 10. Turbotax freedom edition 13,500     11. Turbotax freedom edition Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Turbotax freedom edition 12,000     12. Turbotax freedom edition Subtract line 11 from line 10. Turbotax freedom edition If zero or less, enter -0- 12. Turbotax freedom edition 1,500     13. Turbotax freedom edition Enter the smaller of line 10 or line 11 13. Turbotax freedom edition 12,000     14. Turbotax freedom edition Enter one-half of line 13 14. Turbotax freedom edition 6,000     15. Turbotax freedom edition Enter the smaller of line 2 or line 14 15. Turbotax freedom edition 5,000     16. Turbotax freedom edition Multiply line 12 by 85% (. Turbotax freedom edition 85). Turbotax freedom edition If line 12 is zero, enter -0- 16. Turbotax freedom edition 1,275     17. Turbotax freedom edition Add lines 15 and 16 17. Turbotax freedom edition 6,275     18. Turbotax freedom edition Multiply line 1 by 85% (. Turbotax freedom edition 85) 18. Turbotax freedom edition 8,500     19. Turbotax freedom edition Taxable benefits. Turbotax freedom edition Enter the smaller of line 17 or line 18. Turbotax freedom edition Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Turbotax freedom edition $6,275       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Turbotax freedom edition         Filled-in Worksheet 1. Turbotax freedom edition Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Turbotax freedom edition None of your benefits are taxable for 2013. Turbotax freedom edition For more information, see Repayments More Than Gross Benefits . Turbotax freedom edition If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Turbotax freedom edition S. Turbotax freedom edition Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Turbotax freedom edition Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Turbotax freedom edition 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Turbotax freedom edition Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Turbotax freedom edition $4,000         2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition 2,000     3. Turbotax freedom edition Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Turbotax freedom edition 8,000     4. Turbotax freedom edition Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Turbotax freedom edition -0-     5. Turbotax freedom edition Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Turbotax freedom edition -0-     6. Turbotax freedom edition Combine lines 2, 3, 4, and 5 6. Turbotax freedom edition 10,000     7. Turbotax freedom edition Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Turbotax freedom edition  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Turbotax freedom edition -0-     8. Turbotax freedom edition Is the amount on line 7 less than the amount on line 6?             No. Turbotax freedom edition None of your social security benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition 10,000     9. Turbotax freedom edition If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Turbotax freedom edition         Note. Turbotax freedom edition If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Turbotax freedom edition 85) and enter the result on line 17. Turbotax freedom edition Then go to line 18. Turbotax freedom edition         10. Turbotax freedom edition Is the amount on line 9 less than the amount on line 8?             No. Turbotax freedom edition None of your benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 9 from line 8 10. Turbotax freedom edition       11. Turbotax freedom edition Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Turbotax freedom edition       12. Turbotax freedom edition Subtract line 11 from line 10. Turbotax freedom edition If zero or less, enter -0- 12. Turbotax freedom edition       13. Turbotax freedom edition Enter the smaller of line 10 or line 11 13. Turbotax freedom edition       14. Turbotax freedom edition Enter one-half of line 13 14. Turbotax freedom edition       15. Turbotax freedom edition Enter the smaller of line 2 or line 14 15. Turbotax freedom edition       16. Turbotax freedom edition Multiply line 12 by 85% (. Turbotax freedom edition 85). Turbotax freedom edition If line 12 is zero, enter -0- 16. Turbotax freedom edition       17. Turbotax freedom edition Add lines 15 and 16 17. Turbotax freedom edition 8,500     18. Turbotax freedom edition Multiply line 1 by 85% (. Turbotax freedom edition 85) 18. Turbotax freedom edition 3,400     19. Turbotax freedom edition Taxable benefits. Turbotax freedom edition Enter the smaller of line 17 or line 18. Turbotax freedom edition Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Turbotax freedom edition $3,400       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Turbotax freedom edition         Example 4. Turbotax freedom edition Bill and Eileen Jones are married and live together, but file separate Form 1040 returns for 2013. Turbotax freedom edition Bill earned $8,000 during 2013. Turbotax freedom edition The only other income he had for the year was $4,000 net social security benefits (box 5 of his Form SSA-1099). Turbotax freedom edition Bill figures his taxable benefits by completing Worksheet 1 below. Turbotax freedom edition He must include 85% of his social security benefits in his taxable income because he is married filing separately and lived with his spouse during 2013. Turbotax freedom edition See How Much Is Taxable earlier. Turbotax freedom edition Bill enters $4,000 on his Form 1040, line 20a, and $3,400 on Form 1040, line 20b. Turbotax freedom edition Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. Turbotax freedom edition This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. Turbotax freedom edition No part of the lump-sum death benefit is subject to tax. Turbotax freedom edition Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. Turbotax freedom edition However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. Turbotax freedom edition You can elect this method if it lowers your taxable benefits. Turbotax freedom edition Under the lump-sum election method, you refigure the taxable part of all your benefits for the earlier year (including the lump-sum payment) using that year's income. Turbotax freedom edition Then you subtract any taxable benefits for that year that you previously reported. Turbotax freedom edition The remainder is the taxable part of the lump-sum payment. Turbotax freedom edition Add it to the taxable part of your benefits for 2013 (figured without the lump-sum payment for the earlier year). Turbotax freedom edition Because the earlier year's taxable benefits are included in your 2013 income, no adjustment is made to the earlier year's return. Turbotax freedom edition Do not file an amended return for the earlier year. Turbotax freedom edition Will the lump-sum election method lower your taxable benefits?   To find out, take the following steps. Turbotax freedom edition Complete Worksheet 1 in this publication. Turbotax freedom edition Complete Worksheet 2 and Worksheet 3 as appropriate. Turbotax freedom edition Use Worksheet 2 if your lump-sum payment was for a year after 1993. Turbotax freedom edition Use Worksheet 3 if it was for 1993 or an earlier year. Turbotax freedom edition Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received the lump-sum payment. Turbotax freedom edition Complete Worksheet 4. Turbotax freedom edition Compare the taxable benefits on line 19 of Worksheet 1 with the taxable benefits on line 21 of Worksheet 4. Turbotax freedom edition If the taxable benefits on Worksheet 4 are lower than the taxable benefits on Worksheet 1, you can elect to report the lower amount on your return. Turbotax freedom edition Making the election. Turbotax freedom edition   If you elect to report your taxable benefits under the lump-sum election method, follow the instructions at the bottom of Worksheet 4. Turbotax freedom edition Do not attach the completed worksheets to your return. Turbotax freedom edition Keep them with your records. Turbotax freedom edition    Once you elect this method of figuring the taxable part of a lump-sum payment, you can revoke your election only with the consent of the IRS. Turbotax freedom edition Lump-sum payment reported on Form SSA-1099 or RRB-1099. Turbotax freedom edition   If you received a lump-sum payment in 2013 that includes benefits for one or more earlier years after 1983, it will be included in box 3 of either Form SSA-1099 or Form RRB-1099. Turbotax freedom edition That part of any lump-sum payment for years before 1984 is not taxed and will not be shown on the form. Turbotax freedom edition The form will also show the year (or years) the payment is for. Turbotax freedom edition However, Form RRB-1099 will not show a breakdown by year (or years) of any lump-sum payment for years before 2011. Turbotax freedom edition You must contact the RRB for a breakdown by year for any amount shown in box 9. Turbotax freedom edition Example Jane Jackson is single. Turbotax freedom edition In 2012 she applied for social security disability benefits but was told she was ineligible. Turbotax freedom edition She appealed the decision and won. Turbotax freedom edition In 2013, she received a lump-sum payment of $6,000, of which $2,000 was for 2012 and $4,000 was for 2013. Turbotax freedom edition Jane also received $5,000 in social security benefits in 2013, so her total benefits in 2013 were $11,000. Turbotax freedom edition Jane's other income for 2012 and 2013 is as follows. Turbotax freedom edition   Income 2012 2013     Wages $20,000 $ 3,500     Interest income 2,000 2,500     Dividend income 1,000 1,500     Fully taxable pension   18,000     Total $23,000 $25,500   To see if the lump-sum election method results in lower taxable benefits, she completes Worksheets 1, 2, and 4 from this publication. Turbotax freedom edition She does not need to complete Worksheet 3 because her lump-sum payment was for years after 1993. Turbotax freedom edition Jane completes Worksheet 1 to find the amount of her taxable benefits for 2013 under the regular method. Turbotax freedom edition She completes Worksheet 2 to find the taxable part of the lump-sum payment for 2012 under the lump-sum election method. Turbotax freedom edition She completes Worksheet 4 to decide if the lump-sum election method will lower her taxable benefits. Turbotax freedom edition After completing the worksheets, Jane compares the amounts from Worksheet 4, line 21, and Worksheet 1, line 19. Turbotax freedom edition Because the amount on Worksheet 4 is smaller, she chooses to use the lump-sum election method. Turbotax freedom edition To do this, she prints “LSE” to the left of Form 1040, line 20a. Turbotax freedom edition She then enters $11,000 on Form 1040, line 20a, and her taxable benefits of $2,500 on line 20b. Turbotax freedom edition Jane's filled-in worksheets (1, 2, and 4) follow. Turbotax freedom edition Jane Jackson's Filled-in Worksheet 1. Turbotax freedom edition Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Turbotax freedom edition None of your benefits are taxable for 2013. Turbotax freedom edition For more information, see Repayments More Than Gross Benefits . Turbotax freedom edition If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Turbotax freedom edition S. Turbotax freedom edition Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Turbotax freedom edition Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Turbotax freedom edition 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Turbotax freedom edition Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Turbotax freedom edition $11,000         2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition 5,500     3. Turbotax freedom edition Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Turbotax freedom edition 25,500     4. Turbotax freedom edition Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Turbotax freedom edition -0-     5. Turbotax freedom edition Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Turbotax freedom edition -0-     6. Turbotax freedom edition Combine lines 2, 3, 4, and 5 6. Turbotax freedom edition 31,000     7. Turbotax freedom edition Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Turbotax freedom edition  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Turbotax freedom edition -0-     8. Turbotax freedom edition Is the amount on line 7 less than the amount on line 6?             No. Turbotax freedom edition None of your social security benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition 31,000     9. Turbotax freedom edition If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Turbotax freedom edition 25,000       Note. Turbotax freedom edition If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Turbotax freedom edition 85) and enter the result on line 17. Turbotax freedom edition Then go to line 18. Turbotax freedom edition         10. Turbotax freedom edition Is the amount on line 9 less than the amount on line 8?             No. Turbotax freedom edition None of your benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 9 from line 8 10. Turbotax freedom edition 6,000     11. Turbotax freedom edition Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Turbotax freedom edition 9,000     12. Turbotax freedom edition Subtract line 11 from line 10. Turbotax freedom edition If zero or less, enter -0- 12. Turbotax freedom edition -0-     13. Turbotax freedom edition Enter the smaller of line 10 or line 11 13. Turbotax freedom edition 6,000     14. Turbotax freedom edition Enter one-half of line 13 14. Turbotax freedom edition 3,000     15. Turbotax freedom edition Enter the smaller of line 2 or line 14 15. Turbotax freedom edition 3,000     16. Turbotax freedom edition Multiply line 12 by 85% (. Turbotax freedom edition 85). Turbotax freedom edition If line 12 is zero, enter -0- 16. Turbotax freedom edition -0-     17. Turbotax freedom edition Add lines 15 and 16 17. Turbotax freedom edition 3,000     18. Turbotax freedom edition Multiply line 1 by 85% (. Turbotax freedom edition 85) 18. Turbotax freedom edition 9,350     19. Turbotax freedom edition Taxable benefits. Turbotax freedom edition Enter the smaller of line 17 or line 18. Turbotax freedom edition Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Turbotax freedom edition $3,000       If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Turbotax freedom edition         Jane Jackson's Filled-in Worksheet 2. Turbotax freedom edition Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993)     Enter earlier year 2012 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year 1. Turbotax freedom edition $2,000           Note. Turbotax freedom edition If line 1 is zero or less, skip lines 2 through 20 and enter -0- on line 21. Turbotax freedom edition Otherwise, go on to line 2. Turbotax freedom edition             2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition 1,000   3. Turbotax freedom edition Enter your adjusted gross income for the earlier year 3. Turbotax freedom edition 23,000   4. Turbotax freedom edition Enter the total of any exclusions/adjustments you claimed in the earlier year for: Adoption benefits (Form 8839) Qualified U. Turbotax freedom edition S. Turbotax freedom edition savings bond interest (Form 8815) Student loan interest (Form 1040, page 1, or Form 1040A, page 1) Tuition and fees (Form 1040, page 1, or Form 1040A, page 1) Domestic production activities (for 2005 through 2012) (Form 1040, page 1) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico 4. Turbotax freedom edition -0-   5. Turbotax freedom edition Enter any tax-exempt interest received in the earlier year 5. Turbotax freedom edition -0-   6. Turbotax freedom edition Add lines 2 through 5 6. Turbotax freedom edition 24,000   7. Turbotax freedom edition Enter your taxable benefits for the earlier year that you previously reported 7. Turbotax freedom edition -0-   8. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition 24,000   9. Turbotax freedom edition If, for the earlier year, you were:     Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), married filing separately and you lived apart from your spouse for all of the earlier year, enter $25,000 9. Turbotax freedom edition 25,000     Note. Turbotax freedom edition If you were married filing separately and you lived with your spouse at any time during the earlier year, skip lines 9 through 16; multiply line 8 by 85% (. Turbotax freedom edition 85) and enter the result on line 17. Turbotax freedom edition Then go to line 18. Turbotax freedom edition         10. Turbotax freedom edition Is the amount on line 8 more than the amount on line 9?       No. Turbotax freedom edition Skip lines 10 through 20 and enter -0- on line 21. Turbotax freedom edition       Yes. Turbotax freedom edition Subtract line 9 from line 8 10. Turbotax freedom edition     11. Turbotax freedom edition Enter $12,000 if married filing jointly for the earlier year; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of the earlier year 11. Turbotax freedom edition     12. Turbotax freedom edition Subtract line 11 from line 10. Turbotax freedom edition If zero or less, enter -0- 12. Turbotax freedom edition     13. Turbotax freedom edition Enter the smaller of line 10 or line 11 13. Turbotax freedom edition     14. Turbotax freedom edition Enter one-half of line 13 14. Turbotax freedom edition     15. Turbotax freedom edition Enter the smaller of line 2 or line 14 15. Turbotax freedom edition     16. Turbotax freedom edition Multiply line 12 by 85% (. Turbotax freedom edition 85). Turbotax freedom edition If line 12 is zero, enter -0- 16. Turbotax freedom edition     17. Turbotax freedom edition Add lines 15 and 16 17. Turbotax freedom edition     18. Turbotax freedom edition Multiply line 1 by 85% (. Turbotax freedom edition 85) 18. Turbotax freedom edition     19. Turbotax freedom edition Refigured taxable benefits. Turbotax freedom edition Enter the smaller of line 17 or line 18 19. Turbotax freedom edition     20. Turbotax freedom edition Enter your taxable benefits for the earlier year (or as refigured due to a previous lump-sum payment for the year) 20. Turbotax freedom edition     21. Turbotax freedom edition Additional taxable benefits. Turbotax freedom edition Subtract line 20 from line 19. Turbotax freedom edition Also enter this amount on Worksheet 4, line 20 21. Turbotax freedom edition -0-     Do not file an amended return for this earlier year. Turbotax freedom edition Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received a lump-sum payment in 2013. Turbotax freedom edition   Jane Jackson's Filled-in Worksheet 4. Turbotax freedom edition Figure Your Taxable Benefits Under the Lump-Sum Election Method (Use With Worksheet 2 or 3)     Complete Worksheet 1 and Worksheets 2 and 3 as appropriate before completing this worksheet. Turbotax freedom edition 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for 2013, minus the lump-sum payment for years before 2013 1. Turbotax freedom edition $9,000         Note. Turbotax freedom edition If line 1 is zero or less, skip lines 2 through 18, enter -0- on line 19 and go to line 20. Turbotax freedom edition Otherwise, go on to line 2. Turbotax freedom edition           2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition 4,500   3. Turbotax freedom edition Enter the amount from Worksheet 1, line 3 3. Turbotax freedom edition 25,500   4. Turbotax freedom edition Enter the amount from Worksheet 1, line 4 4. Turbotax freedom edition -0-   5. Turbotax freedom edition Enter the amount from Worksheet 1, line 5 5. Turbotax freedom edition -0-   6. Turbotax freedom edition Combine lines 2, 3, 4, and 5 6. Turbotax freedom edition 30,000   7. Turbotax freedom edition Enter the amount from Worksheet 1, line 7 7. Turbotax freedom edition -0-   8. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition 30,000   9. Turbotax freedom edition Enter the amount from Worksheet 1, line 9. Turbotax freedom edition But if you are married filing separately and lived with your spouse at any time during 2013, skip lines 9 through 16; multiply line 8 by 85% (. Turbotax freedom edition 85) and enter the result on line 17. Turbotax freedom edition Then, go to line 18 9. Turbotax freedom edition 25,000   10. Turbotax freedom edition Is the amount on line 8 more than the amount on line 9? No. Turbotax freedom edition Skip lines 10 through 18, enter -0- on line 19, and go to line 20. Turbotax freedom edition  Yes. Turbotax freedom edition Subtract line 9 from line 8 10. Turbotax freedom edition 5,000   11. Turbotax freedom edition Enter the amount from Worksheet 1, line 11 11. Turbotax freedom edition 9,000   12. Turbotax freedom edition Subtract line 11 from line 10. Turbotax freedom edition If zero or less, enter -0- 12. Turbotax freedom edition -0-   13. Turbotax freedom edition Enter the smaller of line 10 or line 11 13. Turbotax freedom edition 5,000   14. Turbotax freedom edition Enter one-half of line 13 14. Turbotax freedom edition 2,500   15. Turbotax freedom edition Enter the smaller of line 2 or line 14 15. Turbotax freedom edition 2,500   16. Turbotax freedom edition Multiply line 12 by 85% (. Turbotax freedom edition 85). Turbotax freedom edition If line 12 is zero, enter -0- 16. Turbotax freedom edition -0-   17. Turbotax freedom edition Add lines 15 and 16 17. Turbotax freedom edition 2,500   18. Turbotax freedom edition Multiply line 1 by 85% (. Turbotax freedom edition 85) 18. Turbotax freedom edition 7,650   19. Turbotax freedom edition Enter the smaller of line 17 or line 18 19. Turbotax freedom edition 2,500   20. Turbotax freedom edition Enter the total of the amounts from Worksheet 2, line 21, and Worksheet 3, line 14, for all earlier years for which the lump-sum payment was received 20. Turbotax freedom edition -0-   21. Turbotax freedom edition Taxable benefits under lump-sum election method. Turbotax freedom edition Add lines 19 and 20 21. Turbotax freedom edition $2,500   Next. Turbotax freedom edition Is line 21 above smaller than Worksheet 1, line 19? No. Turbotax freedom edition Do not use this method to figure your taxable benefits. Turbotax freedom edition Follow the instructions on Worksheet 1 to report your benefits. Turbotax freedom edition  Yes. Turbotax freedom edition You can elect to report your taxable benefits under this method. Turbotax freedom edition To elect this method:     Enter “LSE” to the left of Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition If line 21 above is zero, follow the instructions in line 10 for “No” on Worksheet 1. Turbotax freedom edition Otherwise: Enter the amount from Worksheet 1, line 1, on Form 1040, line 20a, or on Form 1040A, line 14a. Turbotax freedom edition Enter the amount from line 21 above on Form 1040, line 20b, or on Form 1040A, line 14b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition   Deductions Related to Your Benefits You may be entitled to deduct certain amounts related to the benefits you receive. Turbotax freedom edition Disability payments. Turbotax freedom edition   You may have received disability payments from your employer or an insurance company that you included as income on your tax return in an earlier year. Turbotax freedom edition If you received a lump-sum payment from SSA or RRB, and you had to repay the employer or insurance company for the disability payments, you can take an itemized deduction for the part of the payments you included in gross income in the earlier year. Turbotax freedom edition If the amount you repay is more than $3,000, you may be able to claim a tax credit instead. Turbotax freedom edition Claim the deduction or credit in the same way explained under Repayment of benefits received in an earlier year in the section Repayments More Than Gross Benefits , later. Turbotax freedom edition Legal expenses. Turbotax freedom edition   You can usually deduct legal expenses that you pay or incur to produce or collect taxable income or in connection with the determination, collection, or refund of any tax. Turbotax freedom edition   Legal expenses for collecting the taxable part of your benefits are deductible as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. Turbotax freedom edition Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. Turbotax freedom edition If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. Turbotax freedom edition Do not use Worksheet 1 in this case. Turbotax freedom edition If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. Turbotax freedom edition If you have any questions about this negative figure, contact your local SSA office or your local RRB field office. Turbotax freedom edition Joint return. Turbotax freedom edition   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5, but your spouse's does not, subtract the amount in box 5 of your form from the amount in box 5 of your spouse's form. Turbotax freedom edition You do this to get your net benefits when figuring if your combined benefits are taxable. Turbotax freedom edition Example. Turbotax freedom edition John and Mary file a joint return for 2013. Turbotax freedom edition John received Form SSA-1099 showing $3,000 in box 5. Turbotax freedom edition Mary also received Form SSA-1099 and the amount in box 5 was ($500). Turbotax freedom edition John and Mary will use $2,500 ($3,000 minus $500) as the amount of their net benefits when figuring if any of their combined benefits are taxable. Turbotax freedom edition Repayment of benefits received in an earlier year. Turbotax freedom edition   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. Turbotax freedom edition Deduction $3,000 or less. Turbotax freedom edition   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. Turbotax freedom edition Claim it on Schedule A (Form 1040), line 23. Turbotax freedom edition Deduction more than $3,000. Turbotax freedom edition   If this deduction is more than $3,000, you should figure your tax two ways: Figure your tax for 2013 with the itemized deduction included on Schedule A, line 28. Turbotax freedom edition Figure your tax for 2013 in the following steps: Figure the tax without the itemized deduction included on Schedule A, line 28. Turbotax freedom edition For each year after 1983 for which part of the negative figure represents a repayment of benefits, refigure your taxable benefits as if your total benefits for the year were reduced by that part of the negative figure. Turbotax freedom edition Then refigure the tax for that year. Turbotax freedom edition Subtract the total of the refigured tax amounts in (b) from the total of your actual tax amounts. Turbotax freedom edition Subtract the result in (c) from the result in (a). Turbotax freedom edition   Compare the tax figured in methods (1) and (2). Turbotax freedom edition Your tax for 2013 is the smaller of the two amounts. Turbotax freedom edition If method (1) results in less tax, take the itemized deduction on Schedule A (Form 1040), line 28. Turbotax freedom edition If method (2) results in less tax, claim a credit for the amount from step 2(c) above on Form 1040, line 71. Turbotax freedom edition Check box d and enter “I. Turbotax freedom edition R. Turbotax freedom edition C. Turbotax freedom edition 1341” in the space next to that box. Turbotax freedom edition If both methods produce the same tax, deduct the repayment on Schedule A (Form 1040), line 28. Turbotax freedom edition Worksheets Blank Worksheets 1 through 4 are provided in this section: Worksheet 1, Figuring Your Taxable Benefits; Worksheet 2, Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993); Worksheet 3, Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year Before 1994); Worksheet 4, Figure Your Taxable Benefits Under the Lump-Sum Election Method (Use With Worksheet 2 or 3). Turbotax freedom edition Worksheet 1. Turbotax freedom edition Figuring Your Taxable Benefits Before you begin: If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. Turbotax freedom edition Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). Turbotax freedom edition None of your benefits are taxable for 2013. Turbotax freedom edition For more information, see Repayments More Than Gross Benefits . Turbotax freedom edition If you are filing Form 8815, Exclusion of Interest From Series EE and I U. Turbotax freedom edition S. Turbotax freedom edition Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Turbotax freedom edition Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. Turbotax freedom edition 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. Turbotax freedom edition Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a 1. Turbotax freedom edition           2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition       3. Turbotax freedom edition Combine the amounts from: Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21 Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 3. Turbotax freedom edition       4. Turbotax freedom edition Enter the amount, if any, from Form 1040 or 1040A, line 8b 4. Turbotax freedom edition       5. Turbotax freedom edition Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico 5. Turbotax freedom edition       6. Turbotax freedom edition Combine lines 2, 3, 4, and 5 6. Turbotax freedom edition       7. Turbotax freedom edition Form 1040 filers: Enter the amounts from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. Turbotax freedom edition  Form 1040A filers: Enter the amounts from Form 1040A, lines 16 and 17 7. Turbotax freedom edition       8. Turbotax freedom edition Is the amount on line 7 less than the amount on line 6?             No. Turbotax freedom edition None of your social security benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition       9. Turbotax freedom edition If you are:  Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 9. Turbotax freedom edition         Note. Turbotax freedom edition If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. Turbotax freedom edition 85) and enter the result on line 17. Turbotax freedom edition Then go to line 18. Turbotax freedom edition         10. Turbotax freedom edition Is the amount on line 9 less than the amount on line 8?             No. Turbotax freedom edition None of your benefits are taxable. Turbotax freedom edition Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. Turbotax freedom edition If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. Turbotax freedom edition             Yes. Turbotax freedom edition Subtract line 9 from line 8 10. Turbotax freedom edition       11. Turbotax freedom edition Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 11. Turbotax freedom edition       12. Turbotax freedom edition Subtract line 11 from line 10. Turbotax freedom edition If zero or less, enter -0- 12. Turbotax freedom edition       13. Turbotax freedom edition Enter the smaller of line 10 or line 11 13. Turbotax freedom edition       14. Turbotax freedom edition Enter one-half of line 13 14. Turbotax freedom edition       15. Turbotax freedom edition Enter the smaller of line 2 or line 14 15. Turbotax freedom edition       16. Turbotax freedom edition Multiply line 12 by 85% (. Turbotax freedom edition 85). Turbotax freedom edition If line 12 is zero, enter -0- 16. Turbotax freedom edition       17. Turbotax freedom edition Add lines 15 and 16 17. Turbotax freedom edition       18. Turbotax freedom edition Multiply line 1 by 85% (. Turbotax freedom edition 85) 18. Turbotax freedom edition       19. Turbotax freedom edition Taxable benefits. Turbotax freedom edition Enter the smaller of line 17 or line 18. Turbotax freedom edition Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b 19. Turbotax freedom edition         If you received a lump-sum payment in 2013 that was for an earlier year, also complete Worksheet 2 or 3 and Worksheet 4 to see if you can report a lower taxable benefit. Turbotax freedom edition         Worksheet 2. Turbotax freedom edition Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year After 1993)     Enter earlier year 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year 1. Turbotax freedom edition             Note. Turbotax freedom edition If line 1 is zero or less, skip lines 2 through 20 and enter -0- on line 21. Turbotax freedom edition Otherwise, go on to line 2. Turbotax freedom edition             2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition     3. Turbotax freedom edition Enter your adjusted gross income for the earlier year 3. Turbotax freedom edition     4. Turbotax freedom edition Enter the total of any exclusions/adjustments you claimed in the earlier year for: Adoption benefits (Form 8839) Qualified U. Turbotax freedom edition S. Turbotax freedom edition savings bond interest (Form 8815) Student loan interest (Form 1040, page 1, or Form 1040A, page 1) Tuition and fees (Form 1040, page 1, or Form 1040A, page 1) Domestic production activities (for 2005 through 2012) (Form 1040, page 1) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico 4. Turbotax freedom edition     5. Turbotax freedom edition Enter any tax-exempt interest received in the earlier year 5. Turbotax freedom edition     6. Turbotax freedom edition Add lines 2 through 5 6. Turbotax freedom edition     7. Turbotax freedom edition Enter your taxable benefits for the earlier year that you previously reported 7. Turbotax freedom edition     8. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition     9. Turbotax freedom edition If, for the earlier year, you were:     Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), married filing separately and you lived apart from your spouse for all of the earlier year, enter $25,000 9. Turbotax freedom edition       Note. Turbotax freedom edition If you were married filing separately and you lived with your spouse at any time during the earlier year, skip lines 9 through 16; multiply line 8 by 85% (. Turbotax freedom edition 85) and enter the result on line 17. Turbotax freedom edition Then go to line 18. Turbotax freedom edition         10. Turbotax freedom edition Is the amount on line 8 more than the amount on line 9?       No. Turbotax freedom edition Skip lines 10 through 20 and enter -0- on line 21. Turbotax freedom edition       Yes. Turbotax freedom edition Subtract line 9 from line 8 10. Turbotax freedom edition     11. Turbotax freedom edition Enter $12,000 if married filing jointly for the earlier year; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of the earlier year 11. Turbotax freedom edition     12. Turbotax freedom edition Subtract line 11 from line 10. Turbotax freedom edition If zero or less, enter -0- 12. Turbotax freedom edition     13. Turbotax freedom edition Enter the smaller of line 10 or line 11 13. Turbotax freedom edition     14. Turbotax freedom edition Enter one-half of line 13 14. Turbotax freedom edition     15. Turbotax freedom edition Enter the smaller of line 2 or line 14 15. Turbotax freedom edition     16. Turbotax freedom edition Multiply line 12 by 85% (. Turbotax freedom edition 85). Turbotax freedom edition If line 12 is zero, enter -0- 16. Turbotax freedom edition     17. Turbotax freedom edition Add lines 15 and 16 17. Turbotax freedom edition     18. Turbotax freedom edition Multiply line 1 by 85% (. Turbotax freedom edition 85) 18. Turbotax freedom edition     19. Turbotax freedom edition Refigured taxable benefits. Turbotax freedom edition Enter the smaller of line 17 or line 18 19. Turbotax freedom edition     20. Turbotax freedom edition Enter your taxable benefits for the earlier year (or as refigured due to a previous lump-sum payment for the year) 20. Turbotax freedom edition     21. Turbotax freedom edition Additional taxable benefits. Turbotax freedom edition Subtract line 20 from line 19. Turbotax freedom edition Also enter this amount on Worksheet 4, line 20 21. Turbotax freedom edition       Do not file an amended return for this earlier year. Turbotax freedom edition Complete a separate Worksheet 2 or Worksheet 3 for each earlier year for which you received a lump-sum payment in 2013. Turbotax freedom edition   Worksheet 3. Turbotax freedom edition Figure Your Additional Taxable Benefits (From a Lump-Sum Payment for a Year Before 1994) Enter earlier year 1. Turbotax freedom edition Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099 for the earlier year, plus the lump-sum payment for the earlier year received after that year 1. Turbotax freedom edition           Note. Turbotax freedom edition If line 1 is zero or less, skip lines 2 through 13 and enter -0- on line 14. Turbotax freedom edition Otherwise, go on to line 2. Turbotax freedom edition           2. Turbotax freedom edition Enter one-half of line 1 2. Turbotax freedom edition     3. Turbotax freedom edition Enter your adjusted gross income for the earlier year 3. Turbotax freedom edition     4. Turbotax freedom edition Enter the total of any exclusions/adjustments you claimed in the earlier year for: Qualified U. Turbotax freedom edition S. Turbotax freedom edition savings bond interest (Form 8815) Foreign earned income or housing (Form 2555 or Form 2555-EZ) Certain income of bona fide residents of American Samoa (Form 4563) or Puerto Rico 4. Turbotax freedom edition     5. Turbotax freedom edition Enter any tax-exempt interest received in the earlier year 5. Turbotax freedom edition     6. Turbotax freedom edition Add lines 2 through 5 6. Turbotax freedom edition     7. Turbotax freedom edition Enter your taxable benefits for the earlier year that you previously reported 7. Turbotax freedom edition     8. Turbotax freedom edition Subtract line 7 from line 6 8. Turbotax freedom edition     9. Turbotax freedom edition Enter $25,000 ($32,000 if married filing jointly for the earlier year; $-0- if married filing separately for the earlier year and you lived with your spouse at any time during the earlier year) 9. Turbotax freedom edition     10. Turbotax freedom edition Is the amount on line 8 more than the amount on line 9? No. Turbotax freedom edition Skip lines 10 through 13 and enter -0- on line 14. Turbotax freedom edition  Yes. Turbotax freedom edition Subtract line 9 from line 8. Turbotax freedom edition 10. Turbotax freedom edition     11. Turbotax freedom edition Enter one-half of line 10 11. Turbotax freedom edition     12. Turbotax freedom edition Refigured taxable benefits. Turbotax freedom edition Enter the smaller of line 2 or line 11 12. Turbotax freedom edition     13. Turbotax freedom edition Enter your taxable benefits for the earlier year (or as refigured due to a previous
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The Turbotax Freedom Edition

Turbotax freedom edition Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. Turbotax freedom edition S. Turbotax freedom edition Taxpayer Identification NumbersUnexpected payment. Turbotax freedom edition Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Turbotax freedom edition Electronic reporting. Turbotax freedom edition Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Turbotax freedom edition S. Turbotax freedom edition Real Property InterestForeign corporations. Turbotax freedom edition Domestic corporations. Turbotax freedom edition U. Turbotax freedom edition S. Turbotax freedom edition real property holding corporations. Turbotax freedom edition Partnerships. Turbotax freedom edition Trusts and estates. Turbotax freedom edition Domestically controlled QIE. Turbotax freedom edition Late filing of certifications or notices. Turbotax freedom edition Certifications. Turbotax freedom edition Liability of agent or qualified substitute. Turbotax freedom edition Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Turbotax freedom edition Withholding of Tax In most cases, a foreign person is subject to U. Turbotax freedom edition S. Turbotax freedom edition tax on its U. Turbotax freedom edition S. Turbotax freedom edition source income. Turbotax freedom edition Most types of U. Turbotax freedom edition S. Turbotax freedom edition source income received by a foreign person are subject to U. Turbotax freedom edition S. Turbotax freedom edition tax of 30%. Turbotax freedom edition A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. Turbotax freedom edition The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Turbotax freedom edition The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Turbotax freedom edition In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Turbotax freedom edition S. Turbotax freedom edition source income. Turbotax freedom edition Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Turbotax freedom edition NRA withholding does not include withholding under section 1445 of the Code (see U. Turbotax freedom edition S. Turbotax freedom edition Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Turbotax freedom edition A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Turbotax freedom edition However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Turbotax freedom edition S. Turbotax freedom edition person is not required to withhold. Turbotax freedom edition In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. Turbotax freedom edition Withholding Agent You are a withholding agent if you are a U. Turbotax freedom edition S. Turbotax freedom edition or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. Turbotax freedom edition A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. Turbotax freedom edition S. Turbotax freedom edition branch of certain foreign banks and insurance companies. Turbotax freedom edition You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. Turbotax freedom edition Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Turbotax freedom edition In most cases, the U. Turbotax freedom edition S. Turbotax freedom edition person who pays an amount subject to NRA withholding is the person responsible for withholding. Turbotax freedom edition However, other persons may be required to withhold. Turbotax freedom edition For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. Turbotax freedom edition In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. Turbotax freedom edition Liability for tax. Turbotax freedom edition   As a withholding agent, you are personally liable for any tax required to be withheld. Turbotax freedom edition This liability is independent of the tax liability of the foreign person to whom the payment is made. Turbotax freedom edition If you fail to withhold and the foreign payee fails to satisfy its U. Turbotax freedom edition S. Turbotax freedom edition tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Turbotax freedom edition   The applicable tax will be collected only once. Turbotax freedom edition If the foreign person satisfies its U. Turbotax freedom edition S. Turbotax freedom edition tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Turbotax freedom edition Determination of amount to withhold. Turbotax freedom edition   You must withhold on the gross amount subject to NRA withholding. Turbotax freedom edition You cannot reduce the gross amount by any deductions. Turbotax freedom edition However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Turbotax freedom edition   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. Turbotax freedom edition In no case, however, should you withhold more than 30% of the total amount paid. Turbotax freedom edition Or, you may make a reasonable estimate of the amount from U. Turbotax freedom edition S. Turbotax freedom edition sources and put a corresponding part of the amount due in escrow until the amount from U. Turbotax freedom edition S. Turbotax freedom edition sources can be determined, at which time withholding becomes due. Turbotax freedom edition When to withhold. Turbotax freedom edition   Withholding is required at the time you make a payment of an amount subject to withholding. Turbotax freedom edition A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. Turbotax freedom edition A payment is considered made to a person if it is paid for that person's benefit. Turbotax freedom edition For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. Turbotax freedom edition A payment also is considered made to a person if it is made to that person's agent. Turbotax freedom edition   A U. Turbotax freedom edition S. Turbotax freedom edition partnership should withhold when any distributions that include amounts subject to withholding are made. Turbotax freedom edition However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Turbotax freedom edition S. Turbotax freedom edition partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. Turbotax freedom edition If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Turbotax freedom edition A U. Turbotax freedom edition S. Turbotax freedom edition trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. Turbotax freedom edition To the extent a U. Turbotax freedom edition S. Turbotax freedom edition trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. Turbotax freedom edition Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. Turbotax freedom edition (See Returns Required , later. Turbotax freedom edition ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. Turbotax freedom edition Form 1099 reporting and backup withholding. Turbotax freedom edition    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Turbotax freedom edition S. Turbotax freedom edition person. Turbotax freedom edition You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Turbotax freedom edition S. Turbotax freedom edition person that is subject to Form 1099 reporting if any of the following apply. Turbotax freedom edition The U. Turbotax freedom edition S. Turbotax freedom edition person has not provided its taxpayer identification number (TIN) in the manner required. Turbotax freedom edition The IRS notifies you that the TIN furnished by the payee is incorrect. Turbotax freedom edition There has been a notified payee underreporting. Turbotax freedom edition There has been a payee certification failure. Turbotax freedom edition In most cases, a TIN must be provided by a U. Turbotax freedom edition S. Turbotax freedom edition non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Turbotax freedom edition A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Turbotax freedom edition You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. Turbotax freedom edition S. Turbotax freedom edition person. Turbotax freedom edition For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Turbotax freedom edition S. Turbotax freedom edition person subject to Form 1099 reporting. Turbotax freedom edition See Identifying the Payee , later, for more information. Turbotax freedom edition Also see Section S. Turbotax freedom edition Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. Turbotax freedom edition Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. Turbotax freedom edition Wages paid to employees. Turbotax freedom edition   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Turbotax freedom edition See Pay for Personal Services Performed , later. Turbotax freedom edition Effectively connected income by partnerships. Turbotax freedom edition   A withholding agent that is a partnership (whether U. Turbotax freedom edition S. Turbotax freedom edition or foreign) is also responsible for withholding on its income effectively connected with a U. Turbotax freedom edition S. Turbotax freedom edition trade or business that is allocable to foreign partners. Turbotax freedom edition See Partnership Withholding on Effectively Connected Income , later, for more information. Turbotax freedom edition U. Turbotax freedom edition S. Turbotax freedom edition real property interest. Turbotax freedom edition   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Turbotax freedom edition S. Turbotax freedom edition real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Turbotax freedom edition S. Turbotax freedom edition real property interest to a shareholder, partner, or beneficiary that is a foreign person. Turbotax freedom edition See U. Turbotax freedom edition S. Turbotax freedom edition Real Property Interest , later. Turbotax freedom edition Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Turbotax freedom edition It does not apply to payments made to U. Turbotax freedom edition S. Turbotax freedom edition persons. Turbotax freedom edition Usually, you determine the payee's status as a U. Turbotax freedom edition S. Turbotax freedom edition or foreign person based on the documentation that person provides. Turbotax freedom edition See Documentation , later. Turbotax freedom edition However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. Turbotax freedom edition Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. Turbotax freedom edition However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Turbotax freedom edition U. Turbotax freedom edition S. Turbotax freedom edition agent of foreign person. Turbotax freedom edition   If you make a payment to a U. Turbotax freedom edition S. Turbotax freedom edition person and you have actual knowledge that the U. Turbotax freedom edition S. Turbotax freedom edition person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Turbotax freedom edition However, if the U. Turbotax freedom edition S. Turbotax freedom edition person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. Turbotax freedom edition   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. Turbotax freedom edition S. Turbotax freedom edition person and not as a payment to a foreign person. Turbotax freedom edition You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Turbotax freedom edition Disregarded entities. Turbotax freedom edition   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. Turbotax freedom edition The payee of a payment made to a disregarded entity is the owner of the entity. Turbotax freedom edition   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. Turbotax freedom edition   If the owner is a U. Turbotax freedom edition S. Turbotax freedom edition person, you do not apply NRA withholding. Turbotax freedom edition However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Turbotax freedom edition You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. Turbotax freedom edition Flow-Through Entities The payees of payments (other than income effectively connected with a U. Turbotax freedom edition S. Turbotax freedom edition trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Turbotax freedom edition This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Turbotax freedom edition Income that is, or is deemed to be, effectively connected with the conduct of a U. Turbotax freedom edition S. Turbotax freedom edition trade or business of a flow-through entity is treated as paid to the entity. Turbotax freedom edition All of the following are flow-through entities. Turbotax freedom edition A foreign partnership (other than a withholding foreign partnership). Turbotax freedom edition A foreign simple or foreign grantor trust (other than a withholding foreign trust). Turbotax freedom edition A fiscally transparent entity receiving income for which treaty benefits are claimed. Turbotax freedom edition See Fiscally transparent entity , later. Turbotax freedom edition In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. Turbotax freedom edition You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Turbotax freedom edition You must determine whether the owners or beneficiaries of a flow-through entity are U. Turbotax freedom edition S. Turbotax freedom edition or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. Turbotax freedom edition You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. Turbotax freedom edition If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. Turbotax freedom edition See Documentation and Presumption Rules , later. Turbotax freedom edition Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Turbotax freedom edition Foreign partnerships. Turbotax freedom edition    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. Turbotax freedom edition If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. Turbotax freedom edition However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Turbotax freedom edition If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. Turbotax freedom edition Example 1. Turbotax freedom edition A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Turbotax freedom edition S. Turbotax freedom edition citizen. Turbotax freedom edition You make a payment of U. Turbotax freedom edition S. Turbotax freedom edition source interest to the partnership. Turbotax freedom edition It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. Turbotax freedom edition S. Turbotax freedom edition citizen. Turbotax freedom edition The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Turbotax freedom edition You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Turbotax freedom edition Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Turbotax freedom edition Report the payment to the U. Turbotax freedom edition S. Turbotax freedom edition citizen on Form 1099-INT. Turbotax freedom edition Example 2. Turbotax freedom edition A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Turbotax freedom edition The second partnership has two partners, both nonresident alien individuals. Turbotax freedom edition You make a payment of U. Turbotax freedom edition S. Turbotax freedom edition source interest to the first partnership. Turbotax freedom edition It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. Turbotax freedom edition In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Turbotax freedom edition The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Turbotax freedom edition Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. Turbotax freedom edition Example 3. Turbotax freedom edition You make a payment of U. Turbotax freedom edition S. Turbotax freedom edition source dividends to a withholding foreign partnership. Turbotax freedom edition The partnership has two partners, both foreign corporations. Turbotax freedom edition You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. Turbotax freedom edition You must treat the partnership as the payee of the dividends. Turbotax freedom edition Foreign simple and grantor trust. Turbotax freedom edition   A trust is foreign unless it meets both of the following tests. Turbotax freedom edition A court within the United States is able to exercise primary supervision over the administration of the trust. Turbotax freedom edition One or more U. Turbotax freedom edition S. Turbotax freedom edition persons have the authority to control all substantial decisions of the trust. Turbotax freedom edition   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Turbotax freedom edition A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Turbotax freedom edition   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Turbotax freedom edition The payees of a payment made to a foreign grantor trust are the owners of the trust. Turbotax freedom edition However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Turbotax freedom edition If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. Turbotax freedom edition Example. Turbotax freedom edition A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Turbotax freedom edition S. Turbotax freedom edition citizen. Turbotax freedom edition You make a payment of interest to the foreign trust. Turbotax freedom edition It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. Turbotax freedom edition S. Turbotax freedom edition citizen. Turbotax freedom edition The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. Turbotax freedom edition You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Turbotax freedom edition Report the payment to the nonresident aliens on Forms 1042-S. Turbotax freedom edition Report the payment to the U. Turbotax freedom edition S. Turbotax freedom edition citizen on Form 1099-INT. Turbotax freedom edition Fiscally transparent entity. Turbotax freedom edition   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. Turbotax freedom edition The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. Turbotax freedom edition ). Turbotax freedom edition The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. Turbotax freedom edition An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. Turbotax freedom edition Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. Turbotax freedom edition   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Turbotax freedom edition Example. Turbotax freedom edition Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. Turbotax freedom edition A has two interest holders, B and C. Turbotax freedom edition B is a corporation organized under the laws of country Y. Turbotax freedom edition C is a corporation organized under the laws of country Z. Turbotax freedom edition Both countries Y and Z have an income tax treaty in force with the United States. Turbotax freedom edition A receives royalty income from U. Turbotax freedom edition S. Turbotax freedom edition sources that is not effectively connected with the conduct of a trade or business in the United States. Turbotax freedom edition For U. Turbotax freedom edition S. Turbotax freedom edition income tax purposes, A is treated as a partnership. Turbotax freedom edition Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. Turbotax freedom edition The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. Turbotax freedom edition Accordingly, A is fiscally transparent in its jurisdiction, country X. Turbotax freedom edition B and C are not fiscally transparent under the laws of their respective countries of incorporation. Turbotax freedom edition Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. Turbotax freedom edition Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. Turbotax freedom edition S. Turbotax freedom edition source royalty income for purposes of the U. Turbotax freedom edition S. Turbotax freedom edition -Y income tax treaty. Turbotax freedom edition Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. Turbotax freedom edition Therefore, A is not treated as fiscally transparent under the laws of country Z. Turbotax freedom edition Accordingly, C is not treated as deriving its share of the U. Turbotax freedom edition S. Turbotax freedom edition source royalty income for purposes of the U. Turbotax freedom edition S. Turbotax freedom edition -Z income tax treaty. Turbotax freedom edition Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. Turbotax freedom edition This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Turbotax freedom edition You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. Turbotax freedom edition An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Turbotax freedom edition A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Turbotax freedom edition In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. Turbotax freedom edition You must determine whether the customers or account holders of a foreign intermediary are U. Turbotax freedom edition S. Turbotax freedom edition or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Turbotax freedom edition You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Turbotax freedom edition If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. Turbotax freedom edition See Documentation and Presumption Rules , later. Turbotax freedom edition Nonqualified intermediary. Turbotax freedom edition   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Turbotax freedom edition The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Turbotax freedom edition Example. Turbotax freedom edition You make a payment of interest to a foreign bank that is a nonqualified intermediary. Turbotax freedom edition The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. Turbotax freedom edition S. Turbotax freedom edition person for whom the bank is collecting the payments. Turbotax freedom edition The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. Turbotax freedom edition The account holders are the payees of the interest payment. Turbotax freedom edition You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. Turbotax freedom edition S. Turbotax freedom edition person on Form 1099-INT. Turbotax freedom edition Qualified intermediary. Turbotax freedom edition   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Turbotax freedom edition S. Turbotax freedom edition intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Turbotax freedom edition You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. Turbotax freedom edition In this situation, the QI is required to withhold the tax. Turbotax freedom edition You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Turbotax freedom edition   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. Turbotax freedom edition If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. Turbotax freedom edition S. Turbotax freedom edition person. Turbotax freedom edition Branches of financial institutions. Turbotax freedom edition   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. Turbotax freedom edition The countries with approved KYC rules are listed on IRS. Turbotax freedom edition gov. Turbotax freedom edition QI withholding agreement. Turbotax freedom edition   Foreign financial institutions and foreign branches of U. Turbotax freedom edition S. Turbotax freedom edition financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Turbotax freedom edition   A QI is entitled to certain simplified withholding and reporting rules. Turbotax freedom edition In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Turbotax freedom edition   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Turbotax freedom edition These forms, and the procedures required to obtain a QI withholding agreement are available at www. Turbotax freedom edition irs. Turbotax freedom edition gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Turbotax freedom edition Documentation. Turbotax freedom edition   A QI is not required to forward documentation obtained from foreign account holders to the U. Turbotax freedom edition S. Turbotax freedom edition withholding agent from whom the QI receives a payment of U. Turbotax freedom edition S. Turbotax freedom edition source income. Turbotax freedom edition The QI maintains such documentation at its location and provides the U. Turbotax freedom edition S. Turbotax freedom edition withholding agent with withholding rate pools. Turbotax freedom edition A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Turbotax freedom edition   A QI is required to provide the U. Turbotax freedom edition S. Turbotax freedom edition withholding agent with information regarding U. Turbotax freedom edition S. Turbotax freedom edition persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Turbotax freedom edition   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. Turbotax freedom edition This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. Turbotax freedom edition Form 1042-S reporting. Turbotax freedom edition   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. Turbotax freedom edition Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Turbotax freedom edition Collective refund procedures. Turbotax freedom edition   A QI may seek a refund on behalf of its direct account holders. Turbotax freedom edition The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. Turbotax freedom edition U. Turbotax freedom edition S. Turbotax freedom edition branches of foreign banks and foreign insurance companies. Turbotax freedom edition   Special rules apply to a U. Turbotax freedom edition S. Turbotax freedom edition branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Turbotax freedom edition If you agree to treat the branch as a U. Turbotax freedom edition S. Turbotax freedom edition person, you may treat the branch as a U. Turbotax freedom edition S. Turbotax freedom edition payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Turbotax freedom edition S. Turbotax freedom edition branch on which the agreement is evidenced. Turbotax freedom edition If you treat the branch as a U. Turbotax freedom edition S. Turbotax freedom edition payee, you are not required to withhold. Turbotax freedom edition Even though you agree to treat the branch as a U. Turbotax freedom edition S. Turbotax freedom edition person, you must report the payment on Form 1042-S. Turbotax freedom edition   A financial institution organized in a U. Turbotax freedom edition S. Turbotax freedom edition possession is treated as a U. Turbotax freedom edition S. Turbotax freedom edition branch. Turbotax freedom edition The special rules discussed in this section apply to a possessions financial institution. Turbotax freedom edition   If you are paying a U. Turbotax freedom edition S. Turbotax freedom edition branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. Turbotax freedom edition S. Turbotax freedom edition person for amounts subject to NRA withholding. Turbotax freedom edition Consequently, amounts not subject to NRA withholding that are paid to a U. Turbotax freedom edition S. Turbotax freedom edition branch are not subject to Form 1099 reporting or backup withholding. Turbotax freedom edition   Alternatively, a U. Turbotax freedom edition S. Turbotax freedom edition branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Turbotax freedom edition In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. Turbotax freedom edition See Nonqualified Intermediaries under  Documentation, later. Turbotax freedom edition   If the U. Turbotax freedom edition S. Turbotax freedom edition branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. Turbotax freedom edition Withholding foreign partnership and foreign trust. Turbotax freedom edition   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. Turbotax freedom edition A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. Turbotax freedom edition   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. Turbotax freedom edition A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Turbotax freedom edition You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. Turbotax freedom edition WP and WT withholding agreements. Turbotax freedom edition   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Turbotax freedom edition Also see the following items. Turbotax freedom edition Revenue Procedure 2004-21. Turbotax freedom edition Revenue Procedure 2005-77. Turbotax freedom edition Employer identification number (EIN). Turbotax freedom edition   A completed Form SS-4 must be submitted with the application for being a WP or WT. Turbotax freedom edition The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Turbotax freedom edition Documentation. Turbotax freedom edition   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. Turbotax freedom edition The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. Turbotax freedom edition The Form W-8IMY must contain the WP-EIN or WT-EIN. Turbotax freedom edition Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Turbotax freedom edition A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. Turbotax freedom edition S. Turbotax freedom edition person. Turbotax freedom edition It also includes a foreign branch of a U. Turbotax freedom edition S. Turbotax freedom edition financial institution if the foreign branch is a qualified intermediary. Turbotax freedom edition In most cases, the U. Turbotax freedom edition S. Turbotax freedom edition branch of a foreign corporation or partnership is treated as a foreign person. Turbotax freedom edition Nonresident alien. Turbotax freedom edition   A nonresident alien is an individual who is not a U. Turbotax freedom edition S. Turbotax freedom edition citizen or a resident alien. Turbotax freedom edition A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Turbotax freedom edition Married to U. Turbotax freedom edition S. Turbotax freedom edition citizen or resident alien. Turbotax freedom edition   Nonresident alien individuals married to U. Turbotax freedom edition S. Turbotax freedom edition citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Turbotax freedom edition However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Turbotax freedom edition Wages paid to these individuals are subject to graduated withholding. Turbotax freedom edition See Wages Paid to Employees—Graduated Withholding . Turbotax freedom edition Resident alien. Turbotax freedom edition   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. Turbotax freedom edition Green card test. Turbotax freedom edition An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. Turbotax freedom edition This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Turbotax freedom edition Substantial presence test. Turbotax freedom edition An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Turbotax freedom edition Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. Turbotax freedom edition   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. Turbotax freedom edition This exception is for a limited period of time. Turbotax freedom edition   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Turbotax freedom edition Note. Turbotax freedom edition   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. Turbotax freedom edition For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Turbotax freedom edition Resident of a U. Turbotax freedom edition S. Turbotax freedom edition possession. Turbotax freedom edition   A bona fide resident of Puerto Rico, the U. Turbotax freedom edition S. Turbotax freedom edition Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Turbotax freedom edition S. Turbotax freedom edition citizen or a U. Turbotax freedom edition S. Turbotax freedom edition national is treated as a nonresident alien for the withholding rules explained here. Turbotax freedom edition A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. Turbotax freedom edition   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Turbotax freedom edition S. Turbotax freedom edition Possessions. Turbotax freedom edition Foreign corporations. Turbotax freedom edition   A foreign corporation is one that does not fit the definition of a domestic corporation. Turbotax freedom edition A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. Turbotax freedom edition Guam or Northern Mariana Islands corporations. Turbotax freedom edition   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). Turbotax freedom edition Note. Turbotax freedom edition   The provisions discussed below under U. Turbotax freedom edition S. Turbotax freedom edition Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. Turbotax freedom edition U. Turbotax freedom edition S. Turbotax freedom edition Virgin Islands and American Samoa corporations. Turbotax freedom edition   A corporation created or organized in, or under the laws of, the U. Turbotax freedom edition S. Turbotax freedom edition Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. Turbotax freedom edition S. Turbotax freedom edition Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. Turbotax freedom edition S. Turbotax freedom edition Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Turbotax freedom edition Foreign private foundations. Turbotax freedom edition   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Turbotax freedom edition Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. Turbotax freedom edition Other foreign organizations, associations, and charitable institutions. Turbotax freedom edition   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. Turbotax freedom edition In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. Turbotax freedom edition   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Turbotax freedom edition   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. Turbotax freedom edition U. Turbotax freedom edition S. Turbotax freedom edition branches of foreign persons. Turbotax freedom edition   In most cases, a payment to a U. Turbotax freedom edition S. Turbotax freedom edition branch of a foreign person is a payment made to the foreign person. Turbotax freedom edition However, you may treat payments to U. Turbotax freedom edition S. Turbotax freedom edition branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Turbotax freedom edition S. Turbotax freedom edition regulatory supervision as payments made to a U. Turbotax freedom edition S. Turbotax freedom edition person, if you and the U. Turbotax freedom edition S. Turbotax freedom edition branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Turbotax freedom edition For this purpose, a financial institution organized under the laws of a U. Turbotax freedom edition S. Turbotax freedom edition possession is treated as a U. Turbotax freedom edition S. Turbotax freedom edition branch. Turbotax freedom edition Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. Turbotax freedom edition The payee is a U. Turbotax freedom edition S. Turbotax freedom edition person. Turbotax freedom edition The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Turbotax freedom edition In most cases, you must get the documentation before you make the payment. Turbotax freedom edition The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Turbotax freedom edition See Standards of Knowledge , later. Turbotax freedom edition If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Turbotax freedom edition For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. Turbotax freedom edition The specific types of documentation are discussed in this section. Turbotax freedom edition However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Turbotax freedom edition As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. Turbotax freedom edition Section 1446 withholding. Turbotax freedom edition   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Turbotax freedom edition In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. Turbotax freedom edition This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. Turbotax freedom edition Joint owners. Turbotax freedom edition    If you make a payment to joint owners, you need to get documentation from each owner. Turbotax freedom edition Form W-9. Turbotax freedom edition   In most cases, you can treat the payee as a U. Turbotax freedom edition S. Turbotax freedom edition person if the payee gives you a Form W-9. Turbotax freedom edition The Form W-9 can be used only by a U. Turbotax freedom edition S. Turbotax freedom edition person and must contain the payee's taxpayer identification number (TIN). Turbotax freedom edition If there is more than one owner, you may treat the total amount as paid to a U. Turbotax freedom edition S. Turbotax freedom edition person if any one of the owners gives you a Form W-9. Turbotax freedom edition See U. Turbotax freedom edition S. Turbotax freedom edition Taxpayer Identification Numbers , later. Turbotax freedom edition U. Turbotax freedom edition S. Turbotax freedom edition persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Turbotax freedom edition Form W-8. Turbotax freedom edition   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Turbotax freedom edition Until further notice, you can rely upon Forms W-8 that contain a P. Turbotax freedom edition O. Turbotax freedom edition box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. Turbotax freedom edition S. Turbotax freedom edition person and that a street address is available. Turbotax freedom edition You may rely on Forms W-8 for which there is a U. Turbotax freedom edition S. Turbotax freedom edition mailing address provided you received the form prior to December 31, 2001. Turbotax freedom edition   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Turbotax freedom edition You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Turbotax freedom edition S. Turbotax freedom edition possession. Turbotax freedom edition Other documentation. Turbotax freedom edition   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Turbotax freedom edition The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Turbotax freedom edition These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Turbotax freedom edition Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. Turbotax freedom edition Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Turbotax freedom edition   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. Turbotax freedom edition   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. Turbotax freedom edition For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. Turbotax freedom edition Claiming treaty benefits. Turbotax freedom edition   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. Turbotax freedom edition S. Turbotax freedom edition TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. Turbotax freedom edition   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. Turbotax freedom edition   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Turbotax freedom edition See Fiscally transparent entity discussed earlier under Flow-Through Entities. Turbotax freedom edition   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Turbotax freedom edition For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. Turbotax freedom edition   The exemptions from, or reduced rates of, U. Turbotax freedom edition S. Turbotax freedom edition tax vary under each treaty. Turbotax freedom edition You must check the provisions of the tax treaty that apply. Turbotax freedom edition Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. Turbotax freedom edition   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. Turbotax freedom edition You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. Turbotax freedom edition Exceptions to TIN requirement. Turbotax freedom edition   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. Turbotax freedom edition Income from marketable securities (discussed next). Turbotax freedom edition Unexpected payments to an individual (discussed under U. Turbotax freedom edition S. Turbotax freedom edition Taxpayer Identification Numbers ). Turbotax freedom edition Marketable securities. Turbotax freedom edition   A Form W-8BEN provided to claim treaty benefits does not need a U. Turbotax freedom edition S. Turbotax freedom edition TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Turbotax freedom edition For this purpose, income from a marketable security consists of the following items. Turbotax freedom edition Dividends and interest from stocks and debt obligations that are actively traded. Turbotax freedom edition Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Turbotax freedom edition Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. Turbotax freedom edition Income related to loans of any of the above securities. Turbotax freedom edition Offshore accounts. Turbotax freedom edition   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. Turbotax freedom edition   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. Turbotax freedom edition However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. Turbotax freedom edition An offshore account is an account maintained at an office or branch of a U. Turbotax freedom edition S. Turbotax freedom edition or foreign bank or other financial institution at any location outside the United States. Turbotax freedom edition   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Turbotax freedom edition This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Turbotax freedom edition In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. Turbotax freedom edition Documentary evidence. Turbotax freedom edition   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. Turbotax freedom edition To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. Turbotax freedom edition Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. Turbotax freedom edition Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. Turbotax freedom edition In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. Turbotax freedom edition Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. Turbotax freedom edition   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. Turbotax freedom edition (See Effectively Connected Income , later. Turbotax freedom edition )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Turbotax freedom edition   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Turbotax freedom edition S. Turbotax freedom edition trade or business is subject to withholding under section 1446. Turbotax freedom edition If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. Turbotax freedom edition    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. Turbotax freedom edition Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Turbotax freedom edition   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. Turbotax freedom edition S. Turbotax freedom edition possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. Turbotax freedom edition   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. Turbotax freedom edition   See Foreign Governments and Certain Other Foreign Organizations , later. Turbotax freedom edition Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. Turbotax freedom edition The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. Turbotax freedom edition The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Turbotax freedom edition Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Turbotax freedom edition S. Turbotax freedom edition Branches for United States Tax Withholding. Turbotax freedom edition   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Turbotax freedom edition S. Turbotax freedom edition branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. Turbotax freedom edition S. Turbotax freedom edition branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Turbotax freedom edition S. Turbotax freedom edition person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. Turbotax freedom edition For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Turbotax freedom edition 1446-5. Turbotax freedom edition Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Turbotax freedom edition A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. Turbotax freedom edition The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Turbotax freedom edition The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. Turbotax freedom edition Responsibilities. Turbotax freedom edition   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Turbotax freedom edition However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Turbotax freedom edition Instead, it provides you with a withholding statement that contains withholding rate pool information. Turbotax freedom edition A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. Turbotax freedom edition A qualified intermediary is required to provide you with information regarding U. Turbotax freedom edition S. Turbotax freedom edition persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Turbotax freedom edition S. Turbotax freedom edition person unless it has assumed Form 1099 reporting and backup withholding responsibility. Turbotax freedom edition For the alternative procedure for providing rate pool information for U. Turbotax freedom edition S. Turbotax freedom edition non-exempt persons, see the Form W-8IMY instructions. Turbotax freedom edition   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. Turbotax freedom edition   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Turbotax freedom edition Primary responsibility not assumed. Turbotax freedom edition   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. Turbotax freedom edition Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Turbotax freedom edition S. Turbotax freedom edition person subject to Form 1099 reporting and/or backup withholding. Turbotax freedom edition The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Turbotax freedom edition Primary NRA withholding responsibility assumed. Turbotax freedom edition   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. Turbotax freedom edition S. Turbotax freedom edition person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Turbotax freedom edition The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Turbotax freedom edition Primary NRA and Form 1099 responsibility assumed. Turbotax freedom edition   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. Turbotax freedom edition It is not necessary to associate the payment with withholding rate pools. Turbotax freedom edition Example. Turbotax freedom edition You make a payment of dividends to a QI. Turbotax freedom edition It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. Turbotax freedom edition S. Turbotax freedom edition individual who provides it with a Form W-9. Turbotax freedom edition Each customer is entitled to 20% of the dividend payment. Turbotax freedom edition The QI does not assume any primary withholding responsibility. Turbotax freedom edition The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. Turbotax freedom edition S. Turbotax freedom edition individual. Turbotax freedom edition You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. Turbotax freedom edition The part of the payment allocable to the U. Turbotax freedom edition S. Turbotax freedom edition individual (20%) is reportable on Form 1099-DIV. Turbotax freedom edition Smaller partnerships and trusts. Turbotax freedom edition   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. Turbotax freedom edition It is a foreign partnership or foreign simple or grantor trust. Turbotax freedom edition It is a direct account holder of the QI. Turbotax freedom edition It does not have any partner, beneficiary, or owner that is a U. Turbotax freedom edition S. Turbotax freedom edition person or a pass- through partner, beneficiary, or owner. Turbotax freedom edition   For information on these rules, see section 4A. Turbotax freedom edition 01 of the QI agreement. Turbotax freedom edition This is found in Appendix 3 of Revenue Procedure 2003-64. Turbotax freedom edition Also see Revenue Procedure 2004-21. Turbotax freedom edition Related partnerships and trusts. Turbotax freedom edition    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Turbotax freedom edition It is a foreign partnership or foreign simple or grantor trust. Turbotax freedom edition It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. Turbotax freedom edition For information on these rules, see section 4A. Turbotax freedom edition 02 of the QI agreement. Turbotax freedom edition This is found in Appendix 3 of Revenue Procedure 2003-64. Turbotax freedom edition Also see Revenue Procedure 2005-77. Turbotax freedom edition Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Turbotax freedom edition S. Turbotax freedom edition branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. Turbotax freedom edition S. Turbotax freedom edition branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Turbotax freedom edition The NQI, flow-through entity, or U. Turbotax freedom edition S. Turbotax freedom edition branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Turbotax freedom edition A withholding statement must be updated to keep the information accurate prior to each payment. Turbotax freedom edition Withholding statement. Turbotax freedom edition   In most cases, a withholding statement must contain the following information. Turbotax freedom edition The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Turbotax freedom edition The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Turbotax freedom edition The status of the person for whom the documentation has been provided, such as whether the person is a U. Turbotax freedom edition S. Turbotax freedom edition exempt recipient (U. Turbotax freedom edition S. Turbotax freedom edition person exempt from Form 1099 reporting), U. Turbotax freedom edition S. Turbotax freedom edition non-exempt recipient (U. Turbotax freedom edition S. Turbotax freedom edition person subject to Form 1099 reporting), or a foreign person. Turbotax freedom edition For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. Turbotax freedom edition S. Turbotax freedom edition branch. Turbotax freedom edition The type of recipient the person is, based on the recipient codes used on Form 1042-S. Turbotax freedom edition Information allocating each payment, by income type, to each payee (including U. Turbotax freedom edition S. Turbotax freedom edition exempt and U. Turbotax freedom edition S. Turbotax freedom edition non-exempt recipients) for whom documentation has been provided. Turbotax freedom edition The rate of withholding that applies to each foreign person to whom a payment is allocated. Turbotax freedom edition A foreign payee's country of residence. Turbotax freedom edition If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Turbotax freedom edition ). Turbotax freedom edition In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. Turbotax freedom edition The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Turbotax freedom edition S. Turbotax freedom edition branch from which the payee will directly receive a payment. Turbotax freedom edition Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Turbotax freedom edition Alternative procedure. Turbotax freedom edition   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Turbotax freedom edition S. Turbotax freedom edition exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Turbotax freedom edition To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. Turbotax freedom edition You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Turbotax freedom edition    This alternative procedure cannot be used for payments to U. Turbotax freedom edition S. Turbotax freedom edition non-exempt recipients. Turbotax freedom edition Therefore, an NQI must always provide you with allocation information for all U. Turbotax freedom edition S. Turbotax freedom edition non-exempt recipients prior to a payment being made. Turbotax freedom edition Pooled withholding information. Turbotax freedom edition   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. Turbotax freedom edition A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. Turbotax freedom edition For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). Turbotax freedom edition The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. Turbotax freedom edition Failure to provide allocation information. Turbotax freedom edition   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. Turbotax freedom edition You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Turbotax freedom edition An NQI is deemed to have f