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Volunteer Income Tax Assistance Program

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Volunteer Income Tax Assistance Program

Volunteer income tax assistance program 5. Volunteer income tax assistance program   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. Volunteer income tax assistance program Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. Volunteer income tax assistance program   If you are a U. Volunteer income tax assistance program S. Volunteer income tax assistance program citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. Volunteer income tax assistance program S. Volunteer income tax assistance program law. Volunteer income tax assistance program This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. Volunteer income tax assistance program This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Volunteer income tax assistance program If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. Volunteer income tax assistance program For details, see Publication 54, Tax Guide for U. Volunteer income tax assistance program S. Volunteer income tax assistance program Citizens and Resident Aliens Abroad. Volunteer income tax assistance program Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. Volunteer income tax assistance program The following topics are included. Volunteer income tax assistance program Bonuses and awards. Volunteer income tax assistance program Special rules for certain employees. Volunteer income tax assistance program Sickness and injury benefits. Volunteer income tax assistance program The chapter explains what income is included in the employee's gross income and what is not included. Volunteer income tax assistance program Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. Volunteer income tax assistance program Form W-2. Volunteer income tax assistance program    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. Volunteer income tax assistance program Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. Volunteer income tax assistance program   If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Volunteer income tax assistance program These wages must be included on line 7 of Form 1040. Volunteer income tax assistance program See Form 8919 for more information. Volunteer income tax assistance program Childcare providers. Volunteer income tax assistance program    If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Volunteer income tax assistance program If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Volunteer income tax assistance program You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Volunteer income tax assistance program Babysitting. Volunteer income tax assistance program   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Volunteer income tax assistance program Miscellaneous Compensation This section discusses different types of employee compensation. Volunteer income tax assistance program Advance commissions and other earnings. Volunteer income tax assistance program   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Volunteer income tax assistance program    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Volunteer income tax assistance program If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. Volunteer income tax assistance program See Repayments in chapter 12. Volunteer income tax assistance program Allowances and reimbursements. Volunteer income tax assistance program    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. Volunteer income tax assistance program If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Volunteer income tax assistance program Back pay awards. Volunteer income tax assistance program    Include in income amounts you are awarded in a settlement or judgment for back pay. Volunteer income tax assistance program These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Volunteer income tax assistance program They should be reported to you by your employer on Form W-2. Volunteer income tax assistance program Bonuses and awards. Volunteer income tax assistance program   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Volunteer income tax assistance program These include prizes such as vacation trips for meeting sales goals. Volunteer income tax assistance program If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Volunteer income tax assistance program However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Volunteer income tax assistance program Employee achievement award. Volunteer income tax assistance program   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Volunteer income tax assistance program However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Volunteer income tax assistance program Your employer can tell you whether your award is a qualified plan award. Volunteer income tax assistance program Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Volunteer income tax assistance program   However, the exclusion does not apply to the following awards: A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Volunteer income tax assistance program A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Volunteer income tax assistance program Example. Volunteer income tax assistance program Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Volunteer income tax assistance program Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Volunteer income tax assistance program However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income. Volunteer income tax assistance program Differential wage payments. Volunteer income tax assistance program   This is any payment made to you by an employer for any period during which you are, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages you would have received from the employer during that period. Volunteer income tax assistance program These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Volunteer income tax assistance program The payments are reported as wages on Form W-2. Volunteer income tax assistance program Government cost-of-living allowances. Volunteer income tax assistance program   Most payments received by U. Volunteer income tax assistance program S. Volunteer income tax assistance program Government civilian employees for working abroad are taxable. Volunteer income tax assistance program However, certain cost-of-living allowances are tax free. Volunteer income tax assistance program Publication 516, U. Volunteer income tax assistance program S. Volunteer income tax assistance program Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Volunteer income tax assistance program Nonqualified deferred compensation plans. Volunteer income tax assistance program   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Volunteer income tax assistance program This amount is shown on Form W-2, box 12, using code Y. Volunteer income tax assistance program This amount is not included in your income. Volunteer income tax assistance program   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Volunteer income tax assistance program This amount is included in your wages shown on Form W-2, box 1. Volunteer income tax assistance program It is also shown on Form W-2, box 12, using code Z. Volunteer income tax assistance program Note received for services. Volunteer income tax assistance program    If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Volunteer income tax assistance program When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Volunteer income tax assistance program Do not include that part again in your income. Volunteer income tax assistance program Include the rest of the payment in your income in the year of payment. Volunteer income tax assistance program   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Volunteer income tax assistance program Severance pay. Volunteer income tax assistance program   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Volunteer income tax assistance program Accrued leave payment. Volunteer income tax assistance program    If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Volunteer income tax assistance program   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Volunteer income tax assistance program You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Volunteer income tax assistance program Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2. Volunteer income tax assistance program Outplacement services. Volunteer income tax assistance program   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Volunteer income tax assistance program    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Volunteer income tax assistance program Sick pay. Volunteer income tax assistance program   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Volunteer income tax assistance program In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. Volunteer income tax assistance program A state sickness or disability fund. Volunteer income tax assistance program An association of employers or employees. Volunteer income tax assistance program An insurance company, if your employer paid for the plan. Volunteer income tax assistance program However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Volunteer income tax assistance program For more information, see Publication 525. Volunteer income tax assistance program Social security and Medicare taxes paid by employer. Volunteer income tax assistance program   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Volunteer income tax assistance program The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Volunteer income tax assistance program However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Volunteer income tax assistance program Stock appreciation rights. Volunteer income tax assistance program   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Volunteer income tax assistance program When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Volunteer income tax assistance program You include the cash payment in your income in the year you use the right. Volunteer income tax assistance program Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Volunteer income tax assistance program Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Volunteer income tax assistance program Accounting period. Volunteer income tax assistance program   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Volunteer income tax assistance program Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Volunteer income tax assistance program The general rule: benefits are reported for a full calendar year (January 1–December 31). Volunteer income tax assistance program The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Volunteer income tax assistance program For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Volunteer income tax assistance program  Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Volunteer income tax assistance program   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Volunteer income tax assistance program Form W-2. Volunteer income tax assistance program   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Volunteer income tax assistance program Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Volunteer income tax assistance program However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Volunteer income tax assistance program Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Volunteer income tax assistance program Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . Volunteer income tax assistance program For information on the items covered in this section, other than Long-term care coverage, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Volunteer income tax assistance program Long-term care coverage. Volunteer income tax assistance program    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Volunteer income tax assistance program However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Volunteer income tax assistance program This amount will be reported as wages in box 1 of your Form W-2. Volunteer income tax assistance program   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. Volunteer income tax assistance program Archer MSA contributions. Volunteer income tax assistance program    Contributions by your employer to your Archer MSA generally are not included in your income. Volunteer income tax assistance program Their total will be reported in box 12 of Form W-2 with code R. Volunteer income tax assistance program You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Volunteer income tax assistance program File the form with your return. Volunteer income tax assistance program Health flexible spending arrangement (health FSA). Volunteer income tax assistance program   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Volunteer income tax assistance program Note. Volunteer income tax assistance program Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Volunteer income tax assistance program The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Volunteer income tax assistance program For more information, see Notice 2012-40, 2012-26 I. Volunteer income tax assistance program R. Volunteer income tax assistance program B. Volunteer income tax assistance program 1046, available at www. Volunteer income tax assistance program irs. Volunteer income tax assistance program gov/irb/2012-26 IRB/ar09. Volunteer income tax assistance program html. Volunteer income tax assistance program Health reimbursement arrangement (HRA). Volunteer income tax assistance program   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Volunteer income tax assistance program Health savings accounts (HSA). Volunteer income tax assistance program   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Volunteer income tax assistance program Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Volunteer income tax assistance program Contributions made by your employer are not included in your income. Volunteer income tax assistance program Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Volunteer income tax assistance program Distributions not used for qualified medical expenses are included in your income. Volunteer income tax assistance program See Publication 969 for the requirements of an HSA. Volunteer income tax assistance program   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Volunteer income tax assistance program The contributions are treated as a distribution of money and are not included in the partner's gross income. Volunteer income tax assistance program Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Volunteer income tax assistance program In both situations, the partner can deduct the contribution made to the partner's HSA. Volunteer income tax assistance program   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Volunteer income tax assistance program The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Volunteer income tax assistance program Qualified HSA funding distribution. Volunteer income tax assistance program   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Volunteer income tax assistance program See Publication 590 for the requirements for these qualified HSA funding distributions. Volunteer income tax assistance program Failure to maintain eligibility. Volunteer income tax assistance program   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Volunteer income tax assistance program If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Volunteer income tax assistance program This income is also subject to an additional 10% tax. Volunteer income tax assistance program Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Volunteer income tax assistance program See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Volunteer income tax assistance program Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Volunteer income tax assistance program They also are included as social security and Medicare wages in boxes 3 and 5. Volunteer income tax assistance program However, they are not included as wages in box 1. Volunteer income tax assistance program To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Volunteer income tax assistance program File the form with your return. Volunteer income tax assistance program De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Volunteer income tax assistance program In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Volunteer income tax assistance program Holiday gifts. Volunteer income tax assistance program   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Volunteer income tax assistance program However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Volunteer income tax assistance program Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Volunteer income tax assistance program For more information, see Publication 970, Tax Benefits for Education. Volunteer income tax assistance program Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Volunteer income tax assistance program However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Volunteer income tax assistance program For exceptions, see Entire cost excluded , and Entire cost taxed , later. Volunteer income tax assistance program If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Volunteer income tax assistance program Also, it is shown separately in box 12 with code C. Volunteer income tax assistance program Group-term life insurance. Volunteer income tax assistance program   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Volunteer income tax assistance program Permanent benefits. Volunteer income tax assistance program   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Volunteer income tax assistance program Your employer should be able to tell you the amount to include in your income. Volunteer income tax assistance program Accidental death benefits. Volunteer income tax assistance program   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Volunteer income tax assistance program Former employer. Volunteer income tax assistance program   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Volunteer income tax assistance program Also, it is shown separately in box 12 with code C. Volunteer income tax assistance program Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Volunteer income tax assistance program You must pay these taxes with your income tax return. Volunteer income tax assistance program Include them on line 60, Form 1040, and follow the instructions for line 60. Volunteer income tax assistance program For more information, see the Instructions for Form 1040. Volunteer income tax assistance program Two or more employers. Volunteer income tax assistance program   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Volunteer income tax assistance program If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Volunteer income tax assistance program You must figure how much to include in your income. Volunteer income tax assistance program Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Volunteer income tax assistance program Figuring the taxable cost. Volunteer income tax assistance program   Use the following worksheet to figure the amount to include in your income. Volunteer income tax assistance program     Worksheet 5-1. Volunteer income tax assistance program Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Volunteer income tax assistance program Enter the total amount of your insurance coverage from your employer(s) 1. Volunteer income tax assistance program   2. Volunteer income tax assistance program Limit on exclusion for employer-provided group-term life insurance coverage 2. Volunteer income tax assistance program 50,000 3. Volunteer income tax assistance program Subtract line 2 from line 1 3. Volunteer income tax assistance program   4. Volunteer income tax assistance program Divide line 3 by $1,000. Volunteer income tax assistance program Figure to the nearest tenth 4. Volunteer income tax assistance program   5. Volunteer income tax assistance program Go to Table 5-1. Volunteer income tax assistance program Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Volunteer income tax assistance program   6. Volunteer income tax assistance program Multiply line 4 by line 5 6. Volunteer income tax assistance program   7. Volunteer income tax assistance program Enter the number of full months of coverage at this cost. Volunteer income tax assistance program 7. Volunteer income tax assistance program   8. Volunteer income tax assistance program Multiply line 6 by line 7 8. Volunteer income tax assistance program   9. Volunteer income tax assistance program Enter the premiums you paid per month 9. Volunteer income tax assistance program       10. Volunteer income tax assistance program Enter the number of months you paid the premiums 10. Volunteer income tax assistance program       11. Volunteer income tax assistance program Multiply line 9 by line 10. Volunteer income tax assistance program 11. Volunteer income tax assistance program   12. Volunteer income tax assistance program Subtract line 11 from line 8. Volunteer income tax assistance program Include this amount in your income as wages 12. Volunteer income tax assistance program      Table 5-1. Volunteer income tax assistance program Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. Volunteer income tax assistance program 05 25 through 29 . Volunteer income tax assistance program 06 30 through 34 . Volunteer income tax assistance program 08 35 through 39 . Volunteer income tax assistance program 09 40 through 44 . Volunteer income tax assistance program 10 45 through 49 . Volunteer income tax assistance program 15 50 through 54 . Volunteer income tax assistance program 23 55 through 59 . Volunteer income tax assistance program 43 60 through 64 . Volunteer income tax assistance program 66 65 through 69 1. Volunteer income tax assistance program 27 70 and older 2. Volunteer income tax assistance program 06 Example. Volunteer income tax assistance program You are 51 years old and work for employers A and B. Volunteer income tax assistance program Both employers provide group-term life insurance coverage for you for the entire year. Volunteer income tax assistance program Your coverage is $35,000 with employer A and $45,000 with employer B. Volunteer income tax assistance program You pay premiums of $4. Volunteer income tax assistance program 15 a month under the employer B group plan. Volunteer income tax assistance program You figure the amount to include in your income as shown in Worksheet 5-1. Volunteer income tax assistance program Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. Volunteer income tax assistance program Worksheet 5-1. Volunteer income tax assistance program Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. Volunteer income tax assistance program Enter the total amount of your insurance coverage from your employer(s) 1. Volunteer income tax assistance program 80,000 2. Volunteer income tax assistance program Limit on exclusion for employer-provided group-term life insurance coverage 2. Volunteer income tax assistance program 50,000 3. Volunteer income tax assistance program Subtract line 2 from line 1 3. Volunteer income tax assistance program 30,000 4. Volunteer income tax assistance program Divide line 3 by $1,000. Volunteer income tax assistance program Figure to the nearest tenth 4. Volunteer income tax assistance program 30. Volunteer income tax assistance program 0 5. Volunteer income tax assistance program Go to Table 5-1. Volunteer income tax assistance program Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Volunteer income tax assistance program . Volunteer income tax assistance program 23 6. Volunteer income tax assistance program Multiply line 4 by line 5 6. Volunteer income tax assistance program 6. Volunteer income tax assistance program 90 7. Volunteer income tax assistance program Enter the number of full months of coverage at this cost. Volunteer income tax assistance program 7. Volunteer income tax assistance program 12 8. Volunteer income tax assistance program Multiply line 6 by line 7 8. Volunteer income tax assistance program 82. Volunteer income tax assistance program 80 9. Volunteer income tax assistance program Enter the premiums you paid per month 9. Volunteer income tax assistance program 4. Volunteer income tax assistance program 15     10. Volunteer income tax assistance program Enter the number of months you paid the premiums 10. Volunteer income tax assistance program 12     11. Volunteer income tax assistance program Multiply line 9 by line 10. Volunteer income tax assistance program 11. Volunteer income tax assistance program 49. Volunteer income tax assistance program 80 12. Volunteer income tax assistance program Subtract line 11 from line 8. Volunteer income tax assistance program Include this amount in your income as wages 12. Volunteer income tax assistance program 33. Volunteer income tax assistance program 00 Entire cost excluded. Volunteer income tax assistance program   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Volunteer income tax assistance program You are permanently and totally disabled and have ended your employment. Volunteer income tax assistance program Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Volunteer income tax assistance program A charitable organization (defined in chapter 24) to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Volunteer income tax assistance program (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Volunteer income tax assistance program ) The plan existed on January 1, 1984, and You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Volunteer income tax assistance program Entire cost taxed. Volunteer income tax assistance program   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Volunteer income tax assistance program You are a key employee and your employer's plan discriminates in favor of key employees. Volunteer income tax assistance program Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Volunteer income tax assistance program Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Volunteer income tax assistance program You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Volunteer income tax assistance program Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Volunteer income tax assistance program A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Volunteer income tax assistance program Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Volunteer income tax assistance program However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Volunteer income tax assistance program Exclusion limit. Volunteer income tax assistance program   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Volunteer income tax assistance program   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Volunteer income tax assistance program   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Volunteer income tax assistance program   If the benefits have a value that is more than these limits, the excess must be included in your income. Volunteer income tax assistance program You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Volunteer income tax assistance program Commuter highway vehicle. Volunteer income tax assistance program   This is a highway vehicle that seats at least six adults (not including the driver). Volunteer income tax assistance program At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Volunteer income tax assistance program Transit pass. Volunteer income tax assistance program   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Volunteer income tax assistance program Qualified parking. Volunteer income tax assistance program   This is parking provided to an employee at or near the employer's place of business. Volunteer income tax assistance program It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Volunteer income tax assistance program It does not include parking at or near the employee's home. Volunteer income tax assistance program Qualified bicycle commuting. Volunteer income tax assistance program   This is reimbursement based on the number of qualified bicycle commuting months for the year. Volunteer income tax assistance program A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Volunteer income tax assistance program The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Volunteer income tax assistance program Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Volunteer income tax assistance program (Your employer can tell you whether your retirement plan is qualified. Volunteer income tax assistance program ) However, the cost of life insurance coverage included in the plan may have to be included. Volunteer income tax assistance program See Group-Term Life Insurance , earlier, under Fringe Benefits. Volunteer income tax assistance program If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Volunteer income tax assistance program However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Volunteer income tax assistance program For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. Volunteer income tax assistance program S. Volunteer income tax assistance program Civil Service Retirement Benefits, if you are a federal employee or retiree). Volunteer income tax assistance program Elective deferrals. Volunteer income tax assistance program   If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Volunteer income tax assistance program The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Volunteer income tax assistance program An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Volunteer income tax assistance program However, it is included in wages subject to social security and Medicare taxes. Volunteer income tax assistance program   Elective deferrals include elective contributions to the following retirement plans. Volunteer income tax assistance program Cash or deferred arrangements (section 401(k) plans). Volunteer income tax assistance program The Thrift Savings Plan for federal employees. Volunteer income tax assistance program Salary reduction simplified employee pension plans (SARSEP). Volunteer income tax assistance program Savings incentive match plans for employees (SIMPLE plans). Volunteer income tax assistance program Tax-sheltered annuity plans (403(b) plans). Volunteer income tax assistance program Section 501(c)(18)(D) plans. Volunteer income tax assistance program Section 457 plans. Volunteer income tax assistance program Qualified automatic contribution arrangements. Volunteer income tax assistance program   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Volunteer income tax assistance program You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Volunteer income tax assistance program The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Volunteer income tax assistance program   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Volunteer income tax assistance program Overall limit on deferrals. Volunteer income tax assistance program   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3) and (5) above. Volunteer income tax assistance program The limit for SIMPLE plans is $12,000. Volunteer income tax assistance program The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. Volunteer income tax assistance program The limit for section 457 plans is the lesser of your includible compensation or $17,500. Volunteer income tax assistance program Amounts deferred under specific plan limits are part of the overall limit on deferrals. Volunteer income tax assistance program Designated Roth contributions. Volunteer income tax assistance program   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Volunteer income tax assistance program Designated Roth contributions are treated as elective deferrals, except that they are included in income. Volunteer income tax assistance program Excess deferrals. Volunteer income tax assistance program   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Volunteer income tax assistance program However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Volunteer income tax assistance program   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. Volunteer income tax assistance program See Publication 525 for a discussion of the tax treatment of excess deferrals. Volunteer income tax assistance program Catch-up contributions. Volunteer income tax assistance program   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. Volunteer income tax assistance program Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option. Volunteer income tax assistance program However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. Volunteer income tax assistance program Your employer can tell you which kind of option you hold. Volunteer income tax assistance program For more information, see Publication 525. Volunteer income tax assistance program Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. Volunteer income tax assistance program However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. Volunteer income tax assistance program (You can choose to include the value of the property in your income in the year it is transferred to you. Volunteer income tax assistance program ) For more information, see Restricted Property in Publication 525. Volunteer income tax assistance program Dividends received on restricted stock. Volunteer income tax assistance program   Dividends you receive on restricted stock are treated as compensation and not as dividend income. Volunteer income tax assistance program Your employer should include these payments on your Form W-2. Volunteer income tax assistance program Stock you chose to include in income. Volunteer income tax assistance program   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. Volunteer income tax assistance program Report them on your return as dividends. Volunteer income tax assistance program For a discussion of dividends, see chapter 8. Volunteer income tax assistance program    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. Volunteer income tax assistance program Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. Volunteer income tax assistance program Clergy Generally, if you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Volunteer income tax assistance program , in addition to your salary. Volunteer income tax assistance program If the offering is made to the religious institution, it is not taxable to you. Volunteer income tax assistance program If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. Volunteer income tax assistance program However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Volunteer income tax assistance program See chapter 24. Volunteer income tax assistance program Pension. Volunteer income tax assistance program    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. Volunteer income tax assistance program It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Volunteer income tax assistance program Housing. Volunteer income tax assistance program    Special rules for housing apply to members of the clergy. Volunteer income tax assistance program Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. Volunteer income tax assistance program However, the exclusion cannot be more than the reasonable pay for your service. Volunteer income tax assistance program If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. Volunteer income tax assistance program The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. Volunteer income tax assistance program However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. Volunteer income tax assistance program For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Volunteer income tax assistance program Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. Volunteer income tax assistance program Services performed for the order. Volunteer income tax assistance program   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. Volunteer income tax assistance program   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. Volunteer income tax assistance program Any wages you earn as an agent of an order that you turn over to the order are not included in your income. Volunteer income tax assistance program Example. Volunteer income tax assistance program You are a member of a church order and have taken a vow of poverty. Volunteer income tax assistance program You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. Volunteer income tax assistance program You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. Volunteer income tax assistance program However, you remain under the general direction and control of the order. Volunteer income tax assistance program You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. Volunteer income tax assistance program Services performed outside the order. Volunteer income tax assistance program   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. Volunteer income tax assistance program They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. Volunteer income tax assistance program If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. Volunteer income tax assistance program Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. Volunteer income tax assistance program Example. Volunteer income tax assistance program Mark Brown is a member of a religious order and has taken a vow of poverty. Volunteer income tax assistance program He renounces all claims to his earnings and turns over his earnings to the order. Volunteer income tax assistance program Mark is a schoolteacher. Volunteer income tax assistance program He was instructed by the superiors of the order to get a job with a private tax-exempt school. Volunteer income tax assistance program Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. Volunteer income tax assistance program Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. Volunteer income tax assistance program The wages Mark earns working for the school are included in his income. Volunteer income tax assistance program Foreign Employer Special rules apply if you work for a foreign employer. Volunteer income tax assistance program U. Volunteer income tax assistance program S. Volunteer income tax assistance program citizen. Volunteer income tax assistance program   If you are a U. Volunteer income tax assistance program S. Volunteer income tax assistance program citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. Volunteer income tax assistance program Social security and Medicare taxes. Volunteer income tax assistance program   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. Volunteer income tax assistance program However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. Volunteer income tax assistance program This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. Volunteer income tax assistance program Employees of international organizations or foreign governments. Volunteer income tax assistance program   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Volunteer income tax assistance program   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. Volunteer income tax assistance program You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Volunteer income tax assistance program Your work is like the work done by employees of the United States in foreign countries. Volunteer income tax assistance program The foreign government gives an equal exemption to employees of the United States in its country. Volunteer income tax assistance program Waiver of alien status. Volunteer income tax assistance program   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. Volunteer income tax assistance program See Foreign Employer in Publication 525. Volunteer income tax assistance program Employment abroad. Volunteer income tax assistance program   For information on the tax treatment of income earned abroad, see Publication 54. Volunteer income tax assistance program Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. Volunteer income tax assistance program Allowances generally are not taxed. Volunteer income tax assistance program For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. Volunteer income tax assistance program Differential wage payments. Volunteer income tax assistance program   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. Volunteer income tax assistance program These wages are subject to income tax withholding and are reported on a Form W-2. Volunteer income tax assistance program See the discussion under Miscellaneous Compensation , earlier. Volunteer income tax assistance program Military retirement pay. Volunteer income tax assistance program   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Volunteer income tax assistance program Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. Volunteer income tax assistance program   For more detailed discussion of survivor annuities, see chapter 10. Volunteer income tax assistance program Disability. Volunteer income tax assistance program   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. Volunteer income tax assistance program Veterans' benefits. Volunteer income tax assistance program   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). Volunteer income tax assistance program The following amounts paid to veterans or their families are not taxable. Volunteer income tax assistance program Education, training, and subsistence allowances. Volunteer income tax assistance program Disability compensation and pension payments for disabilities paid either to veterans or their families. Volunteer income tax assistance program Grants for homes designed for wheelchair living. Volunteer income tax assistance program Grants for motor vehicles for veterans who lost their sight or the use of their limbs. Volunteer income tax assistance program Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. Volunteer income tax assistance program Interest on insurance dividends you leave on deposit with the VA. Volunteer income tax assistance program Benefits under a dependent-care assistance program. Volunteer income tax assistance program The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. Volunteer income tax assistance program Payments made under the compensated work therapy program. Volunteer income tax assistance program Any bonus payment by a state or political subdivision because of service in a combat zone. Volunteer income tax assistance program Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. Volunteer income tax assistance program Peace Corps. Volunteer income tax assistance program   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. Volunteer income tax assistance program Taxable allowances. Volunteer income tax assistance program   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. Volunteer income tax assistance program Living allowances designated by the Director of the Peace Corps as basic compensation. Volunteer income tax assistance program These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. Volunteer income tax assistance program Leave allowances. Volunteer income tax assistance program Readjustment allowances or termination payments. Volunteer income tax assistance program These are considered received by you when credited to your account. Volunteer income tax assistance program Example. Volunteer income tax assistance program Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. Volunteer income tax assistance program Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. Volunteer income tax assistance program Volunteers in Service to America (VISTA). Volunteer income tax assistance program   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. Volunteer income tax assistance program National Senior Services Corps programs. Volunteer income tax assistance program   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. Volunteer income tax assistance program Retired Senior Volunteer Program (RSVP). Volunteer income tax assistance program Foster Grandparent Program. Volunteer income tax assistance program Senior Companion Program. Volunteer income tax assistance program Service Corps of Retired Executives (SCORE). Volunteer income tax assistance program   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. Volunteer income tax assistance program Volunteer tax counseling. Volunteer income tax assistance program   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). Volunteer income tax assistance program   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. Volunteer income tax assistance program See chapter 24. Volunteer income tax assistance program Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. Volunteer income tax assistance program In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Volunteer income tax assistance program If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Volunteer income tax assistance program However, certain payments may not be taxable to you. Volunteer income tax assistance program Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. Volunteer income tax assistance program In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. Volunteer income tax assistance program Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. Volunteer income tax assistance program Cost paid by you. Volunteer income tax assistance program   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Volunteer income tax assistance program If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Volunteer income tax assistance program See Reimbursement in a later year in chapter 21. Volunteer income tax assistance program Cafeteria plans. Volunteer income tax assistance program   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. Volunteer income tax assistance program If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. Volunteer income tax assistance program Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Volunteer income tax assistance program You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. Volunteer income tax assistance program Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Volunteer income tax assistance program You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Volunteer income tax assistance program For information on this credit and the definition of permanent and total disability, see chapter 33. Volunteer income tax assistance program Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Volunteer income tax assistance program Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Volunteer income tax assistance program The rules for reporting pensions are explained in How To Report in chapter 10. Volunteer income tax assistance program For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. Volunteer income tax assistance program Retirement and profit-sharing plans. Volunteer income tax assistance program   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Volunteer income tax assistance program The payments must be reported as a pension or annuity. Volunteer income tax assistance program For more information on pensions, see chapter 10. Volunteer income tax assistance program Accrued leave payment. Volunteer income tax assistance program   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Volunteer income tax assistance program The payment is not a disability payment. Volunteer income tax assistance program Include it in your income in the tax year you receive it. Volunteer income tax assistance program Military and Government Disability Pensions Certain military and government disability pensions are not taxable. Volunteer income tax assistance program Service-connected disability. Volunteer income tax assistance program   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. Volunteer income tax assistance program The armed forces of any country. Volunteer income tax assistance program The National Oceanic and Atmospheric Administration. Volunteer income tax assistance program The Public Health Service. Volunteer income tax assistance program The Foreign Service. Volunteer income tax assistance program Conditions for exclusion. Volunteer income tax assistance program   Do not include the disability payments in your income if any of the following conditions apply. Volunteer income tax assistance program You were entitled to receive a disability payment before September 25, 1975. Volunteer income tax assistance program You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. Volunteer income tax assistance program You receive the disability payments for a combat-related injury. Volunteer income tax assistance program This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. Volunteer income tax assistance program You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. Volunteer income tax assistance program Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. Volunteer income tax assistance program Pension based on years of service. Volunteer income tax assistance program   If you receive a disability pension based on years of service, in most cases you must include it in your income. Volunteer income tax assistance program However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. Volunteer income tax assistance program You must include the rest of your pension in your income. Volunteer income tax assistance program Retroactive VA determination. Volunteer income tax assistance program   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. Volunteer income tax assistance program You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. Volunteer income tax assistance program You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. Volunteer income tax assistance program The letter must show the amount withheld and the effective date of the benefit. Volunteer income tax assistance program   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. Volunteer income tax assistance program However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. Volunteer income tax assistance program Special statute of limitations. Volunteer income tax assistance program   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. Volunteer income tax assistance program However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. Volunteer income tax assistance program This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. Volunteer income tax assistance program Example. Volunteer income tax assistance program You retired in 2007 and receive a pension based on your years of service. Volunteer income tax assistance program On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. Volunteer income tax assistance program Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. Volunteer income tax assistance program However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. Volunteer income tax assistance program You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. Volunteer income tax assistance program Terrorist attack or military action. Volunteer income tax assistance program   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. Volunteer income tax assistance program Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. Volunteer income tax assistance program Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. Volunteer income tax assistance program To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. Volunteer income tax assistance program A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. Volunteer income tax assistance program The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Volunteer income tax assistance program Qualified long-term care services. Volunteer income tax assistance program   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. Volunteer income tax assistance program Chronically ill individual. Volunteer income tax assistance program   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. Volunteer income tax assistance program Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Volunteer income tax assistance program An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Volunteer income tax assistance program Limit on exclusion. Volunteer income tax assistance program   You generally can exclude from gross income up to $320 a day for 2013. Volunteer income tax assistance program See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. Volunteer income tax assistance program Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Volunteer income tax assistance program The exemption also applies to your survivors. Volunteer income tax assistance program The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Volunteer income tax assistance program If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Volunteer income tax assistance program For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Volunteer income tax assistance program Return to work. Volunteer income tax assistance program    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Volunteer income tax assistance program Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Volunteer income tax assistance program Railroad sick pay. Volunteer income tax assistance program    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. Volunteer income tax assistance program However, do not include them in your income if they are for an on-the-job injury. Volunteer income tax assistance program   If you received income because of a disability, see Disability Pensions , earlier. Volunteer income tax assistance program Federal Employees' Compensation Act (FECA). Volunteer income tax assistance program   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Volunteer income tax assistance program However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Volunteer income tax assistance program Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. Volunteer income tax assistance program Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Volunteer income tax assistance program    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Volunteer income tax assistance program For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. Volunteer income tax assistance program    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. Volunteer income tax assistance program It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). Volunteer income tax assistance program If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. Volunteer income tax assistance program Do not deduct it separately. Volunteer income tax assistance program Other compensation. Volunteer income tax assistance program   Many other amounts you receive as compensation for sickness or injury are not taxable. Volunteer income tax assistance program These include the following amounts. Volunteer income tax assistance program Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. Volunteer income tax assistance program Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Volunteer income tax assistance program Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Volunteer income tax assistance program Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. Volunteer income tax assistance program This compensation must be based only on the injury and not on the period of your absence from work. Volunteer income tax assistance program These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Volunteer income tax assistance program Reimbursement for medical care. Volunteer income tax assistance program    A reimbursement for medical care is generally not taxable. Volunteer income tax assistance program However, it may reduce your medical expense deduction. Volunteer income tax assistance program For more information, see chapter 21. Volunteer income tax assistance program Prev  Up  Next   Home   More Online Publications
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The Volunteer Income Tax Assistance Program

Volunteer income tax assistance program 4. Volunteer income tax assistance program   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. Volunteer income tax assistance program However, the information shown on the filled-in forms is not from any actual person or scenario. Volunteer income tax assistance program Example 1—Mortgage loan modification. Volunteer income tax assistance program    In 2007, Nancy Oak bought a main home for $435,000. Volunteer income tax assistance program Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. Volunteer income tax assistance program The loan was secured by the home. Volunteer income tax assistance program The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. Volunteer income tax assistance program In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. Volunteer income tax assistance program    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. Volunteer income tax assistance program The FMV of Nancy's home at the time of the refinancing was $500,000. Volunteer income tax assistance program Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. Volunteer income tax assistance program After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. Volunteer income tax assistance program   In 2013, Nancy was unable to make her mortgage loan payments. Volunteer income tax assistance program On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. Volunteer income tax assistance program Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. Volunteer income tax assistance program   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. Volunteer income tax assistance program Identifiable event code "F" appears in box 6. Volunteer income tax assistance program This box shows the reason the creditor has filed Form 1099-C. Volunteer income tax assistance program To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. Volunteer income tax assistance program Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. Volunteer income tax assistance program   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. Volunteer income tax assistance program Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. Volunteer income tax assistance program Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. Volunteer income tax assistance program Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). Volunteer income tax assistance program   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. Volunteer income tax assistance program Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). Volunteer income tax assistance program Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. Volunteer income tax assistance program You can see Nancy's Form 1099-C and a portion of her Form 1040 below. Volunteer income tax assistance program Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Volunteer income tax assistance program Please click the link to view the image. Volunteer income tax assistance program Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. Volunteer income tax assistance program Please click the link to view the image. Volunteer income tax assistance program Form 1040, U. Volunteer income tax assistance program S. Volunteer income tax assistance program Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. Volunteer income tax assistance program Please click the link to view the image. Volunteer income tax assistance program Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. Volunteer income tax assistance program    In 2005, John and Mary Elm bought a main home for $335,000. Volunteer income tax assistance program John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. Volunteer income tax assistance program The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. Volunteer income tax assistance program   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. Volunteer income tax assistance program Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. Volunteer income tax assistance program   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. Volunteer income tax assistance program Identifiable event code "D" appears in box 6. Volunteer income tax assistance program This box shows the reason the creditor has filed Form 1099-C. Volunteer income tax assistance program In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. Volunteer income tax assistance program In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. Volunteer income tax assistance program Their sample Form 1099-C is shown on this page. Volunteer income tax assistance program   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). Volunteer income tax assistance program However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. Volunteer income tax assistance program   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). Volunteer income tax assistance program Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. Volunteer income tax assistance program Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. Volunteer income tax assistance program As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. Volunteer income tax assistance program Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. Volunteer income tax assistance program Thus, John and Mary leave line 10b of Form 982 blank. Volunteer income tax assistance program   John and Mary must also determine whether they have a gain or loss from the foreclosure. Volunteer income tax assistance program John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. Volunteer income tax assistance program Because this loss relates to their home, it is a nondeductible loss. Volunteer income tax assistance program   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. Volunteer income tax assistance program John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Volunteer income tax assistance program Please click the link to view the image. Volunteer income tax assistance program Form 1099-C, Cancellation of Debt Table 1-1. Volunteer income tax assistance program Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. Volunteer income tax assistance program Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Volunteer income tax assistance program Otherwise, go to Part 2. Volunteer income tax assistance program 1. Volunteer income tax assistance program Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $315,000. Volunteer income tax assistance program 00 2. Volunteer income tax assistance program Enter the fair market value of the transferred property $290,000. Volunteer income tax assistance program 00 3. Volunteer income tax assistance program Ordinary income from the cancellation of debt upon foreclosure or repossession. Volunteer income tax assistance program * Subtract line 2 from line 1. Volunteer income tax assistance program If less than zero, enter zero. Volunteer income tax assistance program Next, go to Part 2 $ 25,000. Volunteer income tax assistance program 00 Part 2. Volunteer income tax assistance program Gain or loss from foreclosure or repossession. Volunteer income tax assistance program   4. Volunteer income tax assistance program Enter the smaller of line 1 or line 2. Volunteer income tax assistance program If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property $290,000. Volunteer income tax assistance program 00 5. Volunteer income tax assistance program Enter any proceeds you received from the foreclosure sale   6. Volunteer income tax assistance program Add line 4 and line 5 $290,000. Volunteer income tax assistance program 00 7. Volunteer income tax assistance program Enter the adjusted basis of the transferred property $335,000. Volunteer income tax assistance program 00 8. Volunteer income tax assistance program Gain or loss from foreclosure or repossession. Volunteer income tax assistance program Subtract line 7 from line 6 ($ 45,000. Volunteer income tax assistance program 00) * The income may not be taxable. Volunteer income tax assistance program See chapter 1 for more details. Volunteer income tax assistance program Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. Volunteer income tax assistance program Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Volunteer income tax assistance program Credit card debt $ 5,500 2. Volunteer income tax assistance program Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. Volunteer income tax assistance program Car and other vehicle loans $ 4. Volunteer income tax assistance program Medical bills owed $ 5. Volunteer income tax assistance program Student loans $ 6. Volunteer income tax assistance program Accrued or past-due mortgage interest $ 7. Volunteer income tax assistance program Accrued or past-due real estate taxes $ 8. Volunteer income tax assistance program Accrued or past-due utilities (water, gas, electric) $ 9. Volunteer income tax assistance program Accrued or past-due child care costs $ 10. Volunteer income tax assistance program Federal or state income taxes remaining due (for prior tax years) $ 11. Volunteer income tax assistance program Judgments $ 12. Volunteer income tax assistance program Business debts (including those owed as a sole proprietor or partner) $ 13. Volunteer income tax assistance program Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Volunteer income tax assistance program Other liabilities (debts) not included above $ 15. Volunteer income tax assistance program Total liabilities immediately before the cancellation. Volunteer income tax assistance program Add lines 1 through 14. Volunteer income tax assistance program $ 320,500 Part II. Volunteer income tax assistance program Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Volunteer income tax assistance program Cash and bank account balances $ 6,000 17. Volunteer income tax assistance program Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. Volunteer income tax assistance program Cars and other vehicles $ 19. Volunteer income tax assistance program Computers $ 20. Volunteer income tax assistance program Household goods and furnishings (for example, appliances, electronics, furniture, etc. Volunteer income tax assistance program ) $ 21. Volunteer income tax assistance program Tools $ 22. Volunteer income tax assistance program Jewelry $ 23. Volunteer income tax assistance program Clothing $ 24. Volunteer income tax assistance program Books $ 25. Volunteer income tax assistance program Stocks and bonds $ 26. Volunteer income tax assistance program Investments in coins, stamps, paintings, or other collectibles $ 27. Volunteer income tax assistance program Firearms, sports, photographic, and other hobby equipment $ 28. Volunteer income tax assistance program Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. Volunteer income tax assistance program Interest in a pension plan $ 30. Volunteer income tax assistance program Interest in education accounts $ 31. Volunteer income tax assistance program Cash value of life insurance $ 32. Volunteer income tax assistance program Security deposits with landlords, utilities, and others $ 33. Volunteer income tax assistance program Interests in partnerships $ 34. Volunteer income tax assistance program Value of investment in a business $ 35. Volunteer income tax assistance program Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Volunteer income tax assistance program Other assets not included above $ 37. Volunteer income tax assistance program FMV of total assets immediately before the cancellation. Volunteer income tax assistance program Add lines 16 through 36. Volunteer income tax assistance program $ 309,000 Part III. Volunteer income tax assistance program Insolvency 38. Volunteer income tax assistance program Amount of Insolvency. Volunteer income tax assistance program Subtract line 37 from line 15. Volunteer income tax assistance program If zero or less, you are not insolvent. Volunteer income tax assistance program $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. Volunteer income tax assistance program Please click the link to view the image. Volunteer income tax assistance program Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. Volunteer income tax assistance program    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. Volunteer income tax assistance program Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. Volunteer income tax assistance program Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. Volunteer income tax assistance program   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. Volunteer income tax assistance program The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. Volunteer income tax assistance program On December 26, 2013, the lender canceled the remaining debt. Volunteer income tax assistance program Kathy and Frank have no tax attributes other than basis of personal-use property. Volunteer income tax assistance program   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). Volunteer income tax assistance program Identifiable event code "D" appears in box 6. Volunteer income tax assistance program This box shows the reason the creditor has filed Form 1099-C. Volunteer income tax assistance program Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. Volunteer income tax assistance program Kathy and Frank are filing a joint return for 2013. Volunteer income tax assistance program   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. Volunteer income tax assistance program Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). Volunteer income tax assistance program Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. Volunteer income tax assistance program Because this loss relates to their home, it is a nondeductible loss. Volunteer income tax assistance program   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. Volunteer income tax assistance program Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. Volunteer income tax assistance program Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. Volunteer income tax assistance program The household furnishings originally cost $30,000. Volunteer income tax assistance program The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. Volunteer income tax assistance program Kathy and Frank had no adjustments to the cost basis of the car. Volunteer income tax assistance program Kathy and Frank had no other assets or liabilities at the time of the cancellation. Volunteer income tax assistance program Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). Volunteer income tax assistance program   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. Volunteer income tax assistance program Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). Volunteer income tax assistance program Kathy and Frank had no other assets or liabilities at that time. Volunteer income tax assistance program Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. Volunteer income tax assistance program   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. Volunteer income tax assistance program The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. Volunteer income tax assistance program The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. Volunteer income tax assistance program Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. Volunteer income tax assistance program Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). Volunteer income tax assistance program This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. Volunteer income tax assistance program   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. Volunteer income tax assistance program Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. Volunteer income tax assistance program Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. Volunteer income tax assistance program Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). Volunteer income tax assistance program   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. Volunteer income tax assistance program Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. Volunteer income tax assistance program Thus, Kathy and Frank leave line 10b of Form 982 blank. Volunteer income tax assistance program However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. Volunteer income tax assistance program As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. Volunteer income tax assistance program Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). Volunteer income tax assistance program Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. Volunteer income tax assistance program Kathy and Frank reduce the basis in the car by $14,956. Volunteer income tax assistance program 52 ($43,000 x $16,000/$46,000). Volunteer income tax assistance program And they reduce the basis in the household furnishings by $28,043. Volunteer income tax assistance program 48 ($43,000 x $30,000/$46,000). Volunteer income tax assistance program   Following are Kathy and Frank's sample forms and worksheets. Volunteer income tax assistance program Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Volunteer income tax assistance program Please click the link to view the image. Volunteer income tax assistance program Form 1099-C, Cancellation of Debt Table 1-1. Volunteer income tax assistance program Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. Volunteer income tax assistance program Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Volunteer income tax assistance program Otherwise, go to Part 2. Volunteer income tax assistance program 1. Volunteer income tax assistance program Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property $1,750,000. Volunteer income tax assistance program 00 2. Volunteer income tax assistance program Enter the fair market value of the transferred property $1,750,000. Volunteer income tax assistance program 00 3. Volunteer income tax assistance program Ordinary income from the cancellation of debt upon foreclosure or repossession. Volunteer income tax assistance program * Subtract line 2 from line 1. Volunteer income tax assistance program If less than zero, enter zero. Volunteer income tax assistance program Next, go to Part 2 $0. Volunteer income tax assistance program 00 Part 2. Volunteer income tax assistance program Gain or loss from foreclosure or repossession. Volunteer income tax assistance program   4. Volunteer income tax assistance program Enter the smaller of line 1 or line 2. Volunteer income tax assistance program If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property. Volunteer income tax assistance program $1,750,000. Volunteer income tax assistance program 00 5. Volunteer income tax assistance program Enter any proceeds you received from the foreclosure sale   6. Volunteer income tax assistance program Add line 4 and line 5 $1,750,000. Volunteer income tax assistance program 00 7. Volunteer income tax assistance program Enter the adjusted basis of the transferred property $3,000,000. Volunteer income tax assistance program 00 8. Volunteer income tax assistance program Gain or loss from foreclosure or repossession. Volunteer income tax assistance program Subtract line 7 from line 6 ($1,250,000. Volunteer income tax assistance program 00) * The income may not be taxable. Volunteer income tax assistance program See chapter 1 for more details. Volunteer income tax assistance program    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. Volunteer income tax assistance program Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Volunteer income tax assistance program Credit card debt $ 18,000 2. Volunteer income tax assistance program Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. Volunteer income tax assistance program Car and other vehicle loans $ 4. Volunteer income tax assistance program Medical bills owed $ 5. Volunteer income tax assistance program Student loans $ 6. Volunteer income tax assistance program Accrued or past-due mortgage interest $ 7. Volunteer income tax assistance program Accrued or past-due real estate taxes $ 8. Volunteer income tax assistance program Accrued or past-due utilities (water, gas, electric) $ 9. Volunteer income tax assistance program Accrued or past-due child care costs $ 10. Volunteer income tax assistance program Federal or state income taxes remaining due (for prior tax years) $ 11. Volunteer income tax assistance program Judgments $ 12. Volunteer income tax assistance program Business debts (including those owed as a sole proprietor or partner) $ 13. Volunteer income tax assistance program Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Volunteer income tax assistance program Other liabilities (debts) not included above $ 15. Volunteer income tax assistance program Total liabilities immediately before the cancellation. Volunteer income tax assistance program Add lines 1 through 14. Volunteer income tax assistance program $ 768,000 Part II. Volunteer income tax assistance program Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Volunteer income tax assistance program Cash and bank account balances $ 15,000 17. Volunteer income tax assistance program Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. Volunteer income tax assistance program Cars and other vehicles $ 10,000 19. Volunteer income tax assistance program Computers $ 20. Volunteer income tax assistance program Household goods and furnishings (for example, appliances, electronics, furniture, etc. Volunteer income tax assistance program ) $ 17,000 21. Volunteer income tax assistance program Tools $ 22. Volunteer income tax assistance program Jewelry $ 23. Volunteer income tax assistance program Clothing $ 24. Volunteer income tax assistance program Books $ 25. Volunteer income tax assistance program Stocks and bonds $ 26. Volunteer income tax assistance program Investments in coins, stamps, paintings, or other collectibles $ 27. Volunteer income tax assistance program Firearms, sports, photographic, and other hobby equipment $ 28. Volunteer income tax assistance program Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. Volunteer income tax assistance program Interest in a pension plan $ 30. Volunteer income tax assistance program Interest in education accounts $ 31. Volunteer income tax assistance program Cash value of life insurance $ 32. Volunteer income tax assistance program Security deposits with landlords, utilities, and others $ 33. Volunteer income tax assistance program Interests in partnerships $ 34. Volunteer income tax assistance program Value of investment in a business $ 35. Volunteer income tax assistance program Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Volunteer income tax assistance program Other assets not included above $ 37. Volunteer income tax assistance program FMV of total assets immediately before the cancellation. Volunteer income tax assistance program Add lines 16 through 36. Volunteer income tax assistance program $ 42,000 Part III. Volunteer income tax assistance program Insolvency 38. Volunteer income tax assistance program Amount of Insolvency. Volunteer income tax assistance program Subtract line 37 from line 15. Volunteer income tax assistance program If zero or less, you are not insolvent. Volunteer income tax assistance program $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. Volunteer income tax assistance program Please click the link to view the image. Volunteer income tax assistance program Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Prev  Up  Next   Home   More Online Publications