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Hr Block Tax Returns

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Hr Block Tax Returns

Hr block tax returns 7. Hr block tax returns   Coverdell Education Savings Account (ESA) Table of Contents Introduction What Is a Coverdell ESAQualified Education Expenses ContributionsContribution Limits Additional Tax on Excess Contributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Transfer Because of Divorce DistributionsTax-Free Distributions Taxable Distributions When Assets Must Be Distributed Introduction If your modified adjusted gross income (MAGI) is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. Hr block tax returns For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return. Hr block tax returns There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. Hr block tax returns However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. Hr block tax returns See Contributions , later. Hr block tax returns This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses. Hr block tax returns What is the tax benefit of the Coverdell ESA. Hr block tax returns   Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. Hr block tax returns   If, for a year, distributions from an account are not more than a designated beneficiary's qualified education expenses at an eligible educational institution, the beneficiary will not owe tax on the distributions. Hr block tax returns See Tax-Free Distributions , later. Hr block tax returns    Table 7-1 summarizes the main features of the Coverdell ESA. Hr block tax returns Table 7-1. Hr block tax returns Coverdell ESA at a Glance Do not rely on this table alone. Hr block tax returns It provides only general highlights. Hr block tax returns See the text for definitions of terms in bold type and for more complete explanations. Hr block tax returns Question Answer What is a Coverdell ESA? A savings account that is set up to pay the qualified education expenses of a designated beneficiary. Hr block tax returns Where can it be established? It can be opened in the United States at any bank or other IRS-approved entity that offers Coverdell ESAs. Hr block tax returns Who can have a Coverdell ESA? Any beneficiary who is under age 18 or is a special needs beneficiary. Hr block tax returns Who can contribute to a Coverdell ESA? Generally, any individual (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 in the case of a joint return). Hr block tax returns Are distributions tax free? Yes, if the distributions are not more than the beneficiary's adjusted qualified education expenses for the year. Hr block tax returns What Is a Coverdell ESA A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the Designated beneficiary (defined later) of the account. Hr block tax returns When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. Hr block tax returns To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. Hr block tax returns The document creating and governing the account must be in writing and must satisfy the following requirements. Hr block tax returns The trustee or custodian must be a bank or an entity approved by the IRS. Hr block tax returns The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. Hr block tax returns The contribution is in cash. Hr block tax returns The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Hr block tax returns The contribution would not result in total contributions for the year (not including rollover contributions) being more than $2,000. Hr block tax returns Money in the account cannot be invested in life insurance contracts. Hr block tax returns Money in the account cannot be combined with other property except in a common trust fund or common investment fund. Hr block tax returns The balance in the account generally must be distributed within 30 days after the earlier of the following events. Hr block tax returns The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. Hr block tax returns The beneficiary's death. Hr block tax returns Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. Hr block tax returns For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. Hr block tax returns Designated beneficiary. Hr block tax returns   This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account. Hr block tax returns Contributions to a qualified tuition program (QTP). Hr block tax returns   A contribution to a QTP is a qualified education expense if the contribution is on behalf of the designated beneficiary of the Coverdell ESA. Hr block tax returns In the case of a change in beneficiary, this is a qualified expense only if the new beneficiary is a family member of that designated beneficiary. Hr block tax returns See chapter 8, Qualified Tuition Program . Hr block tax returns Eligible Educational Institution For purposes of Coverdell ESAs, an eligible educational institution can be either an eligible postsecondary school or an eligible elementary or secondary school. Hr block tax returns Eligible postsecondary school. Hr block tax returns   This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Hr block tax returns S. Hr block tax returns Department of Education. Hr block tax returns It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Hr block tax returns The educational institution should be able to tell you if it is an eligible educational institution. Hr block tax returns   Certain educational institutions located outside the United States also participate in the U. Hr block tax returns S. Hr block tax returns Department of Education's Federal Student Aid (FSA) programs. Hr block tax returns Eligible elementary or secondary school. Hr block tax returns   This is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Hr block tax returns Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. Hr block tax returns As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time. Hr block tax returns The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school. Hr block tax returns Tuition and fees. Hr block tax returns Books, supplies, and equipment. Hr block tax returns Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school. Hr block tax returns Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). Hr block tax returns The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Hr block tax returns The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Hr block tax returns The actual amount charged if the student is residing in housing owned or operated by the school. Hr block tax returns Half-time student. Hr block tax returns   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Hr block tax returns Qualified Elementary and Secondary Education Expenses These are expenses related to enrollment or attendance at an eligible elementary or secondary school. Hr block tax returns As shown in the following list, to be qualified, some of the expenses must be required or provided by the school. Hr block tax returns There are special rules for computer-related expenses. Hr block tax returns The following expenses must be incurred by a designated beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school. Hr block tax returns Tuition and fees. Hr block tax returns Books, supplies, and equipment. Hr block tax returns Academic tutoring. Hr block tax returns Special needs services for a special needs beneficiary. Hr block tax returns The following expenses must be required or provided by an eligible elementary or secondary school in connection with attendance or enrollment at the school. Hr block tax returns Room and board. Hr block tax returns Uniforms. Hr block tax returns Transportation. Hr block tax returns Supplementary items and services (including extended day programs). Hr block tax returns The purchase of computer technology, equipment, or Internet access and related services is a qualified elementary and secondary education expense if it is to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in elementary or secondary school. Hr block tax returns (This does not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. Hr block tax returns ) Contributions Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual's MAGI (defined later under Contribution Limits ) for the year is less than $110,000. Hr block tax returns For individuals filing joint returns, that amount is $220,000. Hr block tax returns Organizations, such as corporations and trusts, can also contribute to Coverdell ESAs. Hr block tax returns There is no requirement that an organization's income be below a certain level. Hr block tax returns Contributions must meet all of the following requirements. Hr block tax returns They must be in cash. Hr block tax returns They cannot be made after the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Hr block tax returns They must be made by the due date of the contributor's tax return (not including extensions). Hr block tax returns Contributions can be made to one or several Coverdell ESAs for the same designated beneficiary provided that the total contributions are not more than the contribution limits (defined later) for a year. Hr block tax returns Contributions can be made, without penalty, to both a Coverdell ESA and a QTP in the same year for the same beneficiary. Hr block tax returns Table 7-2 summarizes many of the features of contributing to a Coverdell ESA. Hr block tax returns When contributions considered made. Hr block tax returns   Contributions made to a Coverdell ESA for the preceding tax year are considered to have been made on the last day of the preceding year. Hr block tax returns They must be made by the due date (not including extensions) for filing your return for the preceding year. Hr block tax returns   For example, if you make a contribution to a Coverdell ESA in February 2014, and you designate it as a contribution for 2013, you are considered to have made that contribution on December 31, 2013. Hr block tax returns Contribution Limits There are two yearly limits: One on the total amount that can be contributed for each designated beneficiary in any year, and One on the amount that any individual can contribute for any one designated beneficiary for a year. Hr block tax returns Limit for each designated beneficiary. Hr block tax returns   For 2013, the total of all contributions to all Coverdell ESAs set up for the benefit of any one designated beneficiary cannot be more than $2,000. Hr block tax returns This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources. Hr block tax returns Rollovers are discussed under Rollovers and Other Transfers , later. Hr block tax returns Example. Hr block tax returns When Maria Luna was born in 2012, three separate Coverdell ESAs were set up for her, one by her parents, one by her grandfather, and one by her aunt. Hr block tax returns In 2013, the total of all contributions to Maria's three Coverdell ESAs cannot be more than $2,000. Hr block tax returns For example, if her grandfather contributed $2,000 to one of her Coverdell ESAs, no one else could contribute to any of her three accounts. Hr block tax returns Or, if her parents contributed $1,000 and her aunt $600, her grandfather or someone else could contribute no more than $400. Hr block tax returns These contributions could be put into any of Maria's Coverdell ESA accounts. Hr block tax returns Limit for each contributor. Hr block tax returns   Generally, you can contribute up to $2,000 for each designated beneficiary for 2013. Hr block tax returns This is the most you can contribute for the benefit of any one beneficiary for the year, regardless of the number of Coverdell ESAs set up for the beneficiary. Hr block tax returns Example. Hr block tax returns The facts are the same as in the previous example except that Maria Luna's older brother, Edgar, also has a Coverdell ESA. Hr block tax returns If their grandfather contributed $2,000 to Maria's Coverdell ESA in 2013, he could also contribute $2,000 to Edgar's Coverdell ESA. Hr block tax returns Reduced limit. Hr block tax returns   Your contribution limit may be reduced. Hr block tax returns If your MAGI (defined on this page) is between $95,000 and $110,000 (between $190,000 and $220,000 if filing a joint return), the $2,000 limit for each designated beneficiary is gradually reduced (see Figuring the limit , later). Hr block tax returns If your MAGI is $110,000 or more ($220,000 or more if filing a joint return), you cannot contribute to anyone's Coverdell ESA. Hr block tax returns Table 7-2. Hr block tax returns Coverdell ESA Contributions at a Glance Do not rely on this table alone. Hr block tax returns It provides only general highlights. Hr block tax returns See the text for more complete explanations. Hr block tax returns Question Answer Are contributions deductible? No. Hr block tax returns What is the annual contribution limit per designated beneficiary? $2,000 for each designated beneficiary. Hr block tax returns What if more than one Coverdell ESA has been opened for the same designated beneficiary? The annual contribution limit is $2,000 for each beneficiary, no matter how many Coverdell ESAs are set up for that beneficiary. Hr block tax returns What if more than one individual makes contributions for the same designated beneficiary? The annual contribution limit is $2,000 per beneficiary, no matter how many individuals contribute. Hr block tax returns Can contributions other than cash be made to a Coverdell ESA? No. Hr block tax returns When must contributions stop? No contributions can be made to a beneficiary's Coverdell ESA after he or she reaches age 18, unless the beneficiary is a special needs beneficiary. Hr block tax returns Modified adjusted gross income (MAGI). Hr block tax returns   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Hr block tax returns MAGI when using Form 1040A. Hr block tax returns   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Hr block tax returns MAGI when using Form 1040. Hr block tax returns   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Hr block tax returns MAGI when using Form 1040NR. Hr block tax returns   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form. Hr block tax returns MAGI when using Form 1040NR-EZ. Hr block tax returns   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form. Hr block tax returns   If you have any of these adjustments, you can use Worksheet 7-1. Hr block tax returns MAGI for a Coverdell ESA , later, to figure your MAGI for Form 1040. Hr block tax returns Worksheet 7-1. Hr block tax returns MAGI for a Coverdell ESA 1. Hr block tax returns Enter your adjusted gross income  (Form 1040, line 38)   1. Hr block tax returns   2. Hr block tax returns Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Hr block tax returns       3. Hr block tax returns Enter your foreign housing deduction (Form 2555, line 50)   3. Hr block tax returns         4. Hr block tax returns Enter the amount of income from Puerto Rico you are excluding   4. Hr block tax returns       5. Hr block tax returns Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Hr block tax returns       6. Hr block tax returns Add lines 2, 3, 4, and 5   6. Hr block tax returns   7. Hr block tax returns Add lines 1 and 6. Hr block tax returns This is your  modified adjusted gross income   7. Hr block tax returns   Figuring the limit. Hr block tax returns    To figure the limit on the amount you can contribute for each designated beneficiary, multiply $2,000 by a fraction. Hr block tax returns The numerator (top number) is your MAGI minus $95,000 ($190,000 if filing a joint return). Hr block tax returns The denominator (bottom number) is $15,000 ($30,000 if filing a joint return). Hr block tax returns Subtract the result from $2,000. Hr block tax returns This is the amount you can contribute for each beneficiary. Hr block tax returns You can use Worksheet 7-2. Hr block tax returns Coverdell ESA Contribution Limit to figure the limit on contributions. Hr block tax returns    Worksheet 7-2. Hr block tax returns Coverdell ESA Contribution Limit 1. Hr block tax returns Maximum contribution   1. Hr block tax returns $2,000 2. Hr block tax returns Enter your modified adjusted gross income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. Hr block tax returns   3. Hr block tax returns Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Hr block tax returns   4. Hr block tax returns Subtract line 3 from line 2. Hr block tax returns If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Hr block tax returns   5. Hr block tax returns Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Hr block tax returns     Note. Hr block tax returns If the amount on line 4 is greater than or equal to the amount on line 5, stop here. Hr block tax returns You are not allowed to contribute to a Coverdell ESA for 2013. Hr block tax returns       6. Hr block tax returns Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Hr block tax returns . Hr block tax returns 7. Hr block tax returns Multiply line 1 by line 6   7. Hr block tax returns   8. Hr block tax returns Subtract line 7 from line 1   8. Hr block tax returns   Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Hr block tax returns Example. Hr block tax returns Paul, who is single, had a MAGI of $96,500 for 2013. Hr block tax returns Paul can contribute up to $1,800 in 2013 for each beneficiary, as shown in the illustrated Worksheet 7-2, Coverdell ESA Contribution Limit–Illustrated. Hr block tax returns Worksheet 7-2. Hr block tax returns Coverdell ESA Contribution Limit—Illustrated 1. Hr block tax returns Maximum contribution   1. Hr block tax returns $2,000 2. Hr block tax returns Enter your modified adjusted gross  income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. Hr block tax returns 96,500 3. Hr block tax returns Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Hr block tax returns 95,000 4. Hr block tax returns Subtract line 3 from line 2. Hr block tax returns If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Hr block tax returns 1,500 5. Hr block tax returns Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Hr block tax returns 15,000   Note. Hr block tax returns If the amount on line 4 is greater than or equal to the amount on line 5,  stop here. Hr block tax returns You are not allowed to  contribute to a Coverdell ESA for 2013. Hr block tax returns       6. Hr block tax returns Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Hr block tax returns . Hr block tax returns 100 7. Hr block tax returns Multiply line 1 by line 6   7. Hr block tax returns 200 8. Hr block tax returns Subtract line 7 from line 1   8. Hr block tax returns 1,800 Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Hr block tax returns Additional Tax on Excess Contributions The beneficiary must pay a 6% excise tax each year on excess contributions that are in a Coverdell ESA at the end of the year. Hr block tax returns Excess contributions are the total of the following two amounts. Hr block tax returns Contributions to any designated beneficiary's Coverdell ESA for the year that are more than $2,000 (or, if less, the total of each contributor's limit for the year, as discussed earlier). Hr block tax returns Excess contributions for the preceding year, reduced by the total of the following two amounts: Distributions (other than those rolled over as discussed later) during the year, and The contribution limit for the current year minus the amount contributed for the current year. Hr block tax returns Exceptions. Hr block tax returns   The excise tax does not apply if excess contributions made during 2013 (and any earnings on them) are distributed before the first day of the sixth month of the following tax year (June 1, 2014, for a calendar year taxpayer). Hr block tax returns   However, you must include the distributed earnings in gross income for the year in which the excess contribution was made. Hr block tax returns You should receive Form 1099-Q, Payments From Qualified Education Programs, from each institution from which excess contributions were distributed. Hr block tax returns Box 2 of that form will show the amount of earnings on your excess contributions. Hr block tax returns Code “2” or “3” entered in the blank box below boxes 5 and 6 indicate the year in which the earnings are taxable. Hr block tax returns See Instructions for Recipient on the back of copy B of your Form 1099-Q. Hr block tax returns Enter the amount of earnings on line 21 of Form 1040 (or Form 1040NR) for the applicable tax year. Hr block tax returns For more information, see Taxable Distributions , later. Hr block tax returns   The excise tax does not apply to any rollover contribution. Hr block tax returns Note. Hr block tax returns Contributions made in one year for the preceding tax year are considered to have been made on the last day of the preceding year. Hr block tax returns Example. Hr block tax returns In 2012, Greta's parents and grandparents contributed a total of $2,300 to Greta's Coverdell ESA— an excess contribution of $300. Hr block tax returns Because Greta did not withdraw the excess before June 1, 2013, she had to pay an additional tax of $18 (6% × $300) when she filed her 2012 tax return. Hr block tax returns In 2013, excess contributions of $500 were made to Greta's account, however, she withdrew $250 from that account to use for qualified education expenses. Hr block tax returns Using the steps shown earlier under Additional Tax on Excess Contributions , Greta figures the excess contribution in her account at the end of 2013 as follows. Hr block tax returns (1)   $500 excess contributions made in 2013     + (2)   $300 excess contributions in ESA at end of 2012     − (2a)   $250 distribution during 2013         $550 excess at end of 2013   × 6%=$33           If Greta limits 2014 contributions to $1,450 ($2,000 maximum allowed − $550 excess contributions from 2013), she will not owe any additional tax in 2014 for excess contributions. Hr block tax returns Figuring and reporting the additional tax. Hr block tax returns   You figure this excise tax in Part V of Form 5329. Hr block tax returns Report the additional tax on Form 1040, line 58 (or Form 1040NR, line 56). Hr block tax returns Rollovers and Other Transfers Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. Hr block tax returns The beneficiary's interest can be transferred to a spouse or former spouse because of divorce. Hr block tax returns Rollovers Any amount distributed from a Coverdell ESA is not taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary's family (including the beneficiary's spouse) who is under age 30. Hr block tax returns This age limitation does not apply if the new beneficiary is a special needs beneficiary. Hr block tax returns An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution. Hr block tax returns Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. Hr block tax returns These are not taxable distributions. Hr block tax returns Members of the beneficiary's family. Hr block tax returns   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. Hr block tax returns Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Hr block tax returns Brother, sister, stepbrother, or stepsister. Hr block tax returns Father or mother or ancestor of either. Hr block tax returns Stepfather or stepmother. Hr block tax returns Son or daughter of a brother or sister. Hr block tax returns Brother or sister of father or mother. Hr block tax returns Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Hr block tax returns The spouse of any individual listed above. Hr block tax returns First cousin. Hr block tax returns Example. Hr block tax returns When Aaron graduated from college last year he had $5,000 left in his Coverdell ESA. Hr block tax returns He wanted to give this money to his younger sister, who was still in high school. Hr block tax returns In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his sister's Coverdell ESA within 60 days of the distribution. Hr block tax returns Only one rollover per Coverdell ESA is allowed during the 12-month period ending on the date of the payment or distribution. Hr block tax returns This rule does not apply to the rollover of a military death gratuity or payment from Servicemembers' Group Life Insurance (SGLI). Hr block tax returns Military death gratuity. Hr block tax returns   If you received a military death gratuity or a payment from Servicemembers' Group Life Insurance (SGLI), you may roll over all or part of the amount received to one or more Coverdell ESAs for the benefit of members of the beneficiary's family (see Members of the beneficiary's family , earlier). Hr block tax returns Such payments are made to an eligible survivor upon the death of a member of the armed forces. Hr block tax returns The contribution to a Coverdell ESA from survivor benefits received cannot be made later than 1 year after the date on which you receive the gratuity or SGLI payment. Hr block tax returns   This rollover contribution is not subject to (but is in addition to) the contribution limits discussed earlier under Contribution Limits . Hr block tax returns The amount you roll over cannot exceed the total survivor benefits you received, reduced by contributions from these benefits to a Roth IRA or other Coverdell ESAs. Hr block tax returns   The amount contributed from the survivor benefits is treated as part of your basis (cost) in the Coverdell ESA, and will not be taxed when distributed. Hr block tax returns See Distributions , later. Hr block tax returns The limit of one rollover per Coverdell ESA during a 12-month period does not apply to a military death gratuity or SGLI payment. Hr block tax returns Changing the Designated Beneficiary The designated beneficiary can be changed. Hr block tax returns See Members of the beneficiary's family , earlier. Hr block tax returns There are no tax consequences if, at the time of the change, the new beneficiary is under age 30 or is a special needs beneficiary. Hr block tax returns Example. Hr block tax returns Assume the same situation for Aaron as in the last example (see Rollovers , earlier). Hr block tax returns Instead of closing his Coverdell ESA and paying the distribution into his sister's Coverdell ESA, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his sister. Hr block tax returns Transfer Because of Divorce If a spouse or former spouse receives a Coverdell ESA under a divorce or separation instrument, it is not a taxable transfer. Hr block tax returns After the transfer, the spouse or former spouse treats the Coverdell ESA as his or her own. Hr block tax returns Example. Hr block tax returns In their divorce settlement, Peg received her ex-husband's Coverdell ESA. Hr block tax returns In this process, the account was transferred into her name. Hr block tax returns Peg now treats the funds in this Coverdell ESA as if she were the original owner. Hr block tax returns Distributions The designated beneficiary of a Coverdell ESA can take a distribution at any time. Hr block tax returns Whether the distributions are tax free depends, in part, on whether the distributions are equal to or less than the amount of Adjusted qualified education expenses (defined later) that the beneficiary has in the same tax year. Hr block tax returns See Table 7-3, Coverdell ESA Distributions at a Glance, for highlights. Hr block tax returns Table 7-3. Hr block tax returns Coverdell ESA Distributions at a Glance Do not rely on this table alone. Hr block tax returns It provides only general highlights. Hr block tax returns See the text for definitions of terms in bold type and for more complete explanations. Hr block tax returns Question Answer Is a distribution from a Coverdell ESA to pay for a designated beneficiary's qualified education expenses tax free? Generally, yes, to the extent the amount of the distribution is not more than the designated beneficiary's adjusted qualified education expenses. Hr block tax returns After the designated beneficiary completes his or her education at an eligible educational institution, can amounts remaining in the Coverdell ESA be distributed? Yes. Hr block tax returns Amounts must be distributed when the designated beneficiary reaches age 30, unless he or she is a special needs beneficiary. Hr block tax returns Also, certain transfers to members of the beneficiary's family are permitted. Hr block tax returns Does the designated beneficiary need to be enrolled for a minimum number of courses to take a tax-free distribution? No. Hr block tax returns Adjusted qualified education expenses. Hr block tax returns   To determine if total distributions for the year are more than the amount of qualified education expenses, reduce total qualified education expenses by any tax-free educational assistance. Hr block tax returns Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Hr block tax returns The amount you get by subtracting tax-free educational assistance from your total qualified education expenses is your adjusted qualified education expenses. Hr block tax returns Tax-Free Distributions Generally, distributions are tax free if they are not more than the beneficiary's adjusted qualified education expenses for the year. Hr block tax returns Do not report tax-free distributions (including qualifying rollovers) on your tax return. Hr block tax returns Taxable Distributions A portion of the distributions is generally taxable to the beneficiary if the total distributions are more than the beneficiary's adjusted qualified education expenses for the year. Hr block tax returns Excess distribution. Hr block tax returns   This is the part of the total distribution that is more than the beneficiary's adjusted qualified education expenses for the year. Hr block tax returns Earnings and basis. Hr block tax returns   You will receive a Form 1099-Q for each of the Coverdell ESAs from which money was distributed in 2013. Hr block tax returns The amount of your gross distribution will be shown in box 1. Hr block tax returns For 2013, instead of dividing the gross distribution between your earnings (box 2) and your basis (already-taxed amount) (box 3), the payer or trustee may report the fair market value (account balance) of the Coverdell ESA as of December 31, 2013. Hr block tax returns This will be shown in the blank box below boxes 5 and 6. Hr block tax returns   The amount contributed from survivor benefits (see Military death gratuity , earlier) is treated as part of your basis and will not be taxed when distributed. Hr block tax returns Figuring the Taxable Portion of a Distribution The taxable portion is the amount of the excess distribution that represents earnings that have accumulated tax free in the account. Hr block tax returns Figure the taxable portion for 2013 as shown in the following steps. Hr block tax returns Multiply the total amount distributed by a fraction. Hr block tax returns The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the value (balance) of the account at the end of 2013 plus the amount distributed during 2013. Hr block tax returns Subtract the amount figured in (1) from the total amount distributed during 2013. Hr block tax returns The result is the amount of earnings included in the distribution(s). Hr block tax returns Multiply the amount of earnings figured in (2) by a fraction. Hr block tax returns The numerator is the adjusted qualified education expenses paid during 2013 and the denominator is the total amount distributed during 2013. Hr block tax returns Subtract the amount figured in (3) from the amount figured in (2). Hr block tax returns The result is the amount the beneficiary must include in income. Hr block tax returns The taxable amount must be reported on Form 1040 or Form 1040NR, line 21. Hr block tax returns Example. Hr block tax returns You received an $850 distribution from your Coverdell ESA, to which $1,500 had been contributed before 2013. Hr block tax returns There were no contributions in 2013. Hr block tax returns This is your first distribution from the account, so your basis in the account on December 31, 2012, was $1,500. Hr block tax returns The value (balance) of your account on December 31, 2013, was $950. Hr block tax returns You had $700 of adjusted qualified education expenses (AQEE) for the year. Hr block tax returns Using the steps in Figuring the Taxable Portion of a Distribution , earlier, figure the taxable portion of your distribution as follows. Hr block tax returns   1. Hr block tax returns $850 (distribution) × $1,500 basis + $0 contributions  $950 value + $850 distribution       =$708 (basis portion of distribution)     2. Hr block tax returns $850 (distribution)−$708 (basis portion of distribution)     =$142 (earnings included in distribution)   3. Hr block tax returns $142 (earnings) × $700 AQEE  $850 distribution           =$117 (tax-free earnings)     4. Hr block tax returns $142 (earnings)−$117 (tax-free earnings)=$25 (taxable earnings)                 You must include $25 in income as distributed earnings not used for qualified education expenses. Hr block tax returns Report this amount on Form 1040, line 21, listing the type and amount of income on the dotted line. Hr block tax returns Worksheet 7-3, Coverdell ESA–Taxable Distributions and Basis , at the end of this chapter, can help you figure your adjusted qualified education expenses, how much of your distribution must be included in income, and the remaining basis in your Coverdell ESA(s). Hr block tax returns Coordination With American Opportunity and Lifetime Learning Credits The American opportunity or lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits. Hr block tax returns This means the beneficiary must reduce qualified higher education expenses by tax-free educational assistance, and then further reduce them by any expenses taken into account in determining an American opportunity or lifetime learning credit. Hr block tax returns Example. Hr block tax returns Derek Green had $5,800 of qualified higher education expenses for 2013, his first year in college. Hr block tax returns He paid his college expenses from the following sources. Hr block tax returns     Partial tuition scholarship (tax free) $1,500     Coverdell ESA distribution 1,000     Gift from parents 2,100     Earnings from part-time job 1,200           Of his $5,800 of qualified higher education expenses, $4,000 was tuition and related expenses that also qualified for an American opportunity credit. Hr block tax returns Derek's parents claimed a $2,500 American opportunity credit (based on $4,000 expenses) on their tax return. Hr block tax returns Before Derek can determine the taxable portion of his Coverdell ESA distribution, he must reduce his total qualified higher education expenses. Hr block tax returns     Total qualified higher education expenses $5,800     Minus: Tax-free educational assistance −1,500     Minus: Expenses taken into account in  figuring American opportunity credit − 4,000     Equals: Adjusted qualified higher education  expenses (AQHEE) $ 300           Since the adjusted qualified higher education expenses ($300) are less than the Coverdell ESA distribution ($1,000), part of the distribution will be taxable. Hr block tax returns The balance in Derek's account was $1,800 on December 31, 2013. Hr block tax returns Prior to 2013, $2,100 had been contributed to this account. Hr block tax returns Contributions for 2013 totaled $400. Hr block tax returns Using the four steps outlined earlier, Derek figures the taxable portion of his distribution as shown below. Hr block tax returns   1. Hr block tax returns $1,000 (distribution) × $2,100 basis + $400 contributions  $1,800 value + $1,000 distribution           =$893 (basis portion of distribution)     2. Hr block tax returns $1,000 (distribution)−$893 (basis portion of distribution)     = $107 (earnings included in distribution)   3. Hr block tax returns $107 (earnings) × $300 AQHEE  $1,000 distribution       =$32 (tax-free earnings)     4. Hr block tax returns $107 (earnings)−$32 (tax-free earnings)=$75 (taxable earnings)                 Derek must include $75 in income (Form 1040, line 21). Hr block tax returns This is the amount of distributed earnings not used for adjusted qualified higher education expenses. Hr block tax returns Coordination With Qualified Tuition Program (QTP) Distributions If a designated beneficiary receives distributions from both a Coverdell ESA and a QTP in the same year, and the total distribution is more than the beneficiary's adjusted qualified higher education expenses, those expenses must be allocated between the distribution from the Coverdell ESA and the distribution from the QTP before figuring how much of each distribution is taxable. Hr block tax returns The following two examples illustrate possible allocations. Hr block tax returns Example 1. Hr block tax returns In 2013, Beatrice graduated from high school and began her first semester of college. Hr block tax returns That year, she had $1,000 of qualified elementary and secondary education expenses (QESEE) for high school and $3,000 of qualified higher education expenses (QHEE) for college. Hr block tax returns To pay these expenses, Beatrice withdrew $800 from her Coverdell ESA and $4,200 from her QTP. Hr block tax returns No one claimed Beatrice as a dependent, nor was she eligible for an education credit. Hr block tax returns She did not receive any tax-free educational assistance in 2013. Hr block tax returns Beatrice must allocate her total qualified education expenses between the two distributions. Hr block tax returns Beatrice knows that tax-free treatment will be available if she applies her $800 Coverdell ESA distribution toward her $1,000 of qualified education expenses for high school. Hr block tax returns The qualified expenses are greater than the distribution, making the $800 Coverdell ESA distribution tax free. Hr block tax returns Next, Beatrice matches her $4,200 QTP distribution to her $3,000 of QHEE, and finds she has an excess QTP distribution of $1,200 ($4,200 QTP − $3,000 QHEE). Hr block tax returns She cannot use the extra $200 of high school expenses (from (1) above) against the QTP distribution because those expenses do not qualify a QTP for tax-free treatment. Hr block tax returns Finally, Beatrice figures the taxable and tax-free portions of her QTP distribution based on her $3,000 of QHEE. Hr block tax returns (See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program for more information. Hr block tax returns ) Example 2. Hr block tax returns Assume the same facts as in Example 1 , except that Beatrice withdrew $1,800 from her Coverdell ESA and $3,200 from her QTP. Hr block tax returns In this case, she allocates her qualified education expenses as follows. Hr block tax returns Using the same reasoning as in Example 1, Beatrice matches $1,000 of her Coverdell ESA distribution to her $1,000 of QESEE—she has $800 of her distribution remaining. Hr block tax returns Because higher education expenses can also qualify a Coverdell ESA distribution for tax-free treatment, Beatrice allocates her $3,000 of QHEE between the remaining $800 Coverdell ESA and the $3,200 QTP distributions ($4,000 total). Hr block tax returns   $3,000 QHEE × $800 ESA distribution  $4,000 total distribution = $600 QHEE (ESA)     $3,000 QHEE × $3,200 QTP distribution  $4,000 total distribution = $2,400 QHEE (QTP)   Beatrice then figures the taxable part of her: Coverdell ESA distribution based on qualified education expenses of $1,600 ($1,000 QESEE + $600 QHEE). Hr block tax returns See Figuring the Taxable Portion of a Distribution , earlier, in this chapter. Hr block tax returns   QTP distribution based on her $2,400 of QHEE (see Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program). Hr block tax returns The above examples show two types of allocation between distributions from a Coverdell ESA and a QTP. Hr block tax returns However, you do not have to allocate your expenses in the same way. Hr block tax returns You can use any reasonable method. Hr block tax returns Losses on Coverdell ESA Investments If you have a loss on your investment in a Coverdell ESA, you may be able to deduct the loss on your income tax return. Hr block tax returns You can deduct the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Hr block tax returns Your basis is the total amount of contributions to that Coverdell ESA. Hr block tax returns You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. Hr block tax returns If you have distributions from more than one Coverdell ESA account during a year, you must combine the information (amount of distribution, basis, etc. Hr block tax returns ) from all such accounts in order to determine your taxable earnings for the year. Hr block tax returns By doing this, the loss from one ESA account reduces the distributed earnings (if any) from any other ESA account. Hr block tax returns For examples of the calculation, see Losses on QTP Investments in chapter 8, Qualified Tuition Program. Hr block tax returns Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Hr block tax returns Exceptions. Hr block tax returns   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. Hr block tax returns Made because the designated beneficiary is disabled. Hr block tax returns A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. Hr block tax returns A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. Hr block tax returns Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Hr block tax returns Made on account of the attendance of the designated beneficiary at a U. Hr block tax returns S. Hr block tax returns military academy (such as the USMA at West Point). Hr block tax returns This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. Hr block tax returns S. Hr block tax returns Code) attributable to such attendance. Hr block tax returns Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier). Hr block tax returns Made before June 1, 2014, of an excess 2013 contribution (and any earnings on it). Hr block tax returns The distributed earnings must be included in gross income for the year in which the excess contribution was made. Hr block tax returns Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Hr block tax returns Figuring the additional tax. Hr block tax returns    Use Part II of Form 5329, to figure any additional tax. Hr block tax returns Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Hr block tax returns When Assets Must Be Distributed Any assets remaining in a Coverdell ESA must be distributed when either one of the following two events occurs. Hr block tax returns The designated beneficiary reaches age 30. Hr block tax returns In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. Hr block tax returns However, this rule does not apply if the beneficiary is a special needs beneficiary. Hr block tax returns The designated beneficiary dies before reaching age 30. Hr block tax returns In this case, the remaining assets must generally be distributed within 30 days after the date of death. Hr block tax returns Exception for Transfer to Surviving Spouse or Family Member If a Coverdell ESA is transferred to a surviving spouse or other family member as the result of the death of the designated beneficiary, the Coverdell ESA retains its status. Hr block tax returns (“Family member” was defined earlier under Rollovers . Hr block tax returns ) This means the spouse or other family member can treat the Coverdell ESA as his or her own and does not need to withdraw the assets until he or she reaches age 30. Hr block tax returns This age limitation does not apply if the new beneficiary is a special needs beneficiary. Hr block tax returns There are no tax consequences as a result of the transfer. Hr block tax returns How To Figure the Taxable Earnings When a total distribution is made because the designated beneficiary either reached age 30 or died, the earnings that accumulated tax free in the account must be included in taxable income. Hr block tax returns You determine these earnings as shown in the following two steps. Hr block tax returns Multiply the amount distributed by a fraction. Hr block tax returns The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the balance in the account at the end of 2013 plus the amount distributed during 2013. Hr block tax returns Subtract the amount figured in (1) from the total amount distributed during 2013. Hr block tax returns The result is the amount of earnings included in the distribution. Hr block tax returns For an example, see steps (1) and (2) of the Example under Figuring the Taxable Portion of a Distribution, earlier. Hr block tax returns The beneficiary or other person receiving the distribution must report this amount on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line. Hr block tax returns Worksheet 7-3 Instructions. Hr block tax returns Coverdell ESA—Taxable Distributions and Basis Line G. Hr block tax returns Enter the total distributions received from all Coverdell ESAs during 2013. Hr block tax returns Do not include amounts rolled over to another ESA within 60 days (only one rollover is allowed during any 12-month period). Hr block tax returns Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for which the contributions were made. Hr block tax returns Line 2. Hr block tax returns Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2012, is the total of:   •All contributions to this Coverdell ESA before 2013 •Minus the tax-free portion of any distributions from this Coverdell ESA before 2013. Hr block tax returns   If your last distribution from this Coverdell ESA was before 2013, you must start with the basis in your account as of the end of the last year in which you took a distribution. Hr block tax returns For years before 2002, you can find that amount on the last line of the worksheet in the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. Hr block tax returns For years after 2001, you can find that amount by using the ending basis from the worksheet in Publication 970 for that year. Hr block tax returns You can determine your basis in this Coverdell ESA as of December 31, 2012, by adding to the basis as of the end of that year any contributions made to that account after the year of the distribution and before 2013. Hr block tax returns Line 4. Hr block tax returns Enter the total distributions received from this Coverdell ESA in 2013. Hr block tax returns Do not include amounts rolled over to another Coverdell ESA within 60 days (only one rollover is allowed during any 12-month period). Hr block tax returns   Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year of the contributions. Hr block tax returns Line 7. Hr block tax returns Enter the total value of this Coverdell ESA as of December 31, 2013, plus any outstanding rollovers contributed to the account after 2012, but before the end of the 60-day rollover period. Hr block tax returns A statement should be sent to you by January 31, 2014, for this Coverdell ESA showing the value on December 31, 2013. Hr block tax returns   A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. Hr block tax returns An outstanding rollover is any amount withdrawn within 60 days before the end of 2013 (November 2 through December 31) that was rolled over after December 31, 2013, but within the 60-day rollover period. Hr block tax returns Worksheet 7-3. Hr block tax returns Coverdell ESA—Taxable Distributions and Basis How to complete this worksheet. Hr block tax returns • • • Complete Part I, lines A through H, on only one worksheet. Hr block tax returns  Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs. Hr block tax returns  Complete Part III, the Summary (line 16), on only one worksheet. Hr block tax returns Part I. Hr block tax returns Qualified Education Expenses (Complete for total expenses)       A. Hr block tax returns Enter your total qualified education expenses for 2013   A. Hr block tax returns   B. Hr block tax returns Enter those qualified education expenses paid for with tax-free educational assistance (for example, tax-free scholarships, veterans' educational benefits, Pell grants, employer-provided educational assistance)   B. Hr block tax returns         C. Hr block tax returns Enter those qualified higher education expenses deducted on Schedule C or C-EZ (Form 1040). Hr block tax returns Schedule F (Form 1040), or as a miscellaneous itemized deduction on Schedule A (Form 1040 or 1040NR)   C. Hr block tax returns         D. Hr block tax returns Enter those qualified higher education expenses on which  an American opportunity or lifetime learning credit was based   D. Hr block tax returns         E. Hr block tax returns Add lines B, C, and D   D. Hr block tax returns   F. Hr block tax returns Subtract line E from line A. Hr block tax returns This is your adjusted qualified education expense for 2013   E. Hr block tax returns   G. Hr block tax returns Enter your total distributions from all Coverdell ESAs during 2013. Hr block tax returns Do not include rollovers  or the return of excess contributions (see instructions)   F. Hr block tax returns   H. Hr block tax returns Divide line F by line G. Hr block tax returns Enter the result as a decimal (rounded to at least 3 places). Hr block tax returns If the  result is 1. Hr block tax returns 000 or more, enter 1. Hr block tax returns 000   G. Hr block tax returns . Hr block tax returns Part II. Hr block tax returns Taxable Distributions and Basis (Complete separately for each account) 1. Hr block tax returns Enter the amount contributed to this Coverdell ESA for 2013, including contributions made for 2013 from January 1, 2014, through April 15, 2014. Hr block tax returns Do not include rollovers or the return of excess contributions   1. Hr block tax returns   2. Hr block tax returns Enter your basis in this Coverdell ESA as of December 31, 2012 (see instructions)   2. Hr block tax returns   3. Hr block tax returns Add lines 1 and 2   3. Hr block tax returns   4. Hr block tax returns Enter the total distributions from this Coverdell ESA during 2013. Hr block tax returns Do not include rollovers  or the return of excess contributions (see instructions)   4. Hr block tax returns   5. Hr block tax returns Multiply line 4 by line H. Hr block tax returns This is the amount of adjusted qualified  education expense attributable to this Coverdell ESA   5. Hr block tax returns         6. Hr block tax returns Subtract line 5 from line 4   6. Hr block tax returns         7. Hr block tax returns Enter the total value of this Coverdell ESA as of December 31, 2013,  plus any outstanding rollovers (see instructions)   7. Hr block tax returns         8. Hr block tax returns Add lines 4 and 7   8. Hr block tax returns         9. Hr block tax returns Divide line 3 by line 8. Hr block tax returns Enter the result as a decimal (rounded to  at least 3 places). Hr block tax returns If the result is 1. Hr block tax returns 000 or more, enter 1. Hr block tax returns 000   9. Hr block tax returns . Hr block tax returns       10. Hr block tax returns Multiply line 4 by line 9. Hr block tax returns This is the amount of basis allocated to your  distributions, and is tax free   10. Hr block tax returns     Note. Hr block tax returns If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15. Hr block tax returns       11. Hr block tax returns Subtract line 10 from line 4   11. Hr block tax returns   12. Hr block tax returns Divide line 5 by line 4. Hr block tax returns Enter the result as a decimal (rounded to  at least 3 places). Hr block tax returns If the result is 1. Hr block tax returns 000 or more, enter 1. Hr block tax returns 000   12. Hr block tax returns . Hr block tax returns       13. Hr block tax returns Multiply line 11 by line 12. Hr block tax returns This is the amount of qualified education  expenses allocated to your distributions, and is tax free   13. Hr block tax returns   14. Hr block tax returns Subtract line 13 from line 11. Hr block tax returns This is the portion of the distributions from this  Coverdell ESA in 2013 that you must include in income   14. Hr block tax returns   15. Hr block tax returns Subtract line 10 from line 3. Hr block tax returns This is your basis in this Coverdell ESA as of December 31, 2013   15. Hr block tax returns   Part III. Hr block tax returns Summary (Complete only once)       16. Hr block tax returns Taxable amount. Hr block tax returns Add together all amounts on line 14 for all your Coverdell ESAs. Hr block tax returns Enter here  and include on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line   16. Hr block tax returns   Prev  Up  Next   Home   More Online Publications
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Know Your Rights When Shopping for Credit

Like everything else you buy, it pays to comparison shop for credit. Check financial and banking websites to find up-to-date interest rate reports on mortgages, auto loans, credit cards, home equity loans, and other banking products. The Equal Credit Opportunity Act protects you when dealing with anyone who regularly offers credit, including banks, finance companies, stores, credit card companies and credit unions. When you apply for credit, a creditor may not:

  • Ask about or consider your sex, race, national origin or religion.
  • Ask about your marital status or your spouse, unless you are applying for a joint account or relying on your spouse's income, or you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin)
  • Ask about your plans to have or raise children
  • Refuse to consider public assistance income or regularly received alimony or child support
  • Refuse to consider income because of your sex or marital status or because it is from part-time work or retirement benefits

You have the right to:

  • Have credit in your birth name, your first name and your spouse/ partner's last name, or your first name and a combined last name
  • Have a co-signer other than your spouse if one is necessary
  • Keep your own accounts after you change your name or marital status or retire, unless the creditor has evidence you are unable or unwilling to pay
  • Know why a credit application was rejected-the creditor must give you the specific reasons or tell you where and how you can get them if you ask within 60 days
  • Have accounts shared with your spouse reported in both your names
  • Know how much it will cost to borrow money
  • YOU HAVE THE RIGHT TO A FREE ANNUAL CREDIT REPORT .

For additional information on credit, see Buying a Home. Other sources of information include the HUD Housing Counseling Clearinghouse (1-888-466-3487), the FTC and the National Consumer Law Center.

The Hr Block Tax Returns

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