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Students And Tax Returns

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Students And Tax Returns

Students and tax returns 6. Students and tax returns   Tuition and Fees Deduction Table of Contents IntroductionWhat is the tax benefit of the tuition and fees deduction. Students and tax returns Can You Claim the DeductionWho Can Claim the Deduction Who Cannot Claim the Deduction What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Claiming the Deduction Illustrated Example Introduction You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent(s). Students and tax returns You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. Students and tax returns The qualified expenses must be for higher education, as explained later under Qualified Education Expenses . Students and tax returns What is the tax benefit of the tuition and fees deduction. Students and tax returns   The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. Students and tax returns   This deduction is taken as an adjustment to income. Students and tax returns This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Students and tax returns This deduction may be beneficial to you if you do not qualify for the American opportunity or lifetime learning credits. Students and tax returns You can choose the education benefit that will give you the lowest tax. Students and tax returns You may want to compare the tuition and fees deduction to the education credits. Students and tax returns See chapter 2, American Opportunity Credit and chapter 3, Lifetime Learning Credit for more information on the education credits. Students and tax returns Table 6-1. Students and tax returns Tuition and Fees Deduction at a Glance summarizes the features of the tuition and fees deduction. Students and tax returns Can You Claim the Deduction The following rules will help you determine if you can claim the tuition and fees deduction. Students and tax returns Who Can Claim the Deduction Generally, you can claim the tuition and fees deduction if all three of the following requirements are met. Students and tax returns You pay qualified education expenses of higher education. Students and tax returns You pay the education expenses for an eligible student. Students and tax returns The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return. Students and tax returns The term “qualified education expenses” is defined later under Qualified Education Expenses . Students and tax returns “Eligible student” is defined later under Who Is an Eligible Student . Students and tax returns For more information on claiming the deduction for a dependent, see Who Can Claim a Dependent's Expenses , later. Students and tax returns Table 6-1. Students and tax returns Tuition and Fees Deduction at a Glance Do not rely on this table alone. Students and tax returns Refer to the text for complete details. Students and tax returns Question Answer What is the maximum benefit? You can reduce your income subject to tax by up to $4,000. Students and tax returns What is the limit on modified adjusted gross income (MAGI)? $160,000 if married filing a joint return; $80,000 if single, head of household, or qualifying widow(er). Students and tax returns Where is the deduction taken? As an adjustment to income on  Form 1040 or Form 1040A. Students and tax returns For whom must the expenses be paid? A student enrolled in an eligible educational institution who is either: •you,  •your spouse, or  •your dependent for whom you claim an exemption. Students and tax returns What tuition and fees are deductible? Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board. Students and tax returns Who Cannot Claim the Deduction You cannot claim the tuition and fees deduction if any of the following apply. Students and tax returns Your filing status is married filing separately. Students and tax returns Another person can claim an exemption for you as a dependent on his or her tax return. Students and tax returns You cannot take the deduction even if the other person does not actually claim that exemption. Students and tax returns Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return). Students and tax returns You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Students and tax returns More information on nonresident aliens can be found in Publication 519. Students and tax returns What Expenses Qualify The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Students and tax returns Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014. Students and tax returns For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 deduction. Students and tax returns Academic period. Students and tax returns   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Students and tax returns In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Students and tax returns Paid with borrowed funds. Students and tax returns   You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. Students and tax returns Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Students and tax returns Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Students and tax returns Student withdraws from class(es). Students and tax returns   You can claim a tuition and fees deduction for qualified education expenses not refunded when a student withdraws. Students and tax returns Qualified Education Expenses For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Students and tax returns Eligible educational institution. Students and tax returns   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Students and tax returns S. Students and tax returns Department of Education. Students and tax returns It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Students and tax returns The educational institution should be able to tell you if it is an eligible educational institution. Students and tax returns   Certain educational institutions located outside the United States also participate in the U. Students and tax returns S. Students and tax returns Department of Education's Federal Student Aid (FSA) programs. Students and tax returns Related expenses. Students and tax returns   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Students and tax returns Prepaid expenses. Students and tax returns   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Students and tax returns See Academic period , earlier. Students and tax returns For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Students and tax returns You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Students and tax returns In the following examples, assume that each student is an eligible student and each college or university an eligible educational institution. Students and tax returns Example 1. Students and tax returns Jackson is a sophomore in University V's degree program in dentistry. Students and tax returns This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Students and tax returns Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified education expense. Students and tax returns Example 2. Students and tax returns Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Students and tax returns The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Students and tax returns Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Students and tax returns Donna bought hers at College W's bookstore. Students and tax returns Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified education expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. Students and tax returns Example 3. Students and tax returns When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Students and tax returns This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. Students and tax returns No portion of the fee covers personal expenses. Students and tax returns Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Students and tax returns Therefore, it is a qualified expense. Students and tax returns No Double Benefit Allowed You cannot do any of the following. Students and tax returns Deduct qualified education expenses you deduct under any other provision of the law, for example, as a business expense. Students and tax returns Deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American opportunity or lifetime learning credit for that same student in the same year. Students and tax returns Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). Students and tax returns For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. Students and tax returns See Coordination With Tuition and Fees Deduction in chapter 8, Qualified Tuition Program, later. Students and tax returns Deduct qualified education expenses that have been paid with tax-free interest on U. Students and tax returns S. Students and tax returns savings bonds (Form 8815). Students and tax returns See Figuring the Tax-Free Amount in chapter 10, Education Savings Bond Program, later. Students and tax returns Deduct qualified education expenses that have been paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Students and tax returns See the following section on Adjustments to Qualified Education Expenses. Students and tax returns Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Students and tax returns The result is the amount of adjusted qualified education expenses for each student. Students and tax returns You must also reduce qualified education expenses by the other amounts referred to in No Double Benefit Allowed , earlier. Students and tax returns Tax-free educational assistance. Students and tax returns   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Students and tax returns See Academic period , earlier. Students and tax returns   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Students and tax returns This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Students and tax returns   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. Students and tax returns If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. Students and tax returns   This tax-free education 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), 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 ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Students and tax returns Generally, any scholarship or fellowship is treated as tax free. Students and tax returns However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Students and tax returns The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Students and tax returns The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Students and tax returns You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Students and tax returns For details, see Adjustments to Qualified Education Expenses in chapters 2 and 3. Students and tax returns Refunds. Students and tax returns   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Students and tax returns Some tax-free educational assistance received after 2013 may be treated as a refund. Students and tax returns See Tax-free educational assistance , earlier. Students and tax returns Refunds received in 2013. Students and tax returns   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Students and tax returns Refunds received after 2013 but before your income tax return is filed. Students and tax returns   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Students and tax returns Refunds received after 2013 and after your income tax return is filed. Students and tax returns   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Students and tax returns See Credit recapture , later. Students and tax returns Coordination with Coverdell education savings accounts and qualified tuition programs. Students and tax returns   Reduce your qualified education expenses by any qualified education expenses used to figure the exclusion from gross income of (a) interest received under an education savings bond program, or (b) any distribution from a Coverdell education savings account or qualified tuition program (QTP). Students and tax returns For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. Students and tax returns Credit recapture. Students and tax returns    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Students and tax returns You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing that amount by the amount of the refund or tax-free educational assistance. Students and tax returns You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Students and tax returns Include that amount as an additional tax for the year the refund or tax-free assistance was received. Students and tax returns Example. Students and tax returns   You paid $3,500 of qualified education expenses in December 2013, and your child began college in January 2014. Students and tax returns You claimed $3,500 as the tuition and fees deduction on your 2013 income tax return. Students and tax returns The reduction reduced your taxable income by $3,500. Students and tax returns Also, you claimed no tax credits in 2013. Students and tax returns Your child withdrew from two classes and you received a refund of $2,000 in 2014 after you filed your 2013 tax return. Students and tax returns Refigure your 2013 tuition and fees deduction using $1,500 of qualified education expense instead of the $3,500. Students and tax returns The refigured tuition and fees deduction is $1,500. Students and tax returns Do not file an amended 2013 tax return to account for this adjustment. Students and tax returns Instead, include the difference of $2,000 (but only to the extent this difference would have increased your 2013 tax) on the “Other income” line of your 2014 Form 1040. Students and tax returns You cannot file Form 1040A for 2014. Students and tax returns Amounts that do not reduce qualified education expenses. Students and tax returns   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Students and tax returns   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Students and tax returns The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Restrictions. Students and tax returns The use of the money is not restricted. Students and tax returns Example 1. Students and tax returns In 2013, Jackie paid $3,000 for tuition and $5,000 for room and board at University X. Students and tax returns The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Students and tax returns To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Students and tax returns The terms of the scholarship state that it can be used to pay any of Jackie's college expenses. Students and tax returns University X applies the $2,000 scholarship against Jackie's $8,000 total bill, and Jackie pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Students and tax returns Jackie does not report any portion of the scholarship as income on her tax return. Students and tax returns In figuring the tuition and fees deduction, Jackie must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. Students and tax returns The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Students and tax returns Jackie is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship) in 2013. Students and tax returns Example 2. Students and tax returns The facts are the same as in Example 1, except that Jackie reports her entire scholarship as income on her tax return. Students and tax returns Because Jackie reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Students and tax returns Jackie is treated as having paid $3,000 in qualified education expenses. Students and tax returns Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Students and tax returns This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Students and tax returns Sports, games, hobbies, and noncredit courses. Students and tax returns   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Students and tax returns However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Students and tax returns Comprehensive or bundled fees. Students and tax returns   Some eligible educational institutions combine all of their fees for an academic period into one amount. Students and tax returns If you do not receive, or do not have access to, an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. Students and tax returns The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. Students and tax returns See Figuring the Deduction , later, for more information about Form 1098-T. Students and tax returns Who Is an Eligible Student For purposes of the tuition and fees deduction, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). Students and tax returns Who Can Claim a Dependent's Expenses Generally, in order to claim the tuition and fees deduction for qualified education expenses for a dependent, you must: Have paid the expenses, and Claim an exemption for the student as a dependent. Students and tax returns For you to be able to deduct qualified education expenses for your dependent, you must claim an exemption for that individual. Students and tax returns You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Students and tax returns IF your dependent is an eligible student and you. Students and tax returns . Students and tax returns . Students and tax returns AND. Students and tax returns . Students and tax returns . Students and tax returns THEN. Students and tax returns . Students and tax returns . Students and tax returns claim an exemption for your dependent you paid all qualified education expenses for your dependent only you can deduct the qualified education expenses that you paid. Students and tax returns Your dependent cannot take a deduction. Students and tax returns claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. Students and tax returns do not claim an exemption for your dependent you paid all qualified education expenses no one is allowed to take a deduction. Students and tax returns do not claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction. Students and tax returns Expenses paid by dependent. Students and tax returns   If your dependent pays qualified education expenses, no one can take a tuition and fees deduction for those expenses. Students and tax returns Neither you nor your dependent can deduct the expenses. Students and tax returns For purposes of the tuition and fees deduction, you are not treated as paying any expenses actually paid by a dependent for whom you or anyone other than the dependent can claim an exemption. Students and tax returns This rule applies even if you do not claim an exemption for your dependent on your tax return. Students and tax returns Expenses paid by you. Students and tax returns   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring your tuition and fees deduction. Students and tax returns Expenses paid under divorce decree. Students and tax returns   Qualified education expenses paid directly to an eligible educational institution for a student under a court-approved divorce decree are treated as paid by the student. Students and tax returns Only the student would be eligible to take a tuition and fees deduction for that payment, and then only if no one else could claim an exemption for the student. Students and tax returns Expenses paid by others. Students and tax returns   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Students and tax returns In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Students and tax returns If you claim, or can claim, an exemption on your tax return for the student, you are not considered to have paid the expenses and you cannot deduct them. Students and tax returns If the student is not a dependent, only the student can deduct payments made directly to the institution for his or her expenses. Students and tax returns If the student is your dependent, no one can deduct the payments. Students and tax returns Example. Students and tax returns In 2013, Ms. Students and tax returns Baker makes a payment directly to an eligible educational institution for her grandson Dan's qualified education expenses. Students and tax returns For purposes of deducting tuition and fees, Dan is treated as receiving the money from his grandmother and, in turn, paying his own qualified education expenses. Students and tax returns If an exemption cannot be claimed for Dan on anyone else's tax return, only Dan can claim a tuition and fees deduction for his grandmother's payment. Students and tax returns If someone else can claim an exemption for Dan, no one will be allowed a deduction for Ms. Students and tax returns Baker's payment. Students and tax returns Tuition reduction. Students and tax returns   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Students and tax returns If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Students and tax returns For more information on tuition reductions, see Qualified Tuition Reduction , in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Students and tax returns Figuring the Deduction The maximum tuition and fees deduction in 2013 is $4,000, $2,000, or $0, depending on the amount of your MAGI. Students and tax returns See Effect of the Amount of Your Income on the Amount of Your Deduction , later. Students and tax returns Form 1098-T. Students and tax returns   To help you figure your tuition and fees deduction, the student should receive Form 1098-T (see Appendix A for a completed example of Form 1098-T). Students and tax returns Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Students and tax returns An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Students and tax returns However, the amount in boxes 1 and 2 of Form 1098-T might be different than what you paid. Students and tax returns When figuring the deduction, use only the amounts you paid in 2013 for qualified education expenses. Students and tax returns   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Students and tax returns    The eligible educational institution may ask for a completed Form W-9S or similar statement to obtain the student's name, address, and taxpayer identification number. Students and tax returns Effect of the Amount of Your Income on the Amount of Your Deduction If your MAGI is not more than $65,000 ($130,000 if you are married filing jointly), your maximum tuition and fees deduction is $4,000. Students and tax returns If your MAGI is larger than $65,000 ($130,000 if you are married filing jointly), but is not more than $80,000 ($160,000 if you are married filing jointly), your maximum deduction is $2,000. Students and tax returns No tuition and fees deduction is allowed if your MAGI is larger than $80,000 ($160,000 if you are married filing jointly). Students and tax returns Modified adjusted gross income (MAGI). Students and tax returns   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for tuition and fees. Students and tax returns However, as discussed below, there may be other modifications. Students and tax returns MAGI when using Form 1040A. Students and tax returns   If you file Form 1040A, your MAGI is the AGI on line 22 of that form, figured without taking into account any amount on line 19 (tuition and fees deduction). Students and tax returns MAGI when using Form 1040. Students and tax returns   If you file Form 1040, your MAGI is the AGI on line 38 of that form, figured without taking into account any amount on line 34 (tuition and fees deduction) or line 35 (domestic production activities deduction), and 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. Students and tax returns   Table 6-2 shows how the amount of your MAGI can affect your tuition and fees deduction. Students and tax returns   You can use Worksheet 6-1. Students and tax returns MAGI for the Tuition and Fees Deduction , later, to figure your MAGI. Students and tax returns Table 6-2. Students and tax returns Effect of MAGI on Maximum Tuition and Fees Deduction IF your filing status is. Students and tax returns . Students and tax returns . Students and tax returns AND your MAGI is. Students and tax returns . Students and tax returns . Students and tax returns THEN your maximum tuition and fees deduction is. Students and tax returns . Students and tax returns . Students and tax returns single,  head of household, or qualifying widow(er) not more than $65,000 $4,000. Students and tax returns more than $65,000  but not more than $80,000 $2,000. Students and tax returns more than $80,000 $0. Students and tax returns married filing joint return not more than $130,000 $4,000. Students and tax returns more than $130,000 but not more than $160,000 $2,000. Students and tax returns more than $160,000 $0. Students and tax returns Claiming the Deduction You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A. Students and tax returns Enter the deduction on Form 1040, line 34, or Form 1040A, line 19. Students and tax returns A filled-in Form 8917 is shown at the end of this chapter. Students and tax returns Illustrated Example Tim Pfister, a single taxpayer, enrolled full-time at a local college to earn a degree in engineering. Students and tax returns This is the first year of his postsecondary education. Students and tax returns During 2013, he paid $3,600 for his qualified 2013 tuition expense. Students and tax returns Both he and the college meet all of the requirements for the tuition and fees deduction. Students and tax returns Tim's total income (Form 1040, line 22) and MAGI are $26,000. Students and tax returns He figures his deduction of $3,600 as shown on Form 8917, later. Students and tax returns Worksheet 6-1. Students and tax returns MAGI for the Tuition and Fees Deduction Use this worksheet if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Students and tax returns Before using this worksheet, you must complete Form 1040, lines 7 through 33, and figure any amount to be entered on the dotted line next to line 36. Students and tax returns 1. Students and tax returns Enter the amount from Form 1040, line 22   1. Students and tax returns         2. Students and tax returns Enter the total from Form 1040, lines 23 through 33   2. Students and tax returns               3. Students and tax returns Enter the total of any amounts entered on the dotted line next to Form 1040, line 36   3. Students and tax returns               4. Students and tax returns Add lines 2 and 3   4. Students and tax returns         5. Students and tax returns Subtract line 4 from line 1   5. Students and tax returns         6. Students and tax returns Enter your foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   6. Students and tax returns         7. Students and tax returns Enter your foreign housing deduction (Form 2555, line 50)   7. Students and tax returns         8. Students and tax returns Enter the amount of income from Puerto Rico you are excluding   8. Students and tax returns         9. Students and tax returns Enter the amount of income from American Samoa you are  excluding (Form 4563, line 15)   9. Students and tax returns         10. Students and tax returns Add lines 5 through 9. Students and tax returns This is your modified adjusted gross income   10. Students and tax returns     Note. Students and tax returns If the amount on line 10 is more than $80,000 ($160,000 if married filing jointly),  you cannot take the deduction for tuition and fees. Students and tax returns       This image is too large to be displayed in the current screen. Students and tax returns Please click the link to view the image. Students and tax returns Form 8917 for Tim Pfister Prev  Up  Next   Home   More Online Publications
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Exempt Organizations Financial Data—2013 data on tax-exempt organizations were published on Tax Stats. These data include selected financial items from more than 600,000 Forms 990, 990-EZ and 990-PF filed by tax-exempt organizations and processed by the IRS during calendar year 2013. The latest release was expanded to include nearly 500 financial and other data items. The data are in ASCII space-delimited format, and supporting documentation is available.

2013 IRS Data BookThe Internal Revenue Service (IRS) has released the 2013 IRS Data Book, a snapshot of agency activities for Fiscal Year 2013—Oct. 1, 2012, to Sept. 30, 2013. In addition to information on taxes collected and returns processed, the report also includes information about enforcement, taxpayer assistance, and the IRS budget and workforce, among others.

2014 Winter SOI Bulletin—Statistics of Income (SOI) has released the 2014 Winter SOI Bulletin. Articles included in the publication provide the most recent data available from various tax and information returns filed by U.S. taxpayers.

This issue of the SOI Bulletin includes articles on the following topics:

  • Individual Income Tax Returns, Preliminary Data, 2012
  • Sales of Capital Assets Panel Data Reported on Individual Tax Returns, 2004–2007
  • Split-Interest Trusts, Filing Year 2012
  • Nonprofit Charitable Organizations, 2010

(March 2014)

Corporation Foreign Tax Credit, 2010Two new tables presenting data from Form 1118, Foreign Tax Credit—Corporations, are now available on SOI’s Tax Stats Webpage. The tables present data from the population of returns filed for Tax Year 2010. Table 1.1 displays data on returns with income in an excess credit position while table 1.2 shows data on returns in an excess limit position. Data presented includes foreign-source income, deductions, and taxes by major and selected minor industry. (February, 2014)

Exempt Organizations Microdata Files, Tax Years 1985–1997—Historical microdata files based on Forms 990 and Forms 990-EZ sampled for the annual studies of nonprofit charitable and other tax-exempt organizations are now available. Annual data are available for organizations exempt from income tax under Internal Revenue Code Section 501(c)(3). Additional data for tax-exempt organizations under IRC Sections 501(c)(4) through 501(c)(9) are available for limited tax years. (February, 2014)

2011 Individual Income Tax ZIP Code and County DataUnited States’ ZIP Code and county data for Tax Year 2011 are now available on Tax Stats. The data present selected income and tax return items by State, ZIP Code, county, and size of adjusted gross income. These data are based on individual income tax returns filed with the IRS. (February, 2014)

Fiduciary Income Tax, 2012—Three tables presenting Filing Year 2012 data for income from estates and trusts (Form 1041) are now available. The statistics cover sources of income and deductions at the National and State levels. Data are classified by trust type and filing status. (February, 2014)

U.S. Gift Tax Returns table Gift Tax, 2012 - One table presenting Filing Year 2012 data for United States Gift (and Generation-Skipping Transfer) Tax Returns (Form 709), including information on total gifts, deductions, credits, and net tax amounts, is now available. Data are presented by tax status and size of total taxable gifts. (January 2014)

2013 Fall SOI Bulletin—Statistics of Income (SOI) has released the 2013 Fall SOI Bulletin. Articles included in the publication provide the most recent data available from various tax and information returns filed by U.S. taxpayers.

This issue of the SOI Bulletin includes articles on the following topics:

  • Individual Income Tax Returns, 2011
  • Partnership Returns, 2011
  • Accumulation and Distribution of Individual Retirement Arrangements, 2010

(January 2014)

The Statistics of Income Tax Stats Table Wizard was recently updated! The Table Wizard allows users to query tax data on corporations, individuals, tax-exempt organizations, estates, gifts trusts, and more. The resulting data can then be downloaded. This update includes the following data:

  • Corporate data by industry (Forms 1120 and 1120s)—2004 through 2010
  • 501c(3)  Exempt Organizations (Form 990)—2004 through 2007
  • Domestic Private Foundations and Charitable Trusts (Form 990-PF)—2004 through 2008
  • Unrelated Business Income Tax Returns (Form 990-T)—2006 through 2008
  • Estate Tax Returns (Form 706)—2007 through 2010
  • Gift Tax Returns (Form 709)—2005 through 2010

(December 2013)

2011 Individual Income Tax Estimated Data Line CountsThe 2011 Statistics of Income (SOI) estimated data line counts publication presents estimates of frequencies of taxpayer entries on the lines of the forms and schedules filed with individual tax returns as shown on the 2011 Individual SOI Complete Report file. The statistics are based on a sample of returns that have been weighted to estimate the entire 2011 Tax Year population. The publication includes corresponding dollar amounts of selected lines filed in concurrence with the number of returns filed. (December 2013)

Tax Year 2001–2011 Individual Income Tax Return Statistics by Selected Descending and Ascending Cumulative PercentilesStatistics based on all individual income tax returns by selected descending and ascending cumulative percentiles are now available for Tax Years 2001–2011. Tables present historical statistics on income and tax by cumulative percentiles based on the number of returns. They also show distributions of adjusted gross income (AGI) and total income tax, as defined for each tax year, by descending and ascending cumulative percentiles of returns in both current and constant dollars. These tables can be used to make comparisons across cumulative percentile classes beginning with Tax Year 2001. This release is based on all individual income tax returns except returns of dependents. (December 2013)

2011 Partnership Returns Line Item Estimates (Publication 5035)—This publication presents estimates of frequencies of taxpayer entries recorded on the applicable lines of the forms and schedules filed with partnership tax returns for Tax Year 2011. It also contains corresponding population estimates of dollar amounts recorded on those lines (as applicable). (November 2013)

Partnerships, 2011—Twenty-two tables presenting Tax Year 2011 data for partnership returns (Forms 1065 and 1065-B), including types of partnerships and specific industrial sectors, are now available. The statistics cover balance sheets, trade or business income and deductions, portfolio income, rental income (including rental real estate income), and total net income. Data are classified by industry and size of total assets. In addition, historical tables provide balance sheet and income statement data as well as counts of partnership returns, by size of assets and receipts. 
(November 2013)

Foreign Recipients of US Income Study, 2011 Tax Year—Two tables presenting data for Tax Year 2011 from Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, are now available. The tables include statistics for the number of returns, total income, tax withheld, income subject to withholding, income exempt from withholding, and income by category. Data are available by selected countries and selected recipient types. (October 2013)

Issue Year 2011 Tax-Exempt Bond Tables— Updated tax-exempt bond data for both governmental and private activity bonds issued in calendar year 2011 are now available on Tax Stats. Data include the term of issue, purpose, bond size, and uses of bond proceeds. Tax credit bond data, by bond type, and State-level data, by bond purpose, are also available. (October 2013)

 

 



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The Students And Tax Returns

Students and tax returns Publication 517 - Main Content Table of Contents Social Security CoverageCoverage of Members of the Clergy Coverage of Religious Workers (Church Employees) U. Students and tax returns S. Students and tax returns Citizens and Resident and Nonresident Aliens Ministerial ServicesMinisters Members of Religious Orders Christian Science Practitioners and Readers Exemption From Self-Employment (SE) TaxMembers of the Clergy Members of Recognized Religious Sects Self-Employment Tax: Figuring Net EarningsRegular Method Nonfarm Optional Method Income Tax: Income and ExpensesIncome Items Expense Items Income Tax Withholding and Estimated Tax Filing Your Return Retirement Savings ArrangementsDeducting contributions to tax-sheltered annuity plans. Students and tax returns Full-time student. Students and tax returns Adjusted gross income. Students and tax returns More information. Students and tax returns Earned Income Credit Comprehensive ExampleForm W-2 From Church Form W-2 From College Schedule C-EZ (Form 1040) Form 2106-EZ Schedule A (Form 1040) Schedule SE (Form 1040) Form 1040 Attachment 1 Attachment 2 How To Get Tax HelpLow Income Taxpayer Clinics Social Security Coverage This section gives information about which system (SECA or FICA) is used to collect social security and Medicare taxes from members of the clergy (ministers, members of a religious order, and Christian Science practitioners and readers) and religious workers (church employees). Students and tax returns Coverage of Members of the Clergy The services you perform in the exercise of your ministry, of the duties required by your religious order, or of your profession as a Christian Science practitioner or reader are covered by social security and Medicare under SECA. Students and tax returns Your earnings for these ministerial services (defined later) are subject to self-employment (SE) tax unless one of the following applies. Students and tax returns You are a member of a religious order who has taken a vow of poverty. Students and tax returns You ask the Internal Revenue Service (IRS) for an exemption from SE tax for your services and the IRS approves your request. Students and tax returns See Exemption From Self-Employment (SE) Tax , later. Students and tax returns You are subject only to the social security laws of a foreign country under the provisions of a social security agreement between the United States and that country. Students and tax returns For more information, see Bilateral Social Security (Totalization) Agreements in Publication 54. Students and tax returns Your earnings that are not from ministerial services may be subject to social security tax under FICA or SECA according to the rules that apply to taxpayers in general. Students and tax returns See Ministerial Services , later. Students and tax returns Ministers If you are a minister of a church, your earnings for the services you perform in your capacity as a minister are subject to SE tax, even if you perform these services as an employee of that church. Students and tax returns However, you can request that the IRS grant you an exemption, as discussed under Exemption From Self-Employment (SE) Tax , later. Students and tax returns For the specific services covered, see Ministerial Services , later. Students and tax returns Ministers defined. Students and tax returns   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Students and tax returns Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. Students and tax returns   If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes. Students and tax returns Employment status for other tax purposes. Students and tax returns   Even though all of your income from performing ministerial services is subject to self-employment tax for social security tax purposes, you may be an employee for income tax or retirement plan purposes in performing those same services. Students and tax returns For income tax or retirement plan purposes, your income earned as an employee will be considered wages. Students and tax returns Common-law employee. Students and tax returns   Under common-law rules, you are considered either an employee or a self-employed person. Students and tax returns Generally, you are an employee if you perform services for someone who has the legal right to control both what you do and how you do it, even if you have considerable discretion and freedom of action. Students and tax returns For more information about the common-law rules, see Publication 15-A, Employer's Supplemental Tax Guide. Students and tax returns   If a congregation employs you and pays you a salary, you are generally a common-law employee and income from the exercise of your ministry is wages for income tax purposes. Students and tax returns However, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services, are not wages; such amounts are self-employment income for both income tax purposes and social security tax purposes. Students and tax returns Example. Students and tax returns A church hires and pays you a salary to perform ministerial services subject to its control. Students and tax returns Under the common-law rules, you are an employee of the church while performing those services. Students and tax returns Form SS-8. Students and tax returns   If you are not certain whether you are an employee or a self-employed person, you can get a determination from the IRS by filing Form SS-8. Students and tax returns Members of Religious Orders If you are a member of a religious order who has not taken a vow of poverty, your earnings for ministerial services you perform as a member of the order are subject to SE tax. Students and tax returns See Ministerial Services , later. Students and tax returns However, you can request that the IRS grant you an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Students and tax returns Vow of poverty. Students and tax returns   If you are a member of a religious order and have taken a vow of poverty, you are already exempt from paying SE tax on your earnings for ministerial services you perform as an agent of your church or its agencies. Students and tax returns You do not need to request a separate exemption. Students and tax returns For income tax purposes, the earnings are tax free to you. Students and tax returns Your earnings are considered the income of the religious order. Students and tax returns Services covered under FICA at the election of the order. Students and tax returns   However, even if you have taken a vow of poverty, the services you perform for your church or its agencies may be covered under social security. Students and tax returns Your services are covered if your order, or an autonomous subdivision of the order, elects social security coverage for its current and future vow-of-poverty members. Students and tax returns   The order or subdivision elects coverage by filing Form SS-16. Students and tax returns The election may cover certain vow-of-poverty members for a retroactive period of up to 20 calendar quarters before the quarter in which it files the certificate. Students and tax returns If the election is made, the order or subdivision pays both the employer's and employee's share of the tax. Students and tax returns You do not pay any of the FICA tax. Students and tax returns Services performed outside the order. Students and tax returns   Even if you are a member of a religious order who has taken a vow of poverty and the order requires you to turn over amounts you earn, your earnings are subject to federal income tax and either SE tax or FICA tax (including estimated tax payments and/or withholding) if you: Are self-employed or an employee of an organization outside your religious community, and Perform work not required by, or done on behalf of, the order. Students and tax returns   In these cases, your income from self-employment or as an employee of that outside organization is taxable to you directly. Students and tax returns You may, however, be able to take a charitable deduction for the amount you turn over to the order. Students and tax returns See Publication 526, Charitable Contributions. Students and tax returns Rulings. Students and tax returns   Organizations and individuals may request rulings from the IRS on whether they are religious orders, or members of a religious order, respectively, for FICA tax, SE tax, and federal income tax withholding purposes. Students and tax returns To request a ruling, follow the procedures in Revenue Procedure 2014-1, 2014-1 I. Students and tax returns R. Students and tax returns B. Students and tax returns 1, available at www. Students and tax returns irs. Students and tax returns gov/irb/2014-1_IRB/ar05. Students and tax returns html. Students and tax returns Christian Science Practitioners and Readers Generally, your earnings from services you perform in your profession as a Christian Science practitioner or reader are subject to SE tax. Students and tax returns However, you can request an exemption as discussed under Exemption From Self-Employment (SE) Tax , later. Students and tax returns Practitioners. Students and tax returns   Christian Science practitioners are members in good standing of the Mother Church, The First Church of Christ, Scientist, in Boston, Massachusetts, who practice healing according to the teachings of Christian Science. Students and tax returns State law specifically exempts Christian Science practitioners from licensing requirements. Students and tax returns   Some Christian Science practitioners also are Christian Science teachers or lecturers. Students and tax returns Income from teaching or lecturing is considered the same as income from their work as practitioners. Students and tax returns Readers. Students and tax returns   For tax purposes, Christian Science readers are considered the same as ordained, commissioned, or licensed ministers. Students and tax returns Coverage of Religious Workers (Church Employees) If you are a religious worker (a church employee) and are not in one of the classes already discussed, your wages are generally subject to social security and Medicare tax under FICA, not SECA. Students and tax returns Some exceptions are discussed next. Students and tax returns Election by Church To Exclude Its Employees From FICA Coverage Churches and qualified church-controlled organizations (church organizations) that are opposed for religious reasons to the payment of social security and Medicare taxes can elect to exclude their employees from FICA coverage. Students and tax returns If your employer makes this election, it does not pay the employer's portion of the FICA taxes or withhold from your pay your portion of the FICA taxes. Students and tax returns Instead, your wages are subject to SECA and you must pay SE tax on your wages if they exceed $108. Students and tax returns 28 during the tax year. Students and tax returns However, you can request an exemption from SE tax if you are a member of a recognized religious sect, as discussed below. Students and tax returns Churches and church organizations make this election by filing two copies of Form 8274. Students and tax returns For more information about making this election, see Form 8274. Students and tax returns Election by Certain Church Employees Who Are Opposed to Social Security and Medicare You may be able to choose to be exempt from social security and Medicare taxes, including the SE tax, if you are a member of a recognized religious sect or division and work for a church (or church-controlled nonprofit division) that does not pay the employer's part of the social security tax on wages. Students and tax returns This exemption does not apply to your service, if any, as a minister of a church or as a member of a religious order. Students and tax returns Make this choice by filing Form 4029. Students and tax returns See Requesting Exemption—Form 4029 , later, under Members of Recognized Religious Sects. Students and tax returns U. Students and tax returns S. Students and tax returns Citizens and Resident and Nonresident Aliens To be covered under the SE tax provisions (SECA), individuals generally must be citizens or resident aliens of the United States. Students and tax returns Nonresident aliens are not covered under SECA unless a social security agreement in effect between the United States and the foreign country determines that you are covered under the U. Students and tax returns S. Students and tax returns social security system. Students and tax returns To determine your alien status, see Publication 519, U. Students and tax returns S. Students and tax returns Tax Guide for Aliens. Students and tax returns Residents of Puerto Rico, the U. Students and tax returns S. Students and tax returns Virgin Islands, Guam, the CNMI, and American Samoa. Students and tax returns   If you are a resident of one of these U. Students and tax returns S. Students and tax returns possessions but not a U. Students and tax returns S. Students and tax returns citizen, for SE tax purposes you are treated the same as a citizen or resident alien of the United States. Students and tax returns For information on figuring the tax, see Self-Employment Tax: Figuring Net Earnings , later. Students and tax returns Ministerial Services Ministerial services, in general, are the services you perform in the exercise of your ministry, in the exercise of your duties as required by your religious order, or in the exercise of your profession as a Christian Science practitioner or reader. Students and tax returns Income you receive for performing ministerial services is subject to SE tax unless you have an exemption as explained later. Students and tax returns Even if you have an exemption, only the income you receive for performing ministerial services is exempt. Students and tax returns The exemption does not apply to any other income. Students and tax returns The following discussions provide more detailed information on ministerial services of ministers, members of a religious order, and Christian Science practitioners and readers. Students and tax returns Ministers Most services you perform as a minister, priest, rabbi, etc. Students and tax returns , are ministerial services. Students and tax returns These services include: Performing sacerdotal functions, Conducting religious worship, and Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination. Students and tax returns You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities. Students and tax returns A religious organization is under the authority of a religious body that is a church or denomination if it is organized for and dedicated to carrying out the principles of a faith according to the requirements governing the creation of institutions of the faith. Students and tax returns Services for nonreligious organizations. Students and tax returns   Your services for a nonreligious organization are ministerial services if the services are assigned or designated by your church. Students and tax returns Assigned or designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship. Students and tax returns   If your services are not assigned or designated by your church, they are ministerial services only if they involve performing sacerdotal functions or conducting religious worship. Students and tax returns Services that are not part of your ministry. Students and tax returns   Income from services you perform as an employee that are not ministerial services is subject to social security and Medicare tax withholding under FICA (not SECA) under the rules that apply to employees in general. Students and tax returns The following are not ministerial services. Students and tax returns Services you perform for nonreligious organizations other than the services stated above. Students and tax returns Services you perform as a duly ordained, commissioned, or licensed minister of a church as an employee of the United States, the District of Columbia, a foreign government, or any of their political subdivisions. Students and tax returns These services are not ministerial services even if you are performing sacerdotal functions or conducting religious worship. Students and tax returns (For example, if you perform services as a chaplain in the Armed Forces of the United States, those services are not ministerial services. Students and tax returns ) Services you perform in a government-owned and operated hospital. Students and tax returns (These services are considered performed by a government employee, not by a minister as part of the ministry. Students and tax returns ) However, services that you perform at a church-related hospital or health and welfare institution, or a private nonprofit hospital, are considered to be part of the ministry and are considered ministerial services. Students and tax returns Books or articles. Students and tax returns   Writing religious books or articles is considered to be in the exercise of your ministry and is considered a ministerial service. Students and tax returns   This rule also applies to members of religious orders and to Christian Science practitioners and readers. Students and tax returns Members of Religious Orders Services you perform as a member of a religious order in the exercise of duties required by the order are ministerial services. Students and tax returns The services are considered ministerial because you perform them as an agent of the order. Students and tax returns For example, if the order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to perform the services as an agent of the order. Students and tax returns However, if the order directs you to work outside the order, this employment will not be considered a duty required by the order unless: Your services are the kind that are ordinarily performed by members of the order, and Your services are part of the duties that must be exercised for, or on behalf of, the religious order as its agent. Students and tax returns Effect of employee status. Students and tax returns   Ordinarily, if your services are not considered directed or required of you by the order, you and the outside party for whom you work are considered employee and employer. Students and tax returns In this case, your earnings from the services are taxed under the rules that apply to employees in general, not under the rules for services provided as agent for the order. Students and tax returns This result is true even if you have taken a vow of poverty. Students and tax returns Example. Students and tax returns Pat Brown and Chris Green are members of a religious order and have taken vows of poverty. Students and tax returns They renounce all claims to their earnings. Students and tax returns The earnings belong to the order. Students and tax returns Pat is a licensed attorney. Students and tax returns The superiors of the order instructed her to get a job with a law firm. Students and tax returns Pat joined a law firm as an employee and, as she requested, the firm made the salary payments directly to the order. Students and tax returns Chris is a secretary. Students and tax returns The superiors of the order instructed him to accept a job with the business office of the church that supervises the order. Students and tax returns Chris took the job and gave all his earnings to the order. Students and tax returns Pat's services are not duties required by the order. Students and tax returns Her earnings are subject to social security and Medicare tax under FICA and to federal income tax. Students and tax returns Chris' services are duties required by the order. Students and tax returns He is acting as an agent of the order and not as an employee of a third party. Students and tax returns He does not include the earnings in gross income, and they are not subject to income tax withholding or to social security and Medicare tax under FICA or SECA. Students and tax returns Christian Science Practitioners and Readers Services you perform as a Christian Science practitioner or reader in the exercise of your profession are ministerial services. Students and tax returns Amounts you receive for performing these services are generally subject to SE tax. Students and tax returns You may request an exemption from SE tax, discussed next, which applies only to those services. Students and tax returns Exemption From Self-Employment (SE) Tax You can request an exemption from SE tax if you are a member of the clergy (minister, member of a religious order, or Christian Science practitioner or reader) or a member of a recognized religious sect. Students and tax returns Generally, members of religious orders who have taken a vow of poverty are already exempt from paying SE tax, as discussed earlier under Members of Religious Orders under Social Security Coverage. Students and tax returns They do not have to request the exemption. Students and tax returns Who cannot be exempt. Students and tax returns   You cannot be exempt from SE tax if you made one of the following elections to be covered under social security. Students and tax returns These elections are irrevocable. Students and tax returns You elected to be covered under social security by filing Form 2031, Revocation of Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners, for your 1986, 1987, 2000, or 2001 tax year. Students and tax returns You elected before 1968 to be covered under social security for your ministerial services. Students and tax returns Requesting exemption. Students and tax returns    Table 2, earlier, briefly summarizes the procedure for requesting exemption from the SE tax. Students and tax returns More detailed explanations follow. Students and tax returns If you are a minister, member of a religious order, or Christian Science practitioner, an approved exemption only applies to earnings you receive for ministerial services, discussed earlier. Students and tax returns It does not apply to any other self-employment income. Students and tax returns Table 2. Students and tax returns The Self-Employment Tax Exemption Application and Approval Process   Who Can Apply Members of the Clergy Members of Recognized  Religious Sects How File Form 4361 File Form 4029 When File by the due date (including extensions) of your income tax return for the second tax year in which you had at least $400 of net earnings from self-employment (at least part from ministerial services) File anytime Approval If approved, you will receive an approved copy of Form 4361 If approved, you will receive an approved copy of Form 4029 Effective Date For all tax years after 1967 in which you have at least $400 of net earnings from self-employment For all tax years beginning with the first year you meet the eligibility requirements discussed later Members of the Clergy To claim the exemption from SE tax, you must meet all of the following conditions. Students and tax returns You file Form 4361, described below under Requesting Exemption—Form 4361 . Students and tax returns You are conscientiously opposed to public insurance because of your individual religious considerations (not because of your general conscience), or you are opposed because of the principles of your religious denomination. Students and tax returns You file for other than economic reasons. Students and tax returns You inform the ordaining, commissioning, or licensing body of your church or order that you are opposed to public insurance if you are a minister or a member of a religious order (other than a vow-of-poverty member). Students and tax returns This requirement does not apply to Christian Science practitioners or readers. Students and tax returns You establish that the organization that ordained, commissioned, or licensed you, or your religious order, is a tax-exempt religious organization. Students and tax returns You establish that the organization is a church or a convention or association of churches. Students and tax returns You did not make an election discussed earlier under Who cannot be exempt . Students and tax returns You sign and return the statement the IRS mails to you to certify that you are requesting an exemption based on the grounds listed on the statement. Students and tax returns Requesting Exemption—Form 4361 To request exemption from SE tax, file Form 4361 in triplicate (original and two copies) with the IRS. Students and tax returns The IRS will return to you a copy of the Form 4361 that you filed indicating whether it has approved your exemption. Students and tax returns If it is approved, keep the approved copy of Form 4361 in your permanent records. Students and tax returns When to file. Students and tax returns   File Form 4361 by the date your income tax return is due, including extensions, for the second tax year in which both of the following are true. Students and tax returns You have net earnings from self-employment of at least $400. Students and tax returns Any part of those net earnings was from ministerial services you performed as a: Minister, Member of a religious order, or Christian Science practitioner or reader. Students and tax returns The 2 years do not have to be consecutive tax years. Students and tax returns    The approval process can take some time, so you should file Form 4361 as soon as possible. Students and tax returns Example 1. Students and tax returns Rev. Students and tax returns Lawrence Jaeger, a clergyman ordained in 2013, has net self-employment earnings as a minister of $450 in 2013 and $500 in 2014. Students and tax returns He must file his application for exemption by the due date, including extensions, for his 2014 income tax return. Students and tax returns However, if Rev. Students and tax returns Jaeger does not receive IRS approval for an exemption by April 15, 2015, his SE tax for 2014 is due by that date. Students and tax returns Example 2. Students and tax returns Rev. Students and tax returns Louise Wolfe has only $300 in net self-employment earnings as a minister in 2013, but earned more than $400 in 2012 and expects to earn more than $400 in 2014. Students and tax returns She must file her application for exemption by the due date, including extensions, for her 2014 income tax return. Students and tax returns However, if she does not receive IRS approval for an exemption by April 15, 2015, her SE tax for 2014 is due by that date. Students and tax returns Example 3. Students and tax returns In 2011, Rev. Students and tax returns David Moss was ordained a minister and had $700 in net self-employment earnings as a minister. Students and tax returns In 2012, he received $1,000 as a minister, but his related expenses were over $1,000. Students and tax returns Therefore, he had no net self-employment earnings as a minister in 2012. Students and tax returns Also in 2012, he opened a book store and had $8,000 in net self-employment earnings from the store. Students and tax returns In 2013, he had net self-employment earnings of $1,500 as a minister and $10,000 net self-employment earnings from the store. Students and tax returns Rev. Students and tax returns Moss had net earnings from self-employment in 2011 and 2013 that were $400 or more each year, and part of the self-employment earnings in each of those years was for his services as a minister. Students and tax returns Thus, he must file his application for exemption by the due date, including extensions, for his 2013 income tax return. Students and tax returns Death of individual. Students and tax returns   The right to file an application for exemption ends with an individual's death. Students and tax returns A surviving spouse, executor, or administrator cannot file an exemption application for a deceased clergy member. Students and tax returns Effective date of exemption. Students and tax returns   An approved exemption is effective for all tax years after 1967 in which you have $400 or more of net earnings from self-employment and any part of those earnings is for services as a member of the clergy. Students and tax returns Once the exemption is approved, it is irrevocable. Students and tax returns Example. Students and tax returns Rev. Students and tax returns Trudy Austin, ordained in 2010, had $400 or more in net self-employment earnings as a minister in both 2010 and 2013. Students and tax returns She files an application for exemption on February 20, 2014. Students and tax returns If an exemption is granted, it is effective for 2010 and the following years. Students and tax returns Refunds of SE tax. Students and tax returns   If, after receiving an approved Form 4361, you find that you overpaid SE tax, you can file a claim for refund on Form 1040X. Students and tax returns Generally, for a refund, you must file Form 1040X within 3 years from the date you filed the return or within 2 years from the date you paid the tax, whichever is later. Students and tax returns A return you filed, or tax you paid, before the due date is considered to have been filed or paid on the due date. Students and tax returns   If you file a claim after the 3-year period but within 2 years from the time you paid the tax, the credit or refund will not be more than the tax you paid within the 2 years immediately before you file the claim. Students and tax returns Members of Recognized Religious Sects If you are a member of a recognized religious sect, or a division of a recognized religious sect, you can apply for an exemption from payment of social security and Medicare taxes on both your self-employment income and the wages you earn from an employer who also has an exemption. Students and tax returns Exception. Students and tax returns   If you received social security benefits or payments, or anyone else received these benefits or payments based on your wages or self-employment income, you cannot apply. Students and tax returns However, if you pay your benefits back, you may be considered for exemption. Students and tax returns Contact your local Social Security Administration office to find out the amount you must pay back. Students and tax returns Eligibility requirements. Students and tax returns   To claim this exemption from SE tax, all the following requirements must be met. Students and tax returns You must file Form 4029, discussed later under Requesting Exemption—Form 4029 . Students and tax returns As a follower of the established teachings of the sect or division, you must be conscientiously opposed to accepting benefits of any private or public insurance that makes payments for death, disability, old age, retirement, or medical care, or provides services for medical care. Students and tax returns You must waive all rights to receive any social security payment or benefit and agree that no benefits or payments will be made to anyone else based on your wages and self-employment income. Students and tax returns The Commissioner of Social Security must determine that: Your sect or division has the established teachings as described in (2) above, It is the practice, and has been for a substantial period of time, for members of the sect or division to provide for their dependent members in a manner that is reasonable in view of the members' general level of living, and The sect or division has existed at all times since December 31, 1950. Students and tax returns Requesting Exemption—Form 4029 To request the exemption, file Form 4029 in triplicate (original and two copies) with the Social Security Administration at the address shown on the form. Students and tax returns The sect or division must complete part of the form. Students and tax returns The IRS will return to you a copy of the Form 4029 that you filed indicating whether it has approved your exemption. Students and tax returns If it is approved, keep the approved copy of Form 4029 in your permanent records. Students and tax returns When to file. Students and tax returns   You can file Form 4029 at any time. Students and tax returns   If you have an approved exemption from SE tax and for some reason that approved exemption ended, you must file a new Form 4029 if you subsequently meet the eligibility requirements, discussed earlier. Students and tax returns See Effective date of exemption next for information on when the newly approved exemption would become effective. Students and tax returns    If you have a previously approved exemption from SE tax and you change membership to another recognized religious sect, without any change to your eligibility requirements, then you do not need to file a new Form 4029. Students and tax returns Effective date of exemption. Students and tax returns   An approved exemption from SE tax generally is effective for all tax years beginning with the first year you meet the eligibility requirements discussed earlier. Students and tax returns (For example, if you meet the eligibility requirements in 2011, you file Form 4029 in 2012, and the IRS approves your exemption in 2013, your exemption is effective for tax year 2011 and all later years. Students and tax returns )   The exemption will end if you fail to meet the eligibility requirements or if the Commissioner of Social Security determines that the sect or division fails to meet them. Students and tax returns You must notify the IRS within 60 days if you are no longer a member of the religious group, or if you no longer follow the established teachings of this group. Students and tax returns The exemption will end for the tax year where you or your sect/division first fails to meet the eligibility requirements. Students and tax returns Refunds of SE tax paid. Students and tax returns    To get a refund of any SE tax you paid while the exemption was in effect, file Form 1040X. Students and tax returns For information on filing this form, see Refunds of SE tax under Requesting Exemption—Form 4361, earlier. Students and tax returns Exemption From FICA Taxes Generally, under FICA, the employer and the employee each pay half of the social security and Medicare tax. Students and tax returns Both the employee and the employer, if they meet the eligibility requirements discussed earlier, can apply to be exempt from their share of FICA taxes on wages paid by the employer to the employee. Students and tax returns A partnership in which each partner holds a religious exemption from social security and Medicare is an employer for this purpose. Students and tax returns If the employer's application is approved, the exemption will apply only to FICA taxes on wages paid to employees who also received an approval of identical applications. Students and tax returns Information for employers. Students and tax returns   If you have an approved Form 4029 and you have an employee who has an approved Form 4029, do not report wages you paid to the employee as social security and Medicare wages. Students and tax returns   If you have an employee who does not have an approved Form 4029, you must withhold the employee's share of social security and Medicare taxes and pay the employer's share. Students and tax returns Form W-2. Students and tax returns   When preparing a Form W-2 for an employee with an approved Form 4029, enter “Form 4029” in box 14, “Other. Students and tax returns ” Do not make any entries in boxes 3, 4, 5, or 6. Students and tax returns Forms 941, 943, and 944. Students and tax returns   If both you and your employee have received approved Forms 4029, do not include these exempt wages on the following forms. Students and tax returns Instead, follow the instructions given below. Students and tax returns Form 941, Employer's QUARTERLY Federal Tax Return: check the box on line 4 and enter “Form 4029” in the empty space below the check box. Students and tax returns Form 943, Employer's Annual Federal Tax Return for Agricultural Employees: enter “Form 4029” on the dotted line next to the lines 2 and 4 entry spaces. Students and tax returns Form 944, Employer's ANNUAL Federal Tax Return: check the box on line 3 and enter “Form 4029” in the empty space below the check box. Students and tax returns Effective date. Students and tax returns   An approved exemption from FICA becomes effective on the first day of the first calendar quarter after the quarter in which you file Form 4029. Students and tax returns The exemption will end on the last day of the calendar quarter before the quarter in which the employer, employee, sect, or division fails to meet the requirements. Students and tax returns Self-Employment Tax: Figuring Net Earnings There are two methods for figuring your net earnings from self-employment as a member of the clergy or a religious worker. Students and tax returns Regular method. Students and tax returns Nonfarm optional method. Students and tax returns You may find Worksheets 1 through 4 helpful in figuring your net earnings from self-employment. Students and tax returns Blank worksheets are in the back of this publication, after the Comprehensive Example. Students and tax returns Regular Method Most people use the regular method. Students and tax returns Under this method, figure your net earnings from self-employment by totaling your gross income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner or reader. Students and tax returns Then, subtract your allowable business deductions and multiply the difference by 92. Students and tax returns 35% (. Students and tax returns 9235). Students and tax returns Use Schedule SE (Form 1040) to figure your net earnings and SE tax. Students and tax returns If you are an employee of a church that elected to exclude you from FICA coverage, figure net earnings by multiplying your church wages shown on Form W-2 by 92. Students and tax returns 35% (. Students and tax returns 9235). Students and tax returns Do not reduce your wages by any business deductions when making this computation. Students and tax returns Use Schedule SE (Form 1040), Section B, to figure your net earnings and SE tax. Students and tax returns If you have an approved exemption, or you are automatically exempt, do not include the income or deductions from ministerial services in figuring your net earnings from self-employment. Students and tax returns Amounts included in gross income. Students and tax returns   To figure your net earnings from self-employment (on Schedule SE (Form 1040)), include in gross income: Salaries and fees for your ministerial services (discussed earlier), Offerings you receive for marriages, baptisms, funerals, masses, etc. Students and tax returns , The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience, The fair rental value of a parsonage provided to you (including the cost of utilities that are furnished) and the rental allowance (including an amount for payment of utilities) paid to you, and Any amount a church pays toward your income tax or SE tax, other than withholding the amount from your salary. Students and tax returns This amount is also subject to income tax. Students and tax returns   For the income tax treatment of items (2) and (4), see Income Tax: Income and Expenses , later. Students and tax returns Example. Students and tax returns Pastor Roger Adams receives an annual salary of $39,000 as a full-time minister. Students and tax returns The $39,000 includes $5,000 that is designated as a rental allowance to pay utilities. Students and tax returns His church owns a parsonage that has a fair rental value of $12,000 per year. Students and tax returns The church gives Pastor Adams the use of the parsonage. Students and tax returns He is not exempt from SE tax. Students and tax returns He must include $51,000 ($39,000 plus $12,000) when figuring his net earnings for SE tax purposes. Students and tax returns The results would be the same if, instead of the use of the parsonage and receipt of the rental allowance for utilities, Pastor Adams had received an annual salary of $51,000 of which $17,000 ($5,000 plus $12,000) per year was designated as a rental allowance. Students and tax returns Overseas duty. Students and tax returns   Your net earnings from self-employment are determined without any foreign earned income exclusion or the foreign housing exclusion or deduction if you are a U. Students and tax returns S. Students and tax returns citizen or resident alien serving abroad and living in a foreign country. Students and tax returns   For information on excluding foreign earned income or the foreign housing amount, see Publication 54. Students and tax returns Example. Students and tax returns Diane Jones was the minister of a U. Students and tax returns S. Students and tax returns church in Mexico. Students and tax returns She earned $35,000 in that position and was able to exclude it all for income tax purposes under the foreign earned income exclusion. Students and tax returns The United States does not have a social security agreement with Mexico, so Mrs. Students and tax returns Jones is subject to U. Students and tax returns S. Students and tax returns SE tax and must include $35,000 when figuring net earnings from self-employment. Students and tax returns Specified U. Students and tax returns S. Students and tax returns possessions. Students and tax returns    The exclusion from gross income for amounts derived from American Samoa or Puerto Rico does not apply in computing net earnings from self-employment. Students and tax returns Also see Residents of Puerto Rico, the U. Students and tax returns S. Students and tax returns Virgin Islands, Guam, the CNMI, and American Samoa , earlier, under U. Students and tax returns S. Students and tax returns Citizens and Resident and Nonresident Aliens. Students and tax returns Amounts not included in gross income. Students and tax returns   Do not include the following amounts in gross income when figuring your net earnings from self-employment. Students and tax returns Offerings that others made to the church. Students and tax returns Contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals) that are not included in your gross income. Students and tax returns Pension payments or retirement allowances you receive for your past ministerial services. Students and tax returns The rental value of a parsonage or a parsonage allowance provided to you after you retire. Students and tax returns Allowable deductions. Students and tax returns   When figuring your net earnings from self-employment, deduct all your expenses related to your ministerial services performed as a self-employed person. Students and tax returns These are ministerial expenses you incurred while working other than as a common-law employee of the church. Students and tax returns They include expenses incurred in performing marriages and baptisms, and in delivering speeches. Students and tax returns Deduct these expenses on Schedule C or C-EZ (Form 1040), and carry the net amount to line 2 of Schedule SE (Form 1040), Section A or B. Students and tax returns   Wages earned as a common-law employee (explained earlier) of a church are generally subject to self-employment tax unless an exemption is requested, as discussed earlier under Exemption From Self-Employment (SE) Tax . Students and tax returns Subtract any allowable expenses (including unreimbursed employee business expenses) from those wages, include the net amount on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Students and tax returns Do not complete Schedule C or C-EZ (Form 1040). Students and tax returns However, for income tax purposes, the expenses are allowed only as an itemized deduction on Schedule A (Form 1040) to the extent they exceed 2% of adjusted gross income. Students and tax returns Employee reimbursement arrangements. Students and tax returns   If you received an advance, allowance, or reimbursement for your employee expenses, how you report this amount and your employee expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Students and tax returns Ask your employer if you are not sure if it reimburses you using an accountable or a nonaccountable plan. Students and tax returns Accountable plans. Students and tax returns   To be an accountable plan, your employer's reimbursement arrangement must include all three of the following rules. Students and tax returns Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Students and tax returns You must adequately account to your employer for these expenses within a reasonable period of time. Students and tax returns You must return any excess reimbursement or allowance within a reasonable period of time. Students and tax returns   The reimbursement is not reported on your Form W-2. Students and tax returns Generally, if your expenses equal your reimbursement, you have no deduction. Students and tax returns If your expenses are more than your reimbursement, you can deduct your excess expenses for SE tax and income tax purposes. Students and tax returns Nonaccountable plan. Students and tax returns   A nonaccountable plan is a reimbursement arrangement that does not meet all three of the rules listed under Accountable plans above. Students and tax returns In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan. Students and tax returns Excess reimbursements you fail to return to your employer. Students and tax returns Reimbursement of nondeductible expenses related to your employer's business. Students and tax returns   Your employer will combine any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other compensation and report the combined total in box 1 of your Form W-2. Students and tax returns Since reimbursements under a nonaccountable plan are included in your gross income, you can deduct your related expenses (for SE tax and income tax purposes) regardless of whether they are more than, less than, or equal to your reimbursement. Students and tax returns   For more information on accountable and nonaccountable plans, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Students and tax returns Married Couple Missionary Team If both spouses are duly ordained, commissioned, or licensed ministers of a church and have an agreement that each will perform specific services for which they are paid jointly or separately, they must divide the self-employment income according to the agreement. Students and tax returns If the agreement is with one spouse only and the other spouse is not paid for any specific duties, amounts received for their services are included only in the self-employment income of the spouse having the agreement. Students and tax returns Earnings Subject to SE Tax For 2013, the maximum net earnings from self-employment subject to social security (old age, survivors, and disability insurance) tax is $113,700 minus any wages and tips you earned that were subject to social security tax. Students and tax returns The tax rate for the social security part is 12. Students and tax returns 4%. Students and tax returns In addition, all of your net earnings are subject to the Medicare (hospital insurance) part of the SE tax. Students and tax returns This tax rate is 2. Students and tax returns 9%. Students and tax returns The combined self-employment tax rate is 15. Students and tax returns 3%. Students and tax returns Additional Medicare Tax. Students and tax returns   Beginning in 2013, a 0. Students and tax returns 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Students and tax returns Medicare wages and self-employment income are combined to determine if income exceeds the threshold. Students and tax returns A self-employment loss is not considered for purposes of this tax. Students and tax returns RRTA compensation is separately compared to the threshold. Students and tax returns For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. Students and tax returns Nonfarm Optional Method You may be able to use the nonfarm optional method for figuring your net earnings from self-employment. Students and tax returns In general, the nonfarm optional method is intended to permit continued coverage for social security and Medicare purposes when your income for the tax year is low. Students and tax returns You may use the nonfarm optional method if you meet all the following tests. Students and tax returns You are self-employed on a regular basis. Students and tax returns You meet this test if your actual net earnings from self-employment were $400 or more in at least 2 of the 3 tax years before the one for which you use this method. Students and tax returns The net earnings can be from either farm or nonfarm earnings or both. Students and tax returns You have used this method less than 5 prior years. Students and tax returns (There is a 5-year lifetime limit. Students and tax returns ) The years do not have to be consecutive. Students and tax returns Your net nonfarm profits were: Less than $5,024, and Less than 72. Students and tax returns 189% of your gross nonfarm income. Students and tax returns If you meet all three tests, use Table 3 to figure your net earnings from self-employment under the nonfarm optional method. Students and tax returns Table 3. Students and tax returns Figuring Nonfarm Net Earnings IF your gross nonfarm income is . Students and tax returns . Students and tax returns . Students and tax returns THEN your net earnings are equal to . Students and tax returns . Students and tax returns . Students and tax returns $6,960 or less Two-thirds of your gross nonfarm income. Students and tax returns More than $6,960 $4,640. Students and tax returns Actual net earnings. Students and tax returns   Multiply your total earnings subject to SE tax by 92. Students and tax returns 35% (. Students and tax returns 9235) to get actual net earnings. Students and tax returns Actual net earnings are equivalent to net earnings under the “Regular Method. Students and tax returns ” More information. Students and tax returns   For more information on the nonfarm optional method, see Publication 334, Tax Guide for Small Business, and the Schedule SE (Form 1040) instructions. Students and tax returns Income Tax: Income and Expenses Some income and expense items are treated the same for both income tax and SE tax purposes and some are treated differently. Students and tax returns Note. Students and tax returns For purposes of this section, references to members of the clergy are only to ministers or members of a religious order. Students and tax returns Income Items The tax treatment of offerings and fees, outside earnings, rental allowances, rental value of a parsonage, earnings of members of religious orders, and foreign earned income is discussed here. Students and tax returns Offerings and Fees If you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Students and tax returns , in addition to your salary. Students and tax returns If the offering is made to the religious institution, it is not taxable to you. Students and tax returns Outside Earnings If you are a member of a religious organization and you give your outside earnings to the organization, you still must include the earnings in your income. Students and tax returns However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Students and tax returns For more information, see Publication 526. Students and tax returns Exclusion of Rental Allowance and Fair Rental Value of a Parsonage Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. Students and tax returns Services include: Ministerial services, discussed earlier, Administrative duties and teaching at theological seminaries, and The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia. Students and tax returns This exclusion applies only for income tax purposes. Students and tax returns It does not apply for SE tax purposes, as discussed earlier under Amounts included in gross income under Self-Employment Tax: Figuring Net Earnings. Students and tax returns Designation requirement. Students and tax returns   The church or organization that employs you must officially designate the payment as a housing allowance before it makes the payment. Students and tax returns It must designate a definite amount. Students and tax returns It cannot determine the amount of the housing allowance at a later date. Students and tax returns If the church or organization does not officially designate a definite amount as a housing allowance, you must include your total salary in your income. Students and tax returns   If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. Students and tax returns The local congregation must officially designate the part of your salary that is a housing allowance. Students and tax returns However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the national agency. Students and tax returns Rental allowances. Students and tax returns   If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: You use the amount to provide or rent a home, and The amount is not more than reasonable pay for your services. Students and tax returns   The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. Students and tax returns Fair rental value of parsonage. Students and tax returns   You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. Students and tax returns However, the exclusion cannot be more than the reasonable pay for your services. Students and tax returns If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost. Students and tax returns Example. Students and tax returns Rev. Students and tax returns Joanna Baker is a full-time minister. Students and tax returns The church allows her to use a parsonage that has an annual fair rental value of $24,000. Students and tax returns The church pays her an annual salary of $67,000, of which $7,500 is designated for utility costs. Students and tax returns Her actual utility costs during the year were $7,000. Students and tax returns For income tax purposes, Rev. Students and tax returns Baker excludes $31,000 from gross income ($24,000 fair rental value of the parsonage plus $7,000 from the allowance for utility costs). Students and tax returns She will report $60,000 ($59,500 salary plus $500 of unused utility allowance). Students and tax returns Her income for SE tax purposes, however, is $91,000 ($67,000 salary + $24,000 fair rental value of the parsonage). Students and tax returns Home ownership. Students and tax returns   If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of: The amount actually used to provide a home, The amount officially designated as a rental allowance, or The fair rental value of the home, including furnishings, utilities, garage, etc. Students and tax returns Excess rental allowance. Students and tax returns   You must include in gross income the amount of any rental allowance that is more than the smallest of: Your reasonable salary, The fair rental value of the home plus utilities, or The amount actually used to provide a home. Students and tax returns   Include in the total on Form 1040, line 7. Students and tax returns On the dotted line next to line 7, enter “Excess allowance” and the amount. Students and tax returns You may deduct the home mortgage interest and real estate taxes paid on your home even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance. Students and tax returns However, you can only deduct these expenses as itemized deductions on Schedule A (Form 1040). Students and tax returns Retired ministers. Students and tax returns   If you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance. Students and tax returns However, a minister's surviving spouse cannot exclude the rental value unless the rental value is for ministerial services he or she performs or performed. Students and tax returns Teachers or administrators. Students and tax returns   If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services for purposes of the housing exclusion. Students and tax returns However, if you perform services as a teacher or administrator on the faculty of a nonchurch college, you cannot exclude from your income a housing allowance or the value of a home that the college provides to you. Students and tax returns    If you live in faculty lodging as an employee of an educational institution or academic health center, all or part of the value of that lodging may be nontaxable under a different rule. Students and tax returns In Publication 525, see Faculty lodging in the discussion on meals and lodging under Fringe Benefits. Students and tax returns   If you serve as a minister of music or minister of education, or serve in an administrative or other function of your religious organization, but are not authorized to perform substantially all of the religious duties of an ordained minister in your church (even if you are commissioned as a minister of the gospel), the housing exclusion does not apply to you. Students and tax returns Theological students. Students and tax returns   If you are a theological student serving a required internship as a part-time or assistant pastor, you cannot exclude a parsonage or rental allowance from your income unless you are ordained, commissioned, or licensed as a minister. Students and tax returns Traveling evangelists. Students and tax returns   You can exclude a designated rental allowance from out-of-town churches if you meet all of the following requirements. Students and tax returns You are an ordained minister. Students and tax returns You perform ministerial services at churches located away from your community. Students and tax returns You actually use the rental allowance to maintain your permanent home. Students and tax returns Cantors. Students and tax returns   If you have a bona fide commission and your congregation employs you on a full-time basis to perform substantially all the religious functions of the Jewish faith, you can exclude a rental allowance from your gross income. Students and tax returns Earnings—Members of Religious Orders Your earnings may be exempt from both income tax and SE tax if you are a member of a religious order who: Has taken a vow of poverty, Receives earnings for services performed as an agent of the order and in the exercise of duties required by the order, and Renounces the earnings and gives them to the order. Students and tax returns See Members of Religious Orders , earlier, under Social Security Coverage. Students and tax returns Foreign Earned Income Certain income may be exempt from income tax if you work in a foreign country or in a specified U. Students and tax returns S. Students and tax returns possession. Students and tax returns Publication 54 discusses the foreign earned income exclusion. Students and tax returns Publication 570, Tax Guide for Individuals With Income From U. Students and tax returns S. Students and tax returns Possessions, covers the rules for taxpayers with income from U. Students and tax returns S. Students and tax returns possessions. Students and tax returns You can get these free publications from the Internal Revenue Service at IRS. Students and tax returns gov or from most U. Students and tax returns S. Students and tax returns Embassies or consulates. Students and tax returns Expense Items The tax treatment of ministerial trade or business expenses, expenses allocable to tax-free income, and health insurance costs is discussed here. Students and tax returns Ministerial Trade or Business Expenses as an Employee When you figure your income tax, you must itemize your deductions on Schedule A (Form 1040) to claim allowable deductions for ministerial trade or business expenses incurred while working as an employee. Students and tax returns You also may have to file Form 2106, Employee Business Expenses (or Form 2106-EZ, Unreimbursed Employee Business Expenses). Students and tax returns You claim these expenses as miscellaneous itemized deductions that are subject to the 2%-of-adjusted-gross-income (AGI) limit. Students and tax returns See Publication 529 for more information on this limit. Students and tax returns However, you cannot deduct any of your employee business expenses that are allocable to tax-free income (discussed next). Students and tax returns Expenses Allocable to Tax-Free Income If you receive a rental or parsonage allowance that is exempt from income tax (tax free), you must allocate a portion of the expenses of operating your ministry to that tax-free income. Students and tax returns You cannot deduct the portion of your expenses that you allocate to your tax-free rental or parsonage allowance. Students and tax returns Exception. Students and tax returns   This rule does not apply to your deductions for home mortgage interest or real estate taxes on your home. Students and tax returns Figuring the allocation. Students and tax returns   Figure the portion of your otherwise deductible expenses that you cannot deduct (because you must allocate that portion to tax-free income) by multiplying the expenses by the following fraction:      Tax-free rental or parsonage allowance     All income (taxable and tax free) earned from your ministry           When figuring the allocation, include the income and expenses related to the ministerial duties you perform both as an employee and as a self-employed person. Students and tax returns    Reduce your otherwise deductible expenses only in figuring your income tax, not your SE tax. Students and tax returns Example. Students and tax returns Rev. Students and tax returns Charles Ashford received $40,000 in earnings for ministerial services consisting of a $28,000 salary for ministerial services performed as an employee, $2,000 for weddings and baptisms performed as a self-employed person, and a $10,000 tax-free parsonage allowance. Students and tax returns He incurred $4,000 of unreimbursed expenses connected with his earnings for ministerial services. Students and tax returns $3,500 of the $4,000 is for employee expenses related to his ministerial salary, and $500 is related to the weddings and baptisms he performed as a self-employed person. Students and tax returns Rev. Students and tax returns Ashford figures the nondeductible (tax-free) portion of expenses related to his ministerial salary as follows: ($10,000 ÷ $40,000) x $3,500 = $875   Rev. Students and tax returns Ashford figures the nondeductible (tax-free) portion of expenses related to his wedding and baptism income as follows: ($10,000 ÷ $40,000) x $500 = $125 Required statement. Students and tax returns   If you receive a tax-free rental or parsonage allowance and have ministerial expenses, attach a statement to your tax return. Students and tax returns The statement must contain all of the following information. Students and tax returns A list of each item of taxable ministerial income by source (such as wages, salary, weddings, baptisms, etc. Students and tax returns ) plus the amount. Students and tax returns A list of each item of tax-free ministerial income by source (parsonage allowance) plus the amount. Students and tax returns A list of each item of otherwise deductible ministerial expenses plus the amount. Students and tax returns How you figured the nondeductible part of your otherwise deductible expenses. Students and tax returns A statement that the other deductions claimed on your tax return are not allocable to your tax-free income. Students and tax returns   See the attachments prepared for the Comprehensive Example , later. Students and tax returns Following the example, you will find blank worksheets for your own use. Students and tax returns Health Insurance Costs of Self-Employed Ministers If you are self-employed, you may be able to deduct the amount you paid in 2013 for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents. Students and tax returns If you qualify, you can take this deduction as an adjustment to income on Form 1040, line 29. Students and tax returns See the Instructions for Form 1040 to figure your deduction. Students and tax returns The following special rules apply to the self-employed health insurance deduction. Students and tax returns You cannot take a medical expense deduction on Schedule A (Form 1040) for any expenses you claim for purposes of the self-employed health insurance deduction. Students and tax returns You cannot take the deduction for any month you are eligible to participate in a subsidized plan of your (or your spouse's) employer. Students and tax returns The deduction cannot exceed your net earnings from the business under which the insurance plan is established. Students and tax returns Your net earnings under this rule do not include the income you earned as a common-law employee (discussed earlier) of a church. Students and tax returns More information. Students and tax returns   For more information about the self-employed health insurance deduction, see chapter 6 in Publication 535. Students and tax returns Deduction for SE Tax You can deduct one-half of your SE tax in figuring adjusted gross income. Students and tax returns This is an income tax deduction only, on Form 1040, line 27. Students and tax returns Do not claim this deduction in figuring net earnings from self-employment subject to SE tax. Students and tax returns Income Tax Withholding and Estimated Tax The federal income tax is a pay-as-you-go tax. Students and tax returns You must pay the tax as you earn or receive income during the year. Students and tax returns An employee usually has income tax withheld from his or her wages or salary. Students and tax returns However, your salary is not subject to federal income tax withholding if both of the following conditions apply. Students and tax returns You are a duly ordained, commissioned, or licensed minister, a member of a religious order (who has not taken a vow of poverty), or a Christian Science practitioner or reader. Students and tax returns Your salary is for ministerial services (see Ministerial Services , earlier). Students and tax returns If your salary is not subject to withholding, or if you do not pay enough tax through withholding, you may need to make estimated tax payments to avoid penalties for not paying enough tax as you earn your income. Students and tax returns You generally must make estimated tax payments if you expect to owe taxes, including SE tax, of $1,000 or more, when you file your return. Students and tax returns Determine your estimated tax by using the worksheets in Publication 505, Tax Withholding and Estimated Tax. Students and tax returns Pay the entire estimated tax for 2014 or the first installment by April 15, 2014. Students and tax returns See Form 1040-ES for the different payment methods. Students and tax returns The April 15 date applies whether or not your tax home and your abode are outside the United States and Puerto Rico. Students and tax returns For more information, see chapter 2 of Publication 505. Students and tax returns If you perform your services as a common-law employee of the church and your salary is not subject to income tax withholding, you can enter into a voluntary withholding agreement with the church to cover any income and SE tax that may be due. Students and tax returns Filing Your Return You must file an income tax return for 2013 if your gross income was at least the amount shown in the third column of Table 4 above. Students and tax returns Table 4. Students and tax returns 2013 Filing Requirements for Most Taxpayers IF your filing status is . Students and tax returns . Students and tax returns . Students and tax returns AND at the end of 2013 you were* . Students and tax returns . Students and tax returns . Students and tax returns THEN file a return if your gross income** was at least . Students and tax returns . Students and tax returns . Students and tax returns single under age 65 65 or older   $10,000 $11,500   married filing jointly*** under 65 (both spouses) 65 or older (one spouse) 65 or older (both spouses)   $20,000  $21,200  $22,400   married filing separately any age   $3,900   head of household under 65 65 or older   $12,850 $14,350   qualifying widow(er) with dependent child under 65 65 or older   $16,100  $17,300   * If you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. Students and tax returns ** Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Students and tax returns Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2013, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). Students and tax returns If (a) or (b) applies, see the instructions for Form 1040, lines 20a and 20b, to figure the taxable part of social security benefits you must include in gross income. Students and tax returns Gross income includes gains, but not losses, reported on Form 8949 or Schedule D (Form 1040). Students and tax returns Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Students and tax returns But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. Students and tax returns *** If you did not live with your spouse at the end of 2013 (or on the date your spouse died) and your gross income was at least $3,900, you must file a return regardless of your age. Students and tax returns Additional requirements. Students and tax returns   Even if your income was less than the amount shown in Table 4, you must file an income tax return on Form 1040, and attach a completed Schedule SE (Form 1040), if:    You are not exempt from SE tax, and you have net earnings from self-employment (discussed earlier under Self-Employment Tax: Figuring Net Earnings ) of $400 or more in the tax year, You are exempt from SE tax on earnings from ministerial services and you have $400 or more of other net earnings subject to SE tax, or You had wages of $108. Students and tax returns 28 or more from an electing church or church-controlled organization (see Coverage of Religious Workers (Church Employees) , earlier, under Social Security Coverage). Students and tax returns Self-employment tax. Students and tax returns   If you are liable for SE tax, you must file Schedule SE (Form 1040) with your return. Students and tax returns   If you filed Form 4361 and did not receive approval from the IRS, you must pay SE tax on your ministerial earnings, as explained earlier. Students and tax returns You should report ministerial earnings and expenses from nonemployee ministerial services on Schedule C or C-EZ (Form 1040). Students and tax returns You should then carry the net amount over to line 2 of Schedule SE (Form 1040), Section A or B. Students and tax returns However, if you were a duly ordained minister who was an employee of a church and you must pay SE tax on the wages you earned for those services, do not report those wages on Schedule C or C-EZ (Form 1040). Students and tax returns Instead, report those wages less any allowable expenses (including any unreimbursed employee business expenses), on line 2 of Schedule SE (Form 1040), Section A or B, and attach an explanation. Students and tax returns Note. Students and tax returns For income tax purposes, the unreimbursed employee business expenses that you incurred as an employee of the church and subtracted from your wages on line 2 of Schedule SE (Form 1040) are allowed only as an itemized deduction on Schedule A (Form 1040) if they exceed 2% of your adjusted gross income. Students and tax returns You cannot deduct these expenses on Schedule C or C-EZ (Form 1040) as a trade or business expense. Students and tax returns Exemption from SE tax. Students and tax returns   If you filed Form 4361 and received IRS approval not to be taxed on your ministerial earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Students and tax returns Instead, enter “Exempt—Form 4361” on the dotted line next to Form 1040, line 56. Students and tax returns However, if you had net earnings from another trade or business of $400 or more subject to SE tax, see line A at the top of Schedule SE (Form 1040), Section B. Students and tax returns    If you filed Form 4029 and received IRS approval not to be taxed on those earnings, and you do not have any other income subject to SE tax, do not file Schedule SE (Form 1040). Students and tax returns Instead, enter “Exempt—Form 4029” on the dotted line next to Form 1040, line 56. Students and tax returns More information. Students and tax returns   For more information on filing your return, including when and where to file it, see the Instructions for Form 1040. Students and tax returns Retirement Savings Arrangements Retirement savings arrangements are plans that offer you a tax-favored way to save for your retirement. Students and tax returns You generally can deduct your contributions to the plan. Students and tax returns Your contributions and the earnings on them are not taxed until they are distributed. Students and tax returns Retirement plans for the self-employed. Students and tax returns   To set up one of the following plans you must be self-employed. Students and tax returns SEP (simplified employee pension) plan. Students and tax returns SIMPLE (savings incentive match plan for employees) plan. Students and tax returns Qualified retirement plan (also called a Keogh or H. Students and tax returns R. Students and tax returns 10 plan). Students and tax returns   The common-law rules determine whether you are an employee or a self-employed person for purposes of setting up a retirement plan. Students and tax returns See Employment status for other tax purposes under Coverage of Members of the Clergy, earlier. Students and tax returns This result is true even if your compensation for ministerial services (defined earlier) is subject to SE tax. Students and tax returns   For example, if a congregation pays you a salary for performing ministerial services and you are subject to the congregation's control, you generally are a common-law employee. Students and tax returns You are not a self-employed person for purposes of setting up a retirement plan. Students and tax returns This result is true even if your salary is subject to SE tax. Students and tax returns   On the other hand, amounts received directly from members of the congregation, such as fees for performing marriages, baptisms, or other personal services that you report on Schedule C or C-EZ (Form 1040), are earnings from self-employment for all tax purposes. Students and tax returns   For more information on establishing a SEP, SIMPLE, or qualified retirement plan, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Students and tax returns Individual retirement arrangements (IRAs). Students and tax returns   The traditional IRA and the Roth IRA are two individual retirement arrangements you can use to save money for your retirement. Students and tax returns Generally, your maximum contribution for 2013 to either of these plans (or to a combination of the two) is the smaller of your taxable compensation or $5,500 ($6,500 if you are age 50 or older). Students and tax returns   However, your maximum contribution to a Roth IRA will be further reduced or eliminated if your adjusted gross income is above a certain amount. Students and tax returns You cannot deduct Roth IRA contributions, but if you satisfy certain requirements, all earnings in the Roth IRA are tax free and neither your nondeductible contributions nor any earnings on them are taxable when distributed. Students and tax returns   If you contribute to a traditional IRA, your contribution may be deductible. Students and tax returns However, your deduction may be reduced or eliminated if you or your spouse is covered by an employer retirement plan (including, but not limited to, a SEP, SIMPLE, or qualified retirement plan). Students and tax returns   For more information on IRAs, see Publication 590. Students and tax returns Tax-sheltered annuity plans. Students and tax returns   Church employees, members of religious orders, and duly ordained, commissioned, or licensed ministers working as ministers or chaplains can participate in tax-sheltered annuity (403(b)) plans. Students and tax returns For more