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

Www onlinetaxes h&rblock com 1. Www onlinetaxes h&rblock com   Bona Fide Residence Table of Contents Presence TestDays of Presence in the United States or Relevant Possession Significant Connection Tax HomeExceptions Closer ConnectionException for Year of Move Special Rules in the Year of a MoveYear of Moving to a Possession Year of Moving From a Possession Reporting a Change in Bona Fide ResidenceWho Must File Penalty for Not Filing Form 8898 In order to qualify for certain tax benefits (see chapter 3), you must be a bona fide resident of American Samoa, the CNMI, Guam, Puerto Rico, or the USVI for the entire tax year. Www onlinetaxes h&rblock com Generally, you are a bona fide resident of one of these possessions (the relevant possession) if, during the tax year, you: Meet the presence test, Do not have a tax home outside the relevant possession, and Do not have a closer connection to the United States or to a foreign country than to the relevant possession. Www onlinetaxes h&rblock com Special rule for members of the U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com Armed Forces. Www onlinetaxes h&rblock com   If you are a member of the U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com Armed Forces who qualified as a bona fide resident of the relevant possession in an earlier tax year, your absence from that possession during the current tax year in compliance with military orders will not affect your status as a bona fide resident. Www onlinetaxes h&rblock com Likewise, being in a possession solely in compliance with military orders will not qualify you for bona fide residency. Www onlinetaxes h&rblock com Also see the special income source rule for members of the U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com Armed Forces in chapter 2, under Compensation for Labor or Personal Services . Www onlinetaxes h&rblock com Special rule for civilian spouse of active duty member of the U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com Armed Forces. Www onlinetaxes h&rblock com   If you are the civilian spouse of an active duty servicemember, under Military Spouses Residency Relief Act (MSRRA) you can choose to keep your prior residence or domicile for tax purposes (tax residence) when accompanying the servicemember spouse, who is relocating under military orders, to a new military duty station in one of the 50 states, the District of Columbia, or a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com possession. Www onlinetaxes h&rblock com Before relocating, you and your spouse must have the same tax residence. Www onlinetaxes h&rblock com If you are a civilian spouse and choose to keep your prior tax residence after such relocation, the source of income for services performed (for example, wages, salaries, tips, or self-employment) by you is considered to be (the jurisdiction of) the prior tax residence. Www onlinetaxes h&rblock com As a result, the amount of income tax withholding (from Form(s) W-2, Wage and Tax Statement) that you are able to claim on your federal return, as well as the need to file a state or U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com possession return, may be affected. Www onlinetaxes h&rblock com For more information, consult with state, local, or U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com possession tax authorities regarding your tax obligations under MSRRA. Www onlinetaxes h&rblock com Presence Test If you are a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen or resident alien, you will satisfy the presence test for the entire tax year if you meet one of the following conditions. Www onlinetaxes h&rblock com You were present in the relevant possession for at least 183 days during the tax year. Www onlinetaxes h&rblock com You were present in the relevant possession for at least 549 days during the 3-year period that includes the current tax year and the 2 immediately preceding tax years. Www onlinetaxes h&rblock com During each year of the 3-year period, you must be present in the relevant possession for at least 60 days. Www onlinetaxes h&rblock com You were present in the United States for no more than 90 days during the tax year. Www onlinetaxes h&rblock com You had earned income in the United States of no more than a total of $3,000 and were present for more days in the relevant possession than in the United States during the tax year. Www onlinetaxes h&rblock com Earned income is pay for personal services performed, such as wages, salaries, or professional fees. Www onlinetaxes h&rblock com You had no significant connection to the United States during the tax year. Www onlinetaxes h&rblock com Special rule for nonresident aliens. Www onlinetaxes h&rblock com   Conditions (1) through (5) above do not apply to nonresident aliens of the United States. Www onlinetaxes h&rblock com Instead, nonresident aliens must meet the substantial presence test discussed in chapter 1 of Publication 519. Www onlinetaxes h&rblock com In that discussion, substitute the name of the possession for “United States” and “U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com ” wherever they appear. Www onlinetaxes h&rblock com Disregard the discussion in that chapter about a Closer Connection to a Foreign Country. Www onlinetaxes h&rblock com Days of Presence in the United States or Relevant Possession Generally, you are treated as being present in the United States or in the relevant possession on any day that you are physically present in that location at any time during the day. Www onlinetaxes h&rblock com Days of presence in a possession. Www onlinetaxes h&rblock com   You are considered to be present in the relevant possession on any of the following days. Www onlinetaxes h&rblock com Any day you are physically present in that possession at any time during the day. Www onlinetaxes h&rblock com Any day you are outside of the relevant possession in order to receive, or to accompany any of the following family members to receive, qualifying medical treatment (see Qualifying Medical Treatment , later). Www onlinetaxes h&rblock com Your parent. Www onlinetaxes h&rblock com Your spouse. Www onlinetaxes h&rblock com Your child, who is your son, daughter, stepson, or stepdaughter. Www onlinetaxes h&rblock com This includes an adopted child or child lawfully placed with you for legal adoption. Www onlinetaxes h&rblock com This also includes a foster child who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Www onlinetaxes h&rblock com Any day you are outside the relevant possession because you leave or are unable to return to the relevant possession during any: 14-day period within which a major disaster occurs in the relevant possession for which a Federal Emergency Management Agency (FEMA) notice of a federal declaration of a major disaster is issued in the Federal Register, or Period for which a mandatory evacuation order is in effect for the geographic area in the relevant possession in which your main home is located. Www onlinetaxes h&rblock com   If, during a single day, you are physically present: In the United States and in the relevant possession, that day is considered a day of presence in the relevant possession; or In two possessions, that day is considered a day of presence in the possession where your tax home is located (see Tax Home , later). Www onlinetaxes h&rblock com Days of presence in the United States. Www onlinetaxes h&rblock com   You are considered to be present in the United States on any day that you are physically present in the United States at any time during the day. Www onlinetaxes h&rblock com However, do not count the following days as days of presence in the United States. Www onlinetaxes h&rblock com Any day you are temporarily present in the United States in order to receive, or to accompany a parent, spouse, or child who is receiving, qualifying medical treatment. Www onlinetaxes h&rblock com “Child” is defined under item 2c earlier. Www onlinetaxes h&rblock com “Qualifying medical treatment” is defined later. Www onlinetaxes h&rblock com Any day you are temporarily present in the United States because you leave or are unable to return to the relevant possession during any: 14-day period within which a major disaster occurs in the relevant possession for which a Federal Emergency Management Agency (FEMA) notice of a federal declaration of a major disaster is issued in the Federal Register, or Period for which a mandatory evacuation order is in effect for the geographic area in the relevant possession in which your main home is located. Www onlinetaxes h&rblock com Any day you are in the United States for less than 24 hours when you are traveling between two places outside the United States. Www onlinetaxes h&rblock com Any day you are temporarily present in the United States as a professional athlete to compete in a charitable sports event (defined later). Www onlinetaxes h&rblock com Any day you are temporarily in the United States as a student (defined later). Www onlinetaxes h&rblock com Any day you are in the United States serving as an elected representative of the relevant possession, or serving full time as an elected or appointed official or employee of the government of that possession (or any of its political subdivisions). Www onlinetaxes h&rblock com Qualifying Medical Treatment Such treatment is generally provided by (or under the supervision of) a physician for an illness, injury, impairment, or physical or mental condition. Www onlinetaxes h&rblock com The treatment generally involves: Any period of inpatient care that requires an overnight stay in a hospital or hospice, and any period immediately before or after that inpatient care to the extent it is medically necessary, or Any temporary period of inpatient care in a residential medical care facility for medically necessary rehabilitation services. Www onlinetaxes h&rblock com With respect to each qualifying medical treatment, you must prepare (or obtain) and maintain documentation supporting your claim that such treatment meets the criteria to be considered days of presence in the relevant possession. Www onlinetaxes h&rblock com You must be able to produce this documentation within 30 days if requested by the IRS or tax administrator for the relevant possession. Www onlinetaxes h&rblock com You must keep the following documentation. Www onlinetaxes h&rblock com Records that provide: The patient's name and relationship to you (if the medical treatment is provided to a person you accompany); The name and address of the hospital, hospice, or residential medical care facility where the medical treatment was provided; The name, address, and telephone number of the physician who provided the medical treatment; The date(s) on which the medical treatment was provided; and Receipt(s) of payment for the medical treatment. Www onlinetaxes h&rblock com Signed certification by the providing or supervising physician that the medical treatment met the requirements for being qualified medical treatment, and setting forth: The patient's name, A reasonably detailed description of the medical treatment provided by (or under the supervision of) the physician, The dates on which the medical treatment was provided, and The medical facts that support the physician's certification and determination that the treatment was medically necessary. Www onlinetaxes h&rblock com Charitable Sports Event A charitable sports event is one that meets all of the following conditions. Www onlinetaxes h&rblock com The main purpose is to benefit a qualified charitable organization. Www onlinetaxes h&rblock com The entire net proceeds go to charity. Www onlinetaxes h&rblock com Volunteers perform substantially all the work. Www onlinetaxes h&rblock com In figuring the days of presence in the United States, you can exclude only the days on which you actually competed in the charitable sports event. Www onlinetaxes h&rblock com You cannot exclude the days on which you were in the United States to practice for the event, to perform promotional or other activities related to the event, or to travel between events. Www onlinetaxes h&rblock com Student To qualify as a student, you must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or A student taking a full-time, on-farm training course given by a school described in (1) above or by a state, county, or local government agency. Www onlinetaxes h&rblock com The 5 calendar months do not have to be consecutive. Www onlinetaxes h&rblock com Full-time student. Www onlinetaxes h&rblock com   A full-time student is a person who is enrolled for the number of hours or courses the school considers to be full-time attendance. Www onlinetaxes h&rblock com However, school attendance exclusively at night is not considered full-time attendance. Www onlinetaxes h&rblock com School. Www onlinetaxes h&rblock com   The term “school” includes elementary schools, middle schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical schools. Www onlinetaxes h&rblock com It does not include on-the-job training courses, correspondence schools, and schools offering courses only through the Internet. Www onlinetaxes h&rblock com Significant Connection One way in which you can meet the presence test is to have no significant connection to the United States during the tax year. Www onlinetaxes h&rblock com This section looks at the factors that determine if a significant connection exists. Www onlinetaxes h&rblock com You are treated as having a significant connection to the United States if you: Have a permanent home in the United States, Are currently registered to vote in any political subdivision of the United States, or Have a spouse or child (see item 2c under Days of presence in a possession , earlier) who is under age 18 whose main home is in the United States, other than: A child who is in the United States because he or she is the child of divorced or legally separated parents and is living with a custodial parent under a custodial decree or multiple support agreement, or A child who is in the United States as a student. Www onlinetaxes h&rblock com For the purpose of determining if you have a significant connection to the United States, the term “spouse” does not include a spouse from whom you are legally separated under a decree of divorce or separate maintenance. Www onlinetaxes h&rblock com Permanent home. Www onlinetaxes h&rblock com   A permanent home generally includes an accommodation such as a house, an apartment, or a furnished room that is either owned or rented by you or your spouse. Www onlinetaxes h&rblock com The dwelling unit must be available at all times, continuously, not only for short stays. Www onlinetaxes h&rblock com Exception for rental property. Www onlinetaxes h&rblock com   If you or your spouse own the dwelling unit and at any time during the tax year it is rented to someone else at fair rental value, it will be considered your permanent home only if you or your spouse use that property for personal purposes for more than the greater of: 14 days, or 10% of the number of days during that tax year that the property is rented to others at a fair rental value. Www onlinetaxes h&rblock com   You are treated as using rental property for personal purposes on any day the property is not being rented to someone else at fair rental value for the entire day. Www onlinetaxes h&rblock com   A day of personal use of a dwelling unit is also any day that the unit is used by any of the following persons. Www onlinetaxes h&rblock com You or any other person who has an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement. Www onlinetaxes h&rblock com A member of your family or a member of the family of any other person who has an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Www onlinetaxes h&rblock com Family includes only brothers and sisters, half-brothers and half-sisters, spouses, ancestors (parents, grandparents, etc. Www onlinetaxes h&rblock com ), and lineal descendants (children, grandchildren, etc. Www onlinetaxes h&rblock com ). Www onlinetaxes h&rblock com Anyone under an arrangement that lets you use some other dwelling unit. Www onlinetaxes h&rblock com Anyone at less than a fair rental price. Www onlinetaxes h&rblock com   However, any day you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Www onlinetaxes h&rblock com Whether your property is used mainly for this purpose is determined in light of all the facts and circumstances, such as: The amount of time you devote to repair and maintenance work, How often during the tax year you perform repair and maintenance work on this property, and The presence and activities of companions. Www onlinetaxes h&rblock com   See Publication 527, Residential Rental Property, for more information about personal use of a dwelling unit. Www onlinetaxes h&rblock com Example—significant connection. Www onlinetaxes h&rblock com Ann Green, a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen, is a sales representative for a company based in Guam. Www onlinetaxes h&rblock com Ann lives with her spouse and young children in their house in Guam, where she is also registered to vote. Www onlinetaxes h&rblock com Her business travel requires her to spend 120 days in the United States and another 120 days in foreign countries. Www onlinetaxes h&rblock com When traveling on business, Ann generally stays at hotels but sometimes stays with her brother, who lives in the United States. Www onlinetaxes h&rblock com Ann's stays are always of short duration and she asks her brother's permission to stay with him. Www onlinetaxes h&rblock com Her brother's house is not her permanent home, nor does she have any other accommodations in the United States that would be considered her permanent home. Www onlinetaxes h&rblock com Ann satisfies the presence test because she has no significant connection to the United States. Www onlinetaxes h&rblock com Example—presence test. Www onlinetaxes h&rblock com Eric and Wanda Brown live for part of the year in a condominium, which they own, in the CNMI. Www onlinetaxes h&rblock com They also own a house in Maine where they live for 120 days every year to be near their grown children and grandchildren. Www onlinetaxes h&rblock com The Browns are retired and their only income is from pension payments, dividends, interest, and social security benefits. Www onlinetaxes h&rblock com In 2013, they spent only 175 days in the CNMI because of a 70-day vacation to Europe and Asia. Www onlinetaxes h&rblock com Thus, in 2013, the Browns were not present in the CNMI for at least 183 days, were present in the United States for more than 90 days, and had a significant connection to the United States because of their permanent home. Www onlinetaxes h&rblock com However, the Browns still satisfied the presence test with respect to the CNMI because they had no earned income in the United States and were physically present for more days in the CNMI than in the United States. Www onlinetaxes h&rblock com Tax Home You will have met the tax home test if you did not have a tax home outside the relevant possession during any part of the tax year. Www onlinetaxes h&rblock com Your tax home is your regular or main place of business, employment, or post of duty regardless of where you maintain your family home. Www onlinetaxes h&rblock com If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. Www onlinetaxes h&rblock com If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. Www onlinetaxes h&rblock com Exceptions There are some special rules regarding tax home that provide exceptions to the general rule stated above. Www onlinetaxes h&rblock com Students and Government Officials Disregard the following days when determining whether you have a tax home outside the relevant possession. Www onlinetaxes h&rblock com Days you were temporarily in the United States as a student (see Student under Days of Presence in the United States or Relevant Possession, earlier). Www onlinetaxes h&rblock com Days you were in the United States serving as an elected representative of the relevant possession, or serving full time as an elected or appointed official or employee of the government of that possession (or any of its political subdivisions). Www onlinetaxes h&rblock com Seafarers You will not be considered to have a tax home outside the relevant possession solely because you are employed on a ship or other seafaring vessel that is predominantly used in local and international waters. Www onlinetaxes h&rblock com For this purpose, a vessel is considered to be predominantly used in local and international waters if, during the tax year, the total amount of time it is used in international waters and in the waters within 3 miles of the relevant possession exceeds the total amount of time it is used in the territorial waters of the United States, another possession, or any foreign country. Www onlinetaxes h&rblock com Example. Www onlinetaxes h&rblock com In 2013, Sean Silverman, a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen, was employed by a fishery and spent 250 days at sea on a fishing vessel. Www onlinetaxes h&rblock com When not at sea, Sean lived with his spouse at a house they own in American Samoa. Www onlinetaxes h&rblock com The fishing vessel on which Sean works departs and arrives at various ports in American Samoa, other possessions, and foreign countries, but was in international or American Samoa's local waters for 225 days. Www onlinetaxes h&rblock com For purposes of determining bona fide residency of American Samoa, Sean will not be considered to have a tax home outside that possession solely because of his employment on board the fishing vessel. Www onlinetaxes h&rblock com Year of Move If you are moving to or from a possession during the year, you may still be able to meet the tax home test for that year. Www onlinetaxes h&rblock com See Special Rules in the Year of a Move , later in this chapter. Www onlinetaxes h&rblock com Closer Connection You will have met the closer connection test if, during any part of the tax year, you do not have a closer connection to the United States or a foreign country than to the relevant U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com possession. Www onlinetaxes h&rblock com You will be considered to have a closer connection to a possession than to the United States or to a foreign country if you have maintained more significant contacts with the possession(s) than with the United States or foreign country. Www onlinetaxes h&rblock com In determining if you have maintained more significant contacts with the relevant possession, the facts and circumstances to be considered include, but are not limited to, the following. Www onlinetaxes h&rblock com The location of your permanent home. Www onlinetaxes h&rblock com The location of your family. Www onlinetaxes h&rblock com The location of personal belongings, such as automobiles, furniture, clothing, and jewelry owned by you and your family. Www onlinetaxes h&rblock com The location of social, political, cultural, professional, or religious organizations with which you have a current relationship. Www onlinetaxes h&rblock com The location where you conduct your routine personal banking activities. Www onlinetaxes h&rblock com The location where you conduct business activities (other than those that go into determining your tax home). Www onlinetaxes h&rblock com The location of the jurisdiction in which you hold a driver's license. Www onlinetaxes h&rblock com The location of the jurisdiction in which you vote. Www onlinetaxes h&rblock com The location of charitable organizations to which you contribute. Www onlinetaxes h&rblock com The country of residence you designate on forms and documents. Www onlinetaxes h&rblock com The types of official forms and documents you file, such as Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), or Form W-9, Request for Taxpayer Identification Number and Certification. Www onlinetaxes h&rblock com Your connections to the relevant possession will be compared to the total of your connections with the United States and foreign countries. Www onlinetaxes h&rblock com Your answers to the questions on Form 8898, Part III, will help establish the jurisdiction to which you have a closer connection. Www onlinetaxes h&rblock com Example—closer connection to the United States. Www onlinetaxes h&rblock com Marcos Reyes, a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen, moved to Puerto Rico in 2013 to start an investment consulting and venture capital business. Www onlinetaxes h&rblock com His spouse and two teenage children remained in California to allow the children to complete high school. Www onlinetaxes h&rblock com He traveled back to the United States regularly to see his spouse and children, to engage in business activities, and to take vacations. Www onlinetaxes h&rblock com Marcos had an apartment available for his full-time use in Puerto Rico, but remained a joint owner of the residence in California where his spouse and children lived. Www onlinetaxes h&rblock com Marcos and his family had automobiles and personal belongings such as furniture, clothing, and jewelry located at both residences. Www onlinetaxes h&rblock com Although Marcos was a member of the Puerto Rico Chamber of Commerce, he also belonged to and had current relationships with social, political, cultural, and religious organizations in California. Www onlinetaxes h&rblock com Marcos received mail in California, including bank and brokerage statements and credit card bills. Www onlinetaxes h&rblock com He conducted his personal banking activities in California. Www onlinetaxes h&rblock com He held a California driver's license and was also registered to vote there. Www onlinetaxes h&rblock com Based on all of the particular facts and circumstances pertaining to Marcos, he was not a bona fide resident of Puerto Rico in 2013 because he had a closer connection to the United States than to Puerto Rico. Www onlinetaxes h&rblock com Closer connection to another possession. Www onlinetaxes h&rblock com   Generally, possessions are not treated as foreign countries. Www onlinetaxes h&rblock com Therefore, a closer connection to a possession other than the relevant possession will not be treated as a closer connection to a foreign country. Www onlinetaxes h&rblock com Example—tax home and closer connection to possession. Www onlinetaxes h&rblock com Pearl Blackmon, a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen, is a permanent employee of a hotel in Guam, but works only during the tourist season. Www onlinetaxes h&rblock com For the remainder of each year, Pearl lives with her spouse and children in the CNMI, where she has no outside employment. Www onlinetaxes h&rblock com Most of Pearl's personal belongings, including her automobile, are located in the CNMI. Www onlinetaxes h&rblock com She is registered to vote in, and has a driver's license issued by, the CNMI. Www onlinetaxes h&rblock com She does her personal banking in the CNMI and routinely lists her CNMI address as her permanent address on forms and documents. Www onlinetaxes h&rblock com Pearl satisfies the presence test with respect to both Guam and the CNMI. Www onlinetaxes h&rblock com She satisfies the tax home test with respect to Guam, because her regular place of business is in Guam. Www onlinetaxes h&rblock com Pearl satisfies the closer connection test with respect to both Guam and the CNMI, because she does not have a closer connection to the United States or to any foreign country. Www onlinetaxes h&rblock com Pearl is considered a bona fide resident of Guam, the location of her tax home. Www onlinetaxes h&rblock com Exception for Year of Move If you are moving to or from a possession during the year, you may still be able to meet the closer connection test for that year. Www onlinetaxes h&rblock com See Special Rules in the Year of a Move , next. Www onlinetaxes h&rblock com Special Rules in the Year of a Move If you are moving to or from a possession during the year, you may still be able to meet the tax home and closer connection tests for that year. Www onlinetaxes h&rblock com Year of Moving to a Possession You will satisfy the tax home and closer connection tests in the tax year of changing your residence to the relevant possession if you meet all of the following. Www onlinetaxes h&rblock com You have not been a bona fide resident of the relevant possession in any of the 3 tax years immediately preceding your move. Www onlinetaxes h&rblock com In the year of the move, you do not have a tax home outside the relevant possession or a closer connection to the United States or a foreign country than to the relevant possession during any of the last 183 days of the tax year. Www onlinetaxes h&rblock com You are a bona fide resident of the relevant possession for each of the 3 tax years immediately following your move. Www onlinetaxes h&rblock com Example. Www onlinetaxes h&rblock com Dwight Wood, a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen, files returns on a calendar year basis. Www onlinetaxes h&rblock com He lived in the United States from January 2007 through May 2013. Www onlinetaxes h&rblock com In June 2013 he moved to the USVI, purchased a house, and accepted a permanent job with a local employer. Www onlinetaxes h&rblock com From July 1 through December 31, 2013 (more than 183 days), Dwight's principal place of business was in the USVI and, during that time, he did not have a closer connection to the United States or a foreign country than to the USVI. Www onlinetaxes h&rblock com If he is a bona fide resident of the USVI during all of 2014 through 2016, he will satisfy the tax home and closer connection tests for 2013. Www onlinetaxes h&rblock com If Dwight also satisfies the presence test in 2013, he will be considered a bona fide resident of the USVI for the entire 2013 tax year. Www onlinetaxes h&rblock com Year of Moving From a Possession In the year you cease to be a bona fide resident of American Samoa, the CNMI, Guam, or the USVI, you will satisfy the tax home and closer connection tests with respect to the relevant possession if you meet all of the following. Www onlinetaxes h&rblock com You have been a bona fide resident of the relevant possession for each of the 3 tax years immediately preceding your change of residence. Www onlinetaxes h&rblock com In the year of the move, you do not have a tax home outside the relevant possession or a closer connection to the United States or a foreign country than to the relevant possession during any of the first 183 days of the tax year. Www onlinetaxes h&rblock com You are not a bona fide resident of the relevant possession for any of the 3 tax years immediately following your move. Www onlinetaxes h&rblock com Example. Www onlinetaxes h&rblock com Jean Aspen, a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen, files returns on a calendar year basis. Www onlinetaxes h&rblock com From January 2010 through December 2012, Jean was a bona fide resident of American Samoa. Www onlinetaxes h&rblock com Jean continued to live there until September 6, 2013, when she accepted new employment and moved to Hawaii. Www onlinetaxes h&rblock com Jean's principal place of business from January 1 through September 5, 2013 (more than 183 days), was in American Samoa, and during that period Jean did not have a closer connection to the United States or a foreign country than to American Samoa. Www onlinetaxes h&rblock com If Jean continues to live and work in Hawaii for the rest of 2013 and throughout years 2014 through 2016, she will satisfy the tax home and closer connection tests for 2013 with respect to American Samoa. Www onlinetaxes h&rblock com If Jean also satisfies the presence test in 2013, she will be considered a bona fide resident for the entire 2013 tax year. Www onlinetaxes h&rblock com Puerto Rico You will be considered a bona fide resident of Puerto Rico for the part of the tax year preceding the date on which you move if you: Are a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen, Are a bona fide resident of Puerto Rico for at least 2 tax years immediately preceding the tax year of the move, Cease to be a bona fide resident of Puerto Rico during the tax year, Cease to have a tax home in Puerto Rico during the tax year, and Have a closer connection to Puerto Rico than to the United States or a foreign country throughout the part of the tax year preceding the date on which you cease to have a tax home in Puerto Rico. Www onlinetaxes h&rblock com Example. Www onlinetaxes h&rblock com Randy White, a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen, files returns on a calendar year basis. Www onlinetaxes h&rblock com For all of 2011 and 2012, Randy was a bona fide resident of Puerto Rico. Www onlinetaxes h&rblock com From January through April 2013, Randy continued to reside and maintain his principal place of business in and closer connection to Puerto Rico. Www onlinetaxes h&rblock com On May 5, 2013, Randy moved and changed his tax home to Nevada. Www onlinetaxes h&rblock com Later that year he established a closer connection to the United States than to Puerto Rico. Www onlinetaxes h&rblock com Randy did not satisfy the presence test for 2013 with respect to Puerto Rico, nor the tax home or closer connection tests. Www onlinetaxes h&rblock com However, because Randy was a bona fide resident of Puerto Rico for at least 2 tax years before he moved to Nevada in 2013, he was a bona fide resident of Puerto Rico from January 1 through May 4, 2013. Www onlinetaxes h&rblock com Reporting a Change in Bona Fide Residence If you became or ceased to be a bona fide resident of a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com possession, you may need to file Form 8898. Www onlinetaxes h&rblock com This applies to the U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com possessions of American Samoa, the CNMI, Guam, Puerto Rico, and the USVI. Www onlinetaxes h&rblock com Who Must File You must file Form 8898 for the tax year in which you meet both of the following conditions. Www onlinetaxes h&rblock com Your worldwide gross income (defined below) in that tax year is more than $75,000. Www onlinetaxes h&rblock com You meet one of the following. Www onlinetaxes h&rblock com You take a position for U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com tax purposes that you became a bona fide resident of a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com possession after a tax year for which you filed a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com income tax return as a citizen or resident alien of the United States but not as a bona fide resident of the possession. Www onlinetaxes h&rblock com You are a citizen or resident alien of the United States who takes the position for U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com tax purposes that you ceased to be a bona fide resident of a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com possession after a tax year for which you filed an income tax return (with the IRS, the possession tax authority, or both) as a bona fide resident of the possession. Www onlinetaxes h&rblock com You take the position for U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com tax purposes that you became a bona fide resident of Puerto Rico or American Samoa after a tax year for which you were required to file an income tax return as a bona fide resident of the CNMI, Guam, or the USVI. Www onlinetaxes h&rblock com Worldwide gross income. Www onlinetaxes h&rblock com   Worldwide gross income means all income you received in the form of money, goods, property, and services, including any income from sources outside the United States (even if you can exclude part or all of it) and before any deductions, credits, or rebates. Www onlinetaxes h&rblock com Example. Www onlinetaxes h&rblock com You are a U. Www onlinetaxes h&rblock com S. Www onlinetaxes h&rblock com citizen who moved to the CNMI in December 2012, but did not become a bona fide resident of that possession until the 2013 tax year. Www onlinetaxes h&rblock com You must file Form 8898 for the 2013 tax year if your worldwide gross income for that year was more than $75,000. Www onlinetaxes h&rblock com Penalty for Not Filing Form 8898 If you are required to file Form 8898 for any tax year and you fail to file it, you may owe a penalty of $1,000. Www onlinetaxes h&rblock com You may also owe this penalty if you do not include all the information required by the form or the form includes incorrect information. Www onlinetaxes h&rblock com In either case, you will not owe this penalty if you can show that such failure is due to reasonable cause and not willful neglect. Www onlinetaxes h&rblock com This is in addition to any criminal penalty that may be imposed. Www onlinetaxes h&rblock com Prev  Up  Next   Home   More Online Publications