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Q Are alimony payments considered taxable income?
A Alimony, separate maintenance, and similar payments from your spouse or former spouse are taxable to you in the year received:
The amount is reported on Form 1040 (PDF).
You cannot use Form 1040A (PDF) or Form 1040EZ (PDF).
To help determine if these payments are considered alimony, please read the following rules that apply to payments under divorce or separation instruments executed after 1984. They also apply to instruments that were modified after 1984 to specify that the following rules apply or to change the amount or period of payment or to add or delete any contingency or condition.
A payment to or for a spouse or former spouse under a divorce or separation instrument is alimony, if the spouses do not file a joint return with each other, if all the following conditions are met:
(1) The payment must be made by cash, check, money order, etc.
(2) The instrument does not designate the payments as not includible in the gross income of the recipient spouse and not deductible by the payor spouse.
(3) The spouses are not members of the same household at the time the payments are made. Exception: If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree or court order may qualify as alimony even if you are members of the same household at the time of payment.
(4) There is no liability for payments after the death of the recipient spouse.
(5) The payment is not treated as child support.
Q Are child support payments considered taxable income?
A No, child support payments are neither deductible by the payer nor taxable to the payee.
When you total your gross income to see if you are required to file a tax return, do not include child support payments received.
Q I am receiving long-term disability. Is it considered taxable?
A You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer:
If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that is due to your employer’s payments is reported as income.
If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive for your disability as income on your tax return.
If you pay the premiums of a health or accident insurance plan through a cafeteria plan, and the amount of the premium was not included as taxable income to you, the premiums are considered paid by your employer, and the disability benefits are fully taxable.
If the amounts are taxable, you can submit a Form W-4S (PDF), Request for Federal Income Tax Withholding, to the insurance company, or
Make estimated tax payments by filing Form 1040-ES (PDF), Estimated Tax for Individuals.
Amounts you receive from your employer while you are sick or injured are part of your salary or wages.
Report the amount you receive on the line for Wages, salaries, tips, etc., on Form 1040 (PDF); Form 1040A (PDF); Form 1040EZ (PDF).
You must include in your income sick pay from any of the following:
A welfare fund.
A state sickness or disability fund.
An association of employers or employees.
An insurance company, if your employer paid for the plan.
Payments you receive from qualified long-term care insurance contracts will generally be excluded from income as reimbursement of medical expenses received for personal injury or sickness under an accident and health insurance contract. Also, certain payments received under a life insurance contract on the life of a terminally or chronically ill individual (accelerated death benefits) can be excluded from income. Refer to Publication 907, Tax Highlights for Persons with Disabilities.
You may be able to deduct your out-of-pocket expenses for medical care above any reimbursements, if you are eligible to itemize your deductions. You will need to review Publication 502, Medical and Dental Expenses.
For more information, refer to Publication 907, Tax Highlights for Persons with Disabilities.
Q My child has joined Americorps and has received an income statement. Are these payments taxable?
A If you receive an award is listed on a Form 1099-Misc, box-3 other income for $4725.00 with no withholding, than this is reported on line for Other Income on the Form 1040.
As with many foundations of this nature, tax information can be found on the website for the organization.
Visit to website for the foundation for information on their programs and assistance with this issue.
Q Are the amounts a taxpayer receives from a "reverse mortgage" taxable or non taxable income? I've looked in publications 525, 936, 530 and 17 and couldn't find any relevant information.
A Interest on a reverse mortgage loan that is added monthly to the outstanding loan balance as it accrues is neither includible in a cash method lender's gross income nor deductible by a cash method borrower at the time it is added.
The primary purpose of a reverse mortgage loan is to enable elderly persons with limited incomes to remain in their homes.
Repayment of the loan is due when the principal amount has been fully paid to the borrower (they receive monthly allotments),
The residence that secures the loan is sold,
The borrower dies, or
The borrower ceases to use the home as the borrower's principal residence.
Q This is the first year that I received a distribution of benefits from my 401(k) plan. Are any of my benefits taxable?
A If you receive retirement benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partly taxable in the year received.
Your pension or annuity is usually fully taxable:
If your employer contributed all of the cost without including the cost in your taxable wages, or
If you got back all of your previously taxed contributions tax free in previous years.
Generally, your pension or annuity will be partially taxable:
If you contributed after-tax dollars.
You will not pay tax on the part of the payment that represents a return of the after-tax amount you paid.
If you receive pension or annuity payments before age 59-1/2, you may be subject to an additional 10% tax on early distributions. See Publication 575.
Q What is the maximum amount that I can contribute to my 401(k) plan?
A The rules for retirement plans are complex. Your plan administrator should have written information about your particular plan that explains the limitations imposed by law as well as other limitations that apply under the plan:
The maximum amount an employee can contribute to a 401(k) plan is set each year.
If you are age 50 or older, you may be allowed to make additional contributions (commonly referred to as catch-up contributions) in addition to annual limit.
The maximum amount applies to an employee's aggregate pre-tax contributions to a 401(k) plan and 403(b) plan.
There are several different limits that apply to a 401(k) plan in addition to the overall contribution limit.
These limits, your salary, and the type of 401(k) plan to which you are contributing may limit your 401(k) contributions to a lesser amount.
Q If taxes are withheld from a distribution from a 401(k) plan, am I required to include the amount of the distribution as income and also pay the 10% additional tax?
A Generally, you need to include in income the total amount of the distribution, as reported on Form 1099-R (PDF), Distributions From Pensions, Annuities, Retirement on Profit-Sharing Plans, IRAs Insurance Contracts, etc.
If the distribution occurs before you are age 59 1/2, you may need to pay a 10% additional tax on early distributions unless you meet one of the exceptions. See Publication 575, Pension and Annuity Income.
The federal income tax withheld from the 401(k) distribution along with federal income tax withheld from other sources should be reported on the appropriate line of your federal tax return.
Q Can I withdraw my elective contributions to a 401(k) plan penalty free to build or purchase my first home?
A Elective contributions to a 401(k) plan are subject to certain distribution restrictions. See Publication 560, Publication 575 and Tax Topic 424.
Generally, the exception for using retirement funds to build or purchase your first home does not apply to a distribution of your elective contributions from a 401(k) plan.
If you are under the age of 59 1/2, a distribution (including a distribution of employer matching and profit sharing contributions) from your 401(k) plan subject to a 10% additional tax on early distributions. This 10% additional tax is in addition to other taxes that apply to the distribution.
However, a 401(k) plan may permit loans and hardship distributions. Depending on the terms of your 401(k) plan, you may be able to receive a loan or hardship distribution to build or purchase your first home.
Your plan administrator or employer should have written information about your particular plan (including the availability of loans or hardship distributions and applicable requirements) as well as other plan rules.
Q If I retire or leave my employer for any reason (including due to being laid off) before I am age 59 1/2, can I withdraw my vested benefits under that employer's 401(k) plan, without having to pay a 10% additional tax? What if I were 55 or older when I separated from service with my employer?
A Generally, unless an exception applies, a distribution of your benefits from a 401(k) plan before age 59 ½ is subject to the 10% additional tax on early distributions from retirement plans. See Publication 575, Pension and Annuity Income .
For example, a distribution of your entire benefit under a 401(k) plan that is made after separation from service and age 55 is not subject to the 10% tax.
Q How long do I have to roll over a retirement distribution?
AYou must complete the rollover by the 60th day following the day on which you receive the distribution. (This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution).
A written explanation of rollover must be given to you by the plan making the distribution.
The IRS may waive the 60 day requirement where failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control.
To obtain the waiver in most cases, a request for a letter ruling must be made which include the applicable user fee. Refer to the first Internal Revenue Bulletin of each year to get the Internal Revenue Procedure for requesting a letter ruling.
Q I am a plan sponsor. Where can I find additional information on retirement plan document design requirements and the IRS Determination Letter Program?
A You may find additional information on the IRS website.
Q How do I complete Form 2441 if I have a flexible spending account?
A You must complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses, (or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers) to exclude the dependent care benefit from income even if you cannot claim the child and dependent care credit.
Enter your total employer-provided dependent care benefit on the correct line (this amount should appear in Box 10 of your Form W-2) and your qualified expenses on the correct line.
The last lines of Part III will help you determine whether you can also take the credit and the dollar limit on qualified expenses.
Also complete Part I, Persons or Organizations Who Provided the Care.
Q My babysitter refused to provide me with her social security number. Can I still claim the amount I paid to the babysitter for child care while I worked? If so, how do I claim these child care expenses on my tax return?
A Yes, if you meet the other requirements to claim the child and dependent care credit, but are missing the social security number or other taxpayer identification number of a provider, you can still claim the credit by demonstrating "due diligence" in attempting to secure this information.
If a provider of child care refuses to give the identifying information, the taxpayer can still claim the credit.
The taxpayer must provide whatever information is available about the provider (such as name and address) on Form 2441 (PDF), Child and Dependent Care Expenses, or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers.
Write "see page 2" in the columns requesting the missing information.
Write at the bottom of page 2 that the provider refused to give the requested information.
This statement will show that the taxpayer used due diligence in trying to secure and furnish the identifying information.
Q Can I claim both the child tax credit and the child and dependent care credit?
A You can claim both the child tax credit and the child and dependent care credit on the same return if you qualify for both credits.
If you qualify for one or both credits, you can claim the credits on Form 1040 (PDF), U.S. Individual Income Tax Return, or Form 1040A (PDF), U.S. Individual Income Tax Return.
Refer to "Child tax credit" in the index to the Form 1040 Instructions or the Form 1040A Instructions .
The instructions will explain who qualifies for the child tax credit, and how to calculate it.
Q Can I claim the credit for the elderly or the permanently and totally disabled?
A To qualify for this credit, you must be age 65 or older or permanently and totally disabled and your income and nontaxable social security and other nontaxable pension benefits must be below specified amounts.
Q What expenses qualify for the education credits?
A Expenses that qualify for an education credit are qualified tuition and related expenses required for enrollment or attendance at an eligible educational institution.
An eligible educational institution includes most accredited colleges, universities, vocational schools, or other postsecondary educational institutions eligible to participate in the student aid programs administered by the Department of Education.
Qualified expenses do not include expenses for:
Student activities,
Athletics (unless the course is part of the student's degree program),
Room and board,
Insurance,
Transportation, or similar personal, living, or family expenses.
The cost of books and equipment are generally not qualified expenses because eligible educational institutions usually do not require that the cost of the books or equipment be paid to the institution as a condition of the student's enrollment or attendance at the institution.
Q Do tuition and related expenses paid to attend a private high schools qualify for the education credits?
A No. Expenses paid to attend high school do not qualify for the education credits because a high school is not an eligible educational institution.
In general, an eligible educational institution is an accredited college, university, vocational school, or other postsecondary educational institution, including an accredited, public, nonprofit, or proprietary (private-owned, profit-making) postsecondary institution.
Additionally, in order to be an eligible educational institution, the school must be eligible to participate in a student aid program administered by the Department of Education.
Q If I pay college tuition and fees with a scholarship, can I claim an education credit on Form 8863 for those payments?
A No, you can not claim a credit for the amount of higher education expenses paid by a tax-free scholarship.
Q Who can claim the Hope Credit?
A Generally, you can claim the Hope Credit if all three of the following requirements are met:
You pay qualified tuition and related expenses for the first 2 years of postsecondary education.
You pay the tuition and related expenses for an eligible student.
The eligible student is either you, your spouse, or a dependent for whom you claim an exemption on your tax return.
You cannot claim the Hope Credit if any of the following applies:
Your filing status is married filing separately.
You are listed as a dependent in the Exemptions section of another person's tax return (such as your parents').
Your modified adjusted gross income can not be above a certain dollar amount.
You (or your spouse) were a nonresident alien for any part of the tax year and the nonresident alien did not elect to be treated as a resident alien for tax purposes. (For additional information, refer to Publication 519, U.S. Tax Guide for Aliens).
You claim the Lifetime Learning Credit for the same student in the same year.
In general, the Hope Credit is based on tuition and related expenses required for enrollment or attendance at an eligible educational institution.
For a taxpayer to claim the Hope Credit, the student for whom you pay tuition and related expenses must be an eligible student. To be an eligible student, the student must:
Not have had expenses that were used to figure a Hope Credit in any 2 earlier tax years.
Not have completed the first 2 years of postsecondary education (generally, the freshman and sophomore years of college) before this tax year.
Must have been enrolled at least half-time in a program that leads to a degree, certificate, or other recognized educational credential for at least one academic period beginning in the tax year.
Must have been free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.
Q What is a Lifetime Learning Credit?
A The Lifetime Learning Credit is a nonrefundable tax credit with a dollar limit per family that is available for qualified tuition and related expenses of higher education whether the student is at the undergraduate or graduate level.
The Lifetime Learning Credit is calculated by taking a percentage of the qualified educational expenses paid.
Q Must I be entitled to claim a child as a dependent to claim the earned income credit based on the child being my qualifying child?
A You do not have to be entitled to claim the child as a dependent to claim the earned income credit based on the child being your qualifying child.
If the child is married, you must be entitled to claim the child as a dependent.
The reason you are not entitled to claim your married child as a dependent is because you released a claim to a dependency exemption for the child under the special rule for divorced or separated parents or parents who live apart.
Q If the noncustodial parent receives permission from the custodial parent to claim a child on his or her tax return, is the noncustodial parent eligible for the earned income credit?
A No. The noncustodial parent cannot claim the earned income credit on the basis of that child because the child did not live with that parent for more than half of the tax year, and therefore does not meet the residency test.
The custodial parent may be able to claim the earned income credit.
Q My wife and I have two children and we are going to file separate returns this year. Can we each claim one child for the earned income credit?
A No. In order to qualify for the earned income credit, your filing status cannot be married filing separately.
If you are married, you usually must file a joint return to claim the earned income credit.
If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household.
In that case, you may be able to claim the earned income credit.
Q If both parents want to claim the earned income credit but were never married, who is entitled to claim the credit?
A If the child is a qualifying child of both parents, they may choose which one will claim the credit.
If there are two qualifying children, each parent may claim the credit on the basis of one of the children.
One parent may claim the credit on the basis of both children.
If both claim the credit on the basis of the same child, the parent who is entitled to the credit, is the parent with whom the child lived for the longer period of time during the tax year, or the parent with the higher adjusted gross income (AGI) if the child lived with each parent for the same amount of time during the yea
Q Is an S-Corporation required to pay quarterly estimated tax?
A Rarely does an S corporation make estimated tax payments.
An S Corporation must make installment payments of estimated tax if the total of these taxes is $500 or more:
The tax on certain capital gains,
The tax on built-in gains,
The excess net passive income tax, and
The investment recapture tax.
Q Do self-employment taxes need to be paid quarterly or yearly?
A If you are required to make estimated tax payments, self-employment tax is paid by making quarterly estimated tax payments which include both income tax and social security tax.
Q When are the quarterly estimated tax returns due?
A You only make estimated tax payments using payment vouchers. There is not an estimated tax return.
Your first estimated tax payment is usually due the 15th of April.
You may pay the entire year's estimated tax at that time, or
You may pay your estimated tax in four payments that are due April 15th, June 15th, September 15th, and January 15th of the following year.
If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or legal holiday.
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