2017 Publication 554 P554

User Manual: 554

Open the PDF directly: View PDF PDF.
Page Count: 34

Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 10 Draft Ok to Print
AH XSL/XML Fileid: … tions/P554/2017/A/XML/Cycle03/source (Init. & Date) _______
Page 1 of 34 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Department of the Treasury
Internal Revenue Service
Publication 554
Cat. No. 15102R
Tax Guide
for Seniors
For use in preparing
2017 Returns
Get forms and other information faster and easier at:
•IRS.gov (English)
•IRS.gov/Spanish (Español)
•IRS.gov/Chinese (中文)
•IRS.gov/Korean (한국어)
•IRS.gov/Russian (Pусский)
•IRS.gov/Vietnamese (TiếngViệt)
Contents
What's New .............................. 1
Reminders ............................... 2
Introduction .............................. 2
Chapter 1. 2017 Filing Requirements .......... 4
General Requirements .................... 4
Chapter 2. Taxable and Nontaxable Income ..... 5
Compensation for Services ................. 5
Retirement Plan Distributions ................ 6
Social Security and Equivalent Railroad
Retirement Benefits ................... 12
Sickness and Injury Benefits ............... 15
Life Insurance Proceeds .................. 16
Sale of Home .......................... 17
Reverse Mortgages ..................... 19
Other Items ........................... 19
Chapter 3. Adjustments to Income ........... 20
Individual Retirement Arrangement (IRA)
Contributions and Deductions ............ 20
Chapter 4. Deductions .................... 21
Standard Deduction ..................... 21
Itemized Deductions ..................... 22
Chapter 5. Credits ........................ 26
Credit for the Elderly or the Disabled ......... 26
Child and Dependent Care Credit ........... 29
Earned Income Credit (EIC) ................ 29
Chapter 6. Estimated Tax .................. 31
Who Must Make Estimated Tax Payments ..... 31
Chapter 7. How To Get Tax Help ............. 32
Future Developments
For the latest information about developments related to
Pub. 554, such as legislation enacted after it was
published, go to IRS.gov/Pub554.
What's New
Disaster tax relief. Disaster tax relief was enacted for
those impacted by certain Presidentially declared disas-
ters. The tax benefits provided by this relief include the fol-
lowing.
Tax-favored retirement plan withdrawals, repayments,
and loans.
An increased standard deduction based on qualified
disaster losses.
Election to use 2016 earned income to figure the 2017
earned income credit.
Jan 23, 2018
Page 2 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
To see if you were impacted by one of the Presiden-
tially declared disasters eligible for this relief or to get
more information about disaster tax relief, see Pub. 976.
Alternative minimum tax exemption increased. The
AMT exemption amount has increased to $54,300
($84,500 if married filing jointly or qualifying widow(er);
$42,250 if married filing separately).
Earned income credit. The maximum amount of income
you can earn and still get the credit has increased. You
may be able to take the credit if you earn less than:
$15,010 ($20,600 if married filing jointly), don't have a
qualifying child, and are at least 25 years old and un-
der 65;
$39,617 ($45,207 if married filing jointly), and you
have one qualifying child;
$45,007 ($50,597 if married filing jointly), and you
have two qualifying children; or
$48,340 ($53,930 if married filing jointly), and you
have three or more qualifying children.
For more information, see Earned Income Credit, later.
Exemption phaseout. You lose at least part of the bene-
fit of your exemptions if your adjusted gross income is
above a certain amount. For 2017, the phaseout begins at
$156,900 for married individuals filing separate returns;
$261,500 for single individuals; $287,650 for heads of
household; and $313,800 for married individuals filing
joint returns or qualifying widow(er)s. For more informa-
tion, see Phaseout of Exemptions in Pub. 501.
Limit on itemized deductions. Itemized deductions
may be reduced for taxpayers with an adjusted gross in-
come above $156,900. See Overall limitation, later.
Reminders
Tax return preparers. Choose your preparer carefully. If
you pay someone to prepare your return, the preparer is
required, under the law, to sign the return and fill in the
other blanks in the Paid Preparer's area of your return. Re-
member, however, that you are still responsible for the ac-
curacy of every item entered on your return. If there is any
underpayment, you are responsible for paying it, plus any
interest and penalty that may be due.
Third party designee. You can check the “Yes” box in
the Third Party Designee area of your return to authorize
the IRS to discuss your return with your preparer, a friend,
a family member, or any other person you choose. This al-
lows the IRS to call the person you identified as your des-
ignee to answer any questions that may arise during the
processing of your return. It also allows your designee to
perform certain actions. See your income tax return in-
structions for details.
Employment tax withholding. Your wages are subject
to withholding for income tax, social security tax, and
Medicare tax even if you are receiving social security ben-
efits.
Social security benefits information. Social security
beneficiaries may quickly and easily obtain various infor-
mation from SSA’s website with a my Social Security ac-
count, including getting a replacement SSA-1099 or SSA-
1042S. For more information, go to SSA.gov/myaccount.
See Obtaining social security information, later.
Photographs of missing children. The Internal Reve-
nue Service is a proud partner with the National Center for
Missing & Exploited Children® (NCMEC). Photographs of
missing children selected by the Center may appear in
this publication on pages that would otherwise be blank.
You can help bring these children home by looking at the
photographs and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.
Introduction
The purpose of this publication is to provide a general
overview of selected topics that are of interest to older tax-
payers. The publication will help you determine if you
need to file a return and, if so, what items to report on your
return. Each topic is discussed only briefly, so you will find
references to other free IRS publications that provide
more detail on these topics if you need it.
Table I has a list of questions you may have about filing
your federal tax return. To the right of each question is the
location of the answer in this publication. Also, at the back
of this publication there is an index to help you search for
the topic you need.
While most federal income tax laws apply equally to all
taxpayers, regardless of age, there are some provisions
that give special treatment to older taxpayers. The follow-
ing are some examples.
Higher gross income threshold for filing. You
must be age 65 or older at the end of the year to get
this benefit. You are considered age 65 on the day be-
fore your 65th birthday. Therefore, you are considered
age 65 at the end of the year if your 65th birthday is on
or before January 1 of the following year.
Higher standard deduction. If you don't itemize de-
ductions, you are entitled to a higher standard deduc-
tion if you are age 65 or older at the end of the year.
You are considered age 65 at the end of the year if
your 65th birthday is on or before January 1 of the fol-
lowing year.
Credit for the elderly or the disabled. If you qualify,
you may benefit from the credit for the elderly or the
disabled. To determine if you qualify and how to figure
this credit, see Credit for the Elderly or the Disabled,
later.
Return preparation assistance. The IRS wants to make
it easier for you to file your federal tax return. You may find
it helpful to visit a Volunteer Income Tax Assistance
(VITA), Tax Counseling for the Elderly (TCE), or American
Association of Retired Persons (AARP) Tax-Aide site near
you.
Page 2 Publication 554 (2017)
Page 3 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Volunteer Income Tax Assistance and Tax Coun-
seling for the Elderly. These programs provide free
help for low-income taxpayers and taxpayers age 60 or
older to fill in and file their returns. For the VITA/TCE site
nearest you, contact your local IRS office. For more infor-
mation, see Preparing and filing your tax return under How
To Get Tax Help.
AARP Tax-Aide. For the location of an AARP
Tax-Aide site in your community, call 1-888-227-7669.
When asked, be ready to press in or speak your 5-digit
ZIP code. Or you can visit their website on the Internet at
AARP.org/Money/TaxAide.
Comments and suggestions. We welcome your com-
ments about this publication and your suggestions for fu-
ture editions.
You can send us comments from IRS.gov/
FormComments. Or you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Although we cannot respond individually to each com-
ment received, we do appreciate your feedback and will
consider your comments as we revise our tax products.
Ordering forms and publications. Visit IRS.gov/
FormsPubs to download forms and publications. Other-
wise, you can go to IRS.gov/OrderForms to order current
and prior-year forms and instructions. Your order should
arrive within 10 business days.
Tax questions. If you have a tax question not an-
swered by this publication, check IRS.gov and How To
Get Tax Help at the end of this publication.
What You Should Know About Federal Taxes
Note. The following is a list of questions you may have about filling out your federal income tax return.
To the right of each question is the location of the answer in this publication.
What I Should Know Where To Find the Answer
Do I need to file a return? See chapter 1.
Is my income taxable or nontaxable?
If it is nontaxable, must I still report it?
See chapter 2.
How do I report benefits I received from the Social
Security Administration or the Railroad Retirement Board?
Are these benefits taxable?
See Social Security and Equivalent Railroad Retirement
Benefits in chapter 2.
Must I report the sale of my home?
If I had a gain, is any part of it taxable?
See Sale of Home in chapter 2.
What are some of the items that I can deduct to reduce my
income?
See chapters 3 and 4.
How do I report the amounts I set aside for my IRA? See Individual Retirement Arrangement Contributions
and Deductions in chapter 3.
Would it be better for me to claim the standard deduction
or itemize my deductions?
See chapter 4.
What are some of the credits I can claim to reduce my tax? See chapter 5 for discussions on the credit for the elderly
or the disabled, the child and dependent care credit, and
the earned income credit.
Must I make estimated tax payments? See chapter 6.
How do I contact the IRS or get more information? See chapter 7.
Table I.
Publication 554 (2017) Page 3
Page 4 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
1.
2017 Filing Requirements
If income tax was withheld from your pay, or if you qualify
for a refundable credit (such as the earned income credit,
the additional child tax credit, or the American opportunity
credit), you should file a return to get a refund even if you
aren't otherwise required to file a return.
Don't file a federal income tax return if you don't
meet the filing requirements and aren't due a re-
fund. If you need assistance to determine if you
need to file a federal income tax return for 2017, go to
IRS.gov/ITA and use the Interactive Tax Assistant (ITA).
You also can find the ITA by going to IRS.gov and enter-
ing “interactive tax assistant” in the search box. Open the
ITA and click on Do I Need to File a Tax Return under
Topics by Category.
TIP
General Requirements
If you are a U.S. citizen or resident alien, you must file a
return if your gross income for the year was at least the
amount shown on the appropriate line in Table 1-1. For
other filing requirements, see your tax return instructions
or Pub. 501, Exemptions, Standard Deduction, and Filing
Information. If you were a nonresident alien at any time
during the year, the filing requirements that apply to you
may be different from those that apply to U.S. citizens.
See Pub. 519, U.S. Tax Guide for Aliens.
Gross income. Gross income is all income you receive
in the form of money, goods, property, and services that
isn't exempt from tax. If you are married and live with your
spouse in a community property state, half of any income
defined by state law as community income may be con-
sidered yours. States with community property laws in-
clude Arizona, California, Idaho, Louisiana, Nevada, New
Mexico, Texas, Washington, and Wisconsin. A registered
domestic partner in Nevada, Washington, or California
generally must report half the combined community
2017 Filing Requirements Chart for Most Taxpayers
Note. You must file a return if your gross income was at least the amount shown in the last column.
IF your filing status is. . .
AND at the end of 2017
you were*. . .
THEN file a return if your
gross income** was at least. . .
.
Single under 65 $10,400
65 or older $11,950
Head of household under 65 $13,400
65 or older $14,950
Married filing jointly*** under 65 (both spouses) $20,800
65 or older (one spouse) $22,050
65 or older (both spouses) $23,300
Married filing separately any age (if your spouse itemizes
deductions)
$ 4,050
Qualifying widow(er) under 65 $16,750
65 or older $18,000
*If you were born before January 2, 1953, you are considered to be 65 or older at the end of 2017. (If your spouse died in
2017 or if you are preparing a return for someone who died in 2017, see Pub. 501.)
** Gross income means all income you receive in the form of money, goods, property, and services that isn't exempt from
tax, including any income from sources outside the United States or from the sale of your main home (even if you can
exclude part or all of it). It also includes gains, but not losses, reported on Form 8949 or Schedule D. Gross income from
a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. But, in figuring gross income,
don't reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9. Don't include
any social security benefits unless (a) you are married filing separately and you lived with your spouse at any time in 2017
or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than
$25,000 ($32,000 if married filing jointly). If (a) or (b) applies, see the Instructions for Form 1040 or Pub. 915, Social
Security and Equivalent Railroad Retirement Benefits, to figure the taxable part of social security benefits you must
include in gross income.
*** If you didn't live with your spouse at the end of 2017 (or on the date your spouse died) and your gross income was at
least $4,050, you must file a return regardless of your age.
Table 1-1.
Page 4 Chapter 1 2017 Filing Requirements
Page 5 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
income of the individual and his or her domestic partner.
For more information about community property, see Pub.
555, Community Property.
For more information on what to include in gross in-
come, see chapter 2.
Self-employed persons. If you are self-employed in a
business that provides services (where the production,
purchase, or sale of merchandise isn't an income-produc-
ing factor), gross income from that business is the gross
receipts. If you are self-employed in a business involving
manufacturing, merchandising, or mining, gross income
from that business is the total sales minus the cost of
goods sold. In either case, you must add any income from
investments and from incidental or outside operations or
sources. See Pub. 334, Tax Guide for Small Business, for
more information.
Dependents. If you could be claimed as a dependent by
another taxpayer (that is, you meet the dependency tests
in Pub. 501), special filing requirements apply. See Pub.
501.
Decedents
A personal representative of a decedent's estate can be
an executor, administrator, or anyone who is in charge of
the decedent's property.
If you are acting as the personal representative of a
person who died during the year, you may have to file a
final return for that decedent. You also have other duties,
such as notifying the IRS that you are acting as the per-
sonal representative. Form 56, Notice Concerning Fidu-
ciary Relationship, is available for this purpose.
When you file a return for the decedent, either as the
personal representative or as the surviving spouse, you
should write “DECEASED,” the decedent's name, and the
date of death across the top of the tax return.
If no personal representative has been appointed by
the due date for filing the return, the surviving spouse (on
a joint return) should sign the return and write in the signa-
ture area “Filing as surviving spouse.”
For more information, see Pub. 559, Survivors, Execu-
tors, and Administrators.
Surviving spouse. If you are the surviving spouse, the
year your spouse died is the last year for which you can
file a joint return with that spouse. After that, if you don't
remarry, you must file as a qualifying widow(er), head of
household, or single. For more information about each of
these filing statuses, see Pub. 501.
If you remarry before the end of the year in which your
spouse died, a final joint return with the deceased spouse
can't be filed. You can, however, file a joint return with
your new spouse. In that case, the filing status of your de-
ceased spouse for his or her final return is married filing
separately.
The level of income that requires you to file an in-
come tax return changes when your filing status
CAUTION
!
changes (see Table 1-1). Even if you and your deceased
spouse weren't required to file a return for several years,
you may have to file a return for tax years after the year of
death. For example, if your filing status changes from filing
jointly in 2016 to single in 2017 because of the death of
your spouse, and your gross income is $17,500 for both
years, you must file a return for 2017 even though you
didn't have to file a return for 2016.
2.
Taxable and
Nontaxable Income
Generally, income is taxable unless it is specifically ex-
empt (not taxed) by law. Your taxable income may include
compensation for services, interest, dividends, rents, roy-
alties, income from partnerships, estate or trust income,
gain from sales or exchanges of property, and business
income of all kinds.
Under special provisions of the law, certain items are par-
tially or fully exempt from tax. Provisions that are of spe-
cial interest to older taxpayers are discussed in this chap-
ter.
Compensation for Services
Generally, you must include in gross income everything
you receive in payment for personal services. In addition
to wages, salaries, commissions, fees, and tips, this in-
cludes other forms of compensation such as fringe bene-
fits and stock options.
You need not receive the compensation in cash for it to
be taxable. Payments you receive in the form of goods or
services generally must be included in gross income at
their fair market value.
Volunteer work. Don't include in your gross income
amounts you receive for supportive services or reimburse-
ments for out-of-pocket expenses under any of the follow-
ing volunteer programs.
Retired Senior Volunteer Program (RSVP).
Foster Grandparent Program.
Senior Companion Program.
Service Corps of Retired Executives (SCORE).
Unemployment compensation. You must include in in-
come all unemployment compensation you or your
spouse (if married filing jointly) received.
Chapter 2 Taxable and Nontaxable Income Page 5
Page 6 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
More information. See Pub. 525, Taxable and Nontaxa-
ble Income, for more detailed information on specific
types of income.
Retirement Plan Distributions
This section summarizes the tax treatment of amounts
you receive from traditional individual retirement arrange-
ments (IRA), employee pensions or annuities, and disabil-
ity pensions or annuities. A traditional IRA is any IRA that
isn't a Roth or SIMPLE IRA. A Roth IRA is an individual re-
tirement plan that can be either an account or an annuity
and features nondeductible contributions and tax-free dis-
tributions. A SIMPLE IRA is a tax-favored retirement plan
that certain small employers (including self-employed indi-
viduals) can set up for the benefit of their employees.
More detailed information can be found in Pub. 590-A,
Contributions to Individual Retirement Arrangements,
Pub. 590-B, Distributions from Individual Retirement Ar-
rangements, and Pub. 575, Pension and Annuity Income.
Individual Retirement Arrangements
(IRAs)
In general, distributions from a traditional IRA are taxable
in the year you receive them. Exceptions to the general
rule are rollovers, tax-free withdrawals of contributions,
and the return of nondeductible contributions. These are
discussed in Pub. 590-B.
If you made nondeductible contributions to a tra-
ditional IRA, you must file Form 8606, Nondeduc-
tible IRAs. If you don't file Form 8606 with your re-
turn, you may have to pay a $50 penalty. Also, when you
receive distributions from your traditional IRA, the
amounts will be taxed unless you can show, with satisfac-
tory evidence, that nondeductible contributions were
made.
Early distributions. Generally, early distributions are
amounts distributed from your traditional IRA account or
annuity before you are age 5912, or amounts you receive
when you cash in retirement bonds before you are age
5912. You must include early distributions of taxable
amounts in your gross income. These taxable amounts
also are subject to an additional 10% tax unless the distri-
bution qualifies for an exception. For purposes of the addi-
tional 10% tax, an IRA is a qualified retirement plan. For
more information about this tax, see Tax on Early Distribu-
tions under Pensions and Annuities, later.
After age 5912 and before age 7012. After you reach age
5912, you can receive distributions from your traditional
IRA without having to pay the 10% additional tax. Even
though you can receive distributions after you reach age
5912, you must begin calculating and receiving required
minimum distributions when you reach age 7012.
Required distributions. If you are the owner of a tradi-
tional IRA, you generally must receive the entire balance
TIP
in your IRA or start receiving periodic distributions from
your IRA by April 1 of the year following the year in which
you reach age 7012. See When Must You Withdraw As-
sets? (Required Minimum Distributions) in Pub. 590-B. If
distributions from your traditional IRA(s) are less than the
required minimum distribution for the year, you may have
to pay a 50% excise tax for that year on the amount not
distributed as required. For purposes of the 50% excise
tax, an IRA is a qualified retirement plan. For more infor-
mation about this tax, see Tax on Excess Accumulation
under Pensions and Annuities, later. See also Excess Ac-
cumulations (Insufficient Distributions) in Pub. 590-B.
Pensions and Annuities
Generally, if you didn't pay any part of the cost of your em-
ployee pension or annuity, and your employer didn't with-
hold part of the cost of the contract from your pay while
you worked, the amounts you receive each year are fully
taxable. However, see Insurance Premiums for Retired
Public Safety Officers, later.
If you paid part of the cost of your pension or annuity
plan (see Cost, later), you can exclude part of each annu-
ity payment from income as a recovery of your cost (in-
vestment in the contract). This tax-free part of the pay-
ment is figured when your annuity starts and remains the
same each year, even if the amount of the payment
changes. The rest of each payment is taxable. However,
see Insurance Premiums for Retired Public Safety Offi-
cers, later.
You figure the tax-free part of the payment using one of
the following methods.
Simplified Method. You generally must use this
method if your annuity is paid under a qualified plan (a
qualified employee plan, a qualified employee annuity,
or a tax-sheltered annuity plan or contract). You can't
use this method if your annuity is paid under a non-
qualified plan.
General Rule. You must use this method if your an-
nuity is paid under a nonqualified plan. You generally
can't use this method if your annuity is paid under a
qualified plan.
Contact your employer or plan administrator to
find out if your pension or annuity is paid under a
qualified or nonqualified plan.
You determine which method to use when you first be-
gin receiving your annuity, and you continue using it each
year that you recover part of your cost.
Exclusion limit. If your annuity starting date is after
1986, the total amount of annuity income you can exclude
over the years as a recovery of the cost can't exceed your
total cost. Any unrecovered cost at your (or the last annui-
tant's) death is allowed as a miscellaneous itemized de-
duction on the final return of the decedent. This deduction
isn't subject to the 2%-of-adjusted-gross-income limit on
miscellaneous deductions.
If you contributed to your pension or annuity and your
annuity starting date is before 1987, you can continue to
TIP
Page 6 Chapter 2 Taxable and Nontaxable Income
Page 7 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
take your monthly exclusion for as long as you receive
your annuity. If you chose a joint and survivor annuity,
your survivor can continue to take the survivor's exclusion
figured as of the annuity starting date. The total exclusion
may be more than your cost.
Cost. Before you can figure how much, if any, of your
pension or annuity benefits are taxable, you must deter-
mine your cost in the plan (your investment in the con-
tract). Your total cost in the plan includes everything that
you paid. It also includes amounts your employer contrib-
uted that were taxable to you when paid. However, see
Foreign employment contributions, later.
From this total cost, subtract any refunded premiums,
rebates, dividends, unrepaid loans, or other tax-free
amounts you received by the later of the annuity starting
date or the date on which you received your first payment.
Annuity starting date. The annuity starting date is the
later of the first day of the first period for which you re-
ceived a payment from the plan or the date on which the
plan's obligations became fixed.
The amount of your contributions to the plan may
be shown in box 9b of any Form 1099-R, Distribu-
tions From Pensions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance Contracts, etc., that
you receive.
Foreign employment contributions. If you worked
abroad, certain amounts your employer paid into your re-
tirement plan that weren't includible in your gross income
may be considered part of your cost. For details, see For-
eign employment contributions in Pub. 575.
Withholding. The payer of your pension, profit-sharing,
stock bonus, annuity, or deferred compensation plan will
withhold income tax on the taxable part of amounts paid to
you. However, you can choose not to have tax withheld on
the payments you receive, unless they are eligible rollover
distributions. (These are distributions that are eligible for
rollover treatment but aren't paid directly to another quali-
fied retirement plan or to a traditional IRA.) See Withhold-
ing Tax and Estimated Tax and Rollovers in Pub. 575 for
more information.
For payments other than eligible rollover distributions,
you can tell the payer how much to withhold by filing a
Form W-4P, Withholding Certificate for Pension or Annuity
Payments.
Simplified Method. Under the Simplified Method, you
figure the tax-free part of each annuity payment by divid-
ing your cost by the total number of anticipated monthly
payments. For an annuity that is payable over the lives of
the annuitants, this number is based on the annuitants'
ages on the annuity starting date and is determined from a
table. For any other annuity, this number is the number of
monthly annuity payments under the contract.
Who must use the Simplified Method. You must
use the Simplified Method if your annuity starting date is
after November 18, 1996, and you meet both of the follow-
ing conditions.
TIP
1. You receive your pension or annuity payments from a
qualified plan.
2. On your annuity starting date, at least one of the fol-
lowing conditions applies to you.
a. You are under age 75.
b. You are entitled to less than 5 years of guaranteed
payments.
If your annuity starting date is after July 1, 1986, and
before November 19, 1996, and you previously chose to
use the Simplified Method, you must continue to use it
each year that you recover part of your cost. You could
have chosen to use the Simplified Method if your annuity
is payable for your life (or the lives of you and your survi-
vor annuitant) and you met both of the conditions listed
above.
Guaranteed payments. Your annuity contract pro-
vides guaranteed payments if a minimum number of pay-
ments or a minimum amount (for example, the amount of
your investment) is payable even if you and any survivor
annuitant don't live to receive the minimum. If the mini-
mum amount is less than the total amount of the pay-
ments you are to receive, barring death, during the first 5
years after payments begin (figured by ignoring any pay-
ment increases), you are entitled to less than 5 years of
guaranteed payments.
Who can't use the Simplified Method. You can't use
the Simplified Method and must use the General Rule if
you receive pension or annuity payments from:
A nonqualified plan, such as a private annuity, a pur-
chased commercial annuity, or a nonqualified em-
ployee plan; or
A qualified plan if you are age 75 or older on your an-
nuity starting date and you are entitled to at least 5
years of guaranteed payments (defined above).
In addition, you had to use the General Rule for either
circumstance described above if your annuity starting
date is after July 1, 1986, and before November 19, 1996.
You also had to use it for any fixed-period annuity. If you
didn't have to use the General Rule, you could have
chosen to use it. You also had to use the General Rule for
payments from a qualified plan if your annuity starting
date is before July 2, 1986, and you didn't qualify to use
the Three-Year Rule.
If you had to use the General Rule (or chose to use it),
you must continue to use it each year that you recover
your cost.
Unless your annuity starting date was before 1987,
once you have recovered all of your non-taxable invest-
ment, all of each remaining payment you receive is fully
taxable. Once your remaining payments are fully taxable,
there is no longer a concern with the General Rule or Sim-
plified Method.
Complete information on the General Rule, including
the actuarial tables you need, is contained in Pub. 939,
General Rule for Pensions and Annuities.
Chapter 2 Taxable and Nontaxable Income Page 7
Page 8 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
How to use the Simplified Method. Complete the
Simplified Method Worksheet in the Form 1040, Form
1040A, or Form 1040NR instructions or in Pub. 575 to fig-
ure your taxable annuity for 2017. Be sure to keep the
completed worksheet; it will help you figure your taxable
annuity next year.
To complete line 3 of the worksheet, you must deter-
mine the total number of expected monthly payments for
your annuity. How you do this depends on whether the an-
nuity is for a single life, multiple lives, or a fixed period. For
this purpose, treat an annuity that is payable over the life
of an annuitant as payable for that annuitant's life even if
the annuity has a fixed-period feature or also provides a
temporary annuity payable to the annuitant's child under
age 25.
You don't need to complete line 3 of the work-
sheet or make the computation on line 4 if you re-
ceived annuity payments last year and used last
year's worksheet to figure your taxable annuity. Instead,
enter the amount from line 4 of last year's worksheet on
line 4 of this year's worksheet.
Single-life annuity. If your annuity is payable for your
life alone, use Table 1 at the bottom of the worksheet to
determine the total number of expected monthly pay-
ments. Enter on line 3 the number shown for your age on
your annuity starting date. This number will differ depend-
ing on whether your annuity starting date is before No-
vember 19, 1996, or after November 18, 1996.
Multiple-lives annuity. If your annuity is payable for
the lives of more than one annuitant, use Table 2 at the
bottom of the worksheet to determine the total number of
expected monthly payments. Enter on line 3 the number
shown for the annuitants' combined ages on the annuity
starting date. For an annuity payable to you as the primary
annuitant and to more than one survivor annuitant, com-
bine your age and the age of the youngest survivor annui-
tant. For an annuity that has no primary annuitant and is
payable to you and others as survivor annuitants, combine
the ages of the oldest and youngest annuitants. Don't treat
as a survivor annuitant anyone whose entitlement to pay-
ments depends on an event other than the primary annui-
tant's death.
However, if your annuity starting date is before 1998,
don't use Table 2 and don't combine the annuitants' ages.
Instead, you must use Table 1 at the bottom of the work-
sheet and enter on line 3 the number shown for the pri-
mary annuitant's age on the annuity starting date. This
number will differ depending on whether your annuity
starting date is before November 19, 1996, or after No-
vember 18, 1996.
Fixed-period annuities. If your annuity doesn't de-
pend in whole or in part on anyone's life expectancy, the
total number of expected monthly payments to enter on
line 3 of the worksheet is the number of monthly annuity
payments under the contract.
Line 6. The amount on line 6 should include all
amounts that could have been recovered in prior years. If
TIP
you didn't recover an amount in a prior year, you may be
able to amend your returns for the affected years.
Be sure to keep a copy of the completed work-
sheet; it will help you figure your taxable annuity in
later years.
Example. Bill Smith, age 65, began receiving retire-
ment benefits in 2017, under a joint and survivor annuity.
Bill's annuity starting date is January 1, 2017. The benefits
are to be paid over the joint lives of Bill and his wife, Ka-
thy, age 65. Bill had contributed $31,000 to a qualified
plan and had received no distributions before the annuity
starting date. Bill is to receive a retirement benefit of
$1,200 a month, and Kathy is to receive a monthly survi-
vor benefit of $600 upon Bill's death.
Bill must use the Simplified Method to figure his taxable
annuity because his payments are from a qualified plan
and he is under age 75. See the illustrated Worksheet
2-A, Simplified Method Worksheet, later. You can find a
blank version of this worksheet in Pub. 575. (The referen-
ces in the illustrated worksheet are to sections in Pub.
575.)
His annuity is payable over the lives of more than one
annuitant, so Bill uses his and Kathy's combined ages,
130 (65 + 65), and Table 2 at the bottom of the worksheet
in completing line 3 of the worksheet. He finds the line 3
amount to be 310.
Bill's tax-free monthly amount is $100 ($31,000 ÷ 310)
as shown on line 4 of the worksheet. Upon Bill's death, if
Bill hasn't recovered the full $31,000 investment, Kathy
will also exclude $100 from her $600 monthly payment.
The full amount of any annuity payments received after
310 payments generally must be included in gross in-
come.
If Bill and Kathy die before 310 payments are made, a
miscellaneous itemized deduction will be allowed for the
unrecovered cost on the final income tax return of the last
to die. This deduction isn't subject to the 2%-of-adjus-
ted-gross-income limit.
Survivors of retirees. Benefits paid to you as a survivor
under a joint and survivor annuity must be included in your
gross income in the same way the retiree would have in-
cluded them in gross income.
If you receive a survivor annuity because of the death
of a retiree who had reported the annuity under the
Three-Year Rule, include the total received in your in-
come. The retiree's cost has already been recovered tax
free.
If the retiree was reporting the annuity payments under
the General Rule, you must apply the same exclusion per-
centage the retiree used to your initial payment called for
in the contract. The resulting tax-free amount will then re-
main fixed. Any increases in the survivor annuity are fully
taxable.
If the retiree was reporting the annuity payments under
the Simplified Method, the part of each payment that is tax
free is the same as the tax-free amount figured by the re-
tiree at the annuity starting date. See Simplified Method,
earlier.
TIP
Page 8 Chapter 2 Taxable and Nontaxable Income
Page 9 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Simplified Method Worksheet—IllustratedWorksheet 2-A. Keep for Your Records
1. Enter the total pension or annuity payments received this year. Also, add this amount to the total for
Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a .......................... 1. $ 14,400
2. Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion.*
See Cost (Investment in the Contract), earlier ................................................. 2. 31,000
Note. If your annuity starting date was before this year and you completed this worksheet last year,
skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the
amount of your pension or annuity has changed). Otherwise, go to line 3.
3. Enter the appropriate number from Table 1 below. But if your annuity starting date was after 1997 and
the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2
below ................................................................................... 3. 310
4. Divide line 2 by the number on line 3 ......................................................... 4. 100
5. Multiply line 4 by the number of months for which this year's payments were made. If your annuity
starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11.
Otherwise, go to line 6 ..................................................................... 5. 1,200
6. Enter any amount previously recovered tax free in years after 1986. This is the amount shown on
line 10 of your worksheet for last year ........................................................ 6. 0
7. Subtract line 6 from line 2 .................................................................. 7. 31,000
8. Enter the smaller of line 5 or line 7 ........................................................... 8. 1,200
9. Taxable amount for year. Subtract line 8 from line 1. Enter the result, but not less than zero. Also,
add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.
Note. If your Form 1099-R shows a larger taxable amount, use the amount figured on this line
instead. If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety
Officers, earlier, before entering an amount on your tax return ................................... 9. $ 13,200
10. Was your annuity starting date before 1987?
Yes. STOP. Don't complete the rest of this worksheet.
No. Add lines 6 and 8. This is the amount you have recovered tax free through 2017. You will need
this number if you need to fill out this worksheet next year ...................................... 10. 1,200
11. Balance of cost to be recovered. Subtract line 10 from line 2. If zero, you won't have to complete
this worksheet next year. The payments you receive next year generally will be fully taxable ........ 11. $ 29,800
* A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21,
1996.
Table 1 for Line 3 Above
AND your annuity starting date was—
IF your age on your annuity
starting date was . . .
BEFORE November 19,
1996, enter on line 3 . . .
AFTER November 18,
1996, enter on line 3 . . .
55 or under 300 360
56 – 60 260 310
61 – 65 240 260
66 – 70 170 210
71 or over 120 160
Table 2 for Line 3 Above
IF the annuitants' combined
ages on your annuity starting
date were . . . THEN enter on line 3 . . .
110 or under 410
111 – 120 360
121 – 130 310
131 – 140 260
141 or over 210
Chapter 2 Taxable and Nontaxable Income Page 9
Page 10 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
How to report. If you file Form 1040, report your total an-
nuity on line 16a, and the taxable part on line 16b. If your
pension or annuity is fully taxable, enter it on line 16b.
Don't make an entry on line 16a.
If you file Form 1040A, report your total annuity on
line 12a, and the taxable part on line 12b. If your pension
or annuity is fully taxable, enter it on line 12b. Don't make
an entry on line 12a.
If you file Form 1040NR, report your total annuity on
line 17a, and the taxable part on line 17b. If your pension
or annuity is fully taxable, enter it on line 17b. Don't make
an entry on line 17a.
Example. You are a Form 1040 filer and you received
monthly payments totaling $1,200 (12 months x $100)
during 2017 from a pension plan that was completely fi-
nanced by your employer. You had paid no tax on the
payments that your employer made to the plan, and the
payments weren't used to pay for accident, health, or
long-term care insurance premiums (as discussed later
under Insurance Premiums for Retired Public Safety Offi-
cers). The entire $1,200 is taxable. You include $1,200
only on Form 1040, line 16b.
Joint return. If you file a joint return and you and your
spouse each receive one or more pensions or annuities,
report the total of the pensions and annuities on line 16a
of Form 1040, line 12a of Form 1040A, or line 17a of Form
1040NR. Report the total of the taxable parts on line 16b
of Form 1040, line 12b of Form 1040A, or line 17b of Form
1040NR.
Form 1099-R. You should receive a Form 1099-R for
your pension or annuity. Form 1099-R shows your pen-
sion or annuity for the year and any income tax withheld.
You should receive a Form W-2 if you receive distributions
from certain nonqualified plans.
You must attach Forms 1099-R or Forms W-2 to
your 2017 tax return if federal income tax was
withheld. Generally, you should be sent these
forms by January 31, 2018.
Nonperiodic Distributions
If you receive a nonperiodic distribution from your retire-
ment plan, you may be able to exclude all or part of it from
your income as a recovery of your cost. Nonperiodic distri-
butions include cash withdrawals, distributions of current
earnings (dividends) on your investment, and certain
loans. For information on how to figure the taxable amount
of a nonperiodic distribution, see Taxation of Nonperiodic
Payments in Pub. 575.
The taxable part of a nonperiodic distribution may
be subject to an additional 10% tax. See Tax on
Early Distributions, later.
Lump-sum distributions. If you receive a lump-sum dis-
tribution from a qualified employee plan or qualified em-
ployee annuity and the plan participant was born before
January 2, 1936, you may be able to elect optional meth-
ods of figuring the tax on the distribution. The part from
CAUTION
!
CAUTION
!
active participation in the plan before 1974 may qualify as
capital gain subject to a 20% tax rate. The part from par-
ticipation after 1973 (and any part from participation be-
fore 1974 that you don't report as capital gain) is ordinary
income. You may be able to use the 10-year tax option
(explained in Pub. 575) to figure tax on the ordinary in-
come part.
Form 1099-R. If you receive a total distribution from a
plan, you should receive a Form 1099-R. If the distribution
qualifies as a lump-sum distribution, box 3 shows the cap-
ital gain part of the distribution. The amount in box 2a,
Taxable amount, minus the amount in box 3, Capital gain,
is the ordinary income part.
More information. For more detailed information on
lump-sum distributions, see Pub. 575 or Form 4972, Tax
on Lump-Sum Distributions.
Tax on Early Distributions
Most distributions you receive from your qualified retire-
ment plan and nonqualified annuity contracts before you
reach age 5912 are subject to an additional tax of 10%.
The tax applies to the taxable part of the distribution.
For this purpose, a qualified retirement plan is:
A qualified employee plan (including a qualified cash
or deferred arrangement (CODA) under Internal Reve-
nue Code section 401(k)),
A qualified employee annuity plan,
A tax-sheltered annuity plan (403(b) plan),
An eligible state or local government section 457 de-
ferred compensation plan (to the extent that any distri-
bution is attributable to amounts the plan received in a
direct transfer or rollover from one of the other plans
listed here or an IRA), or
An IRA.
You may have to pay a 25%, rather than a 10%,
additional tax if you receive distributions from a
SIMPLE IRA before you are age 5912. See Pub.
560.
General exceptions to tax. The early distribution tax
doesn't apply to any distributions that are:
Made as part of a series of substantially equal periodic
payments (made at least annually) for your life (or life
expectancy) or the joint lives (or joint life expectan-
cies) of you and your designated beneficiary (if from a
qualified retirement plan, the payments must begin af-
ter separation from service),
Made because you are totally and permanently disa-
bled, or
Made on or after the death of the plan participant or
contract holder.
Additional exceptions. There are additional exceptions
to the early distribution tax for certain distributions from
CAUTION
!
Page 10 Chapter 2 Taxable and Nontaxable Income
Page 11 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
qualified retirement plans and nonqualified annuity con-
tracts. See Pub. 575 and Pub. 590-B for details.
Reporting tax. If you owe only the tax on early distribu-
tions, you generally must file Form 5329. But you don't
have to file Form 5329 if distribution code 1 (early distribu-
tion, no known exception) is correctly shown in box 7 of all
your Forms 1099-R, and you owe the additional tax on
each Form 1099-R. Instead, multiply the taxable part of
the early distribution by 10% (0.10) and enter the result on
Form 1040, line 59, or Form 1040NR, line 57. See the in-
structions for line 59 of Form 1040 or line 57 of Form
1040NR for more information about reporting the early
distribution tax.
Tax on Excess Accumulation
To make sure that most of your retirement benefits are
paid to you during your lifetime, rather than to your benefi-
ciaries after your death, the payments that you receive
from qualified retirement plans must begin no later than
your required beginning date. Unless the rule for 5% own-
ers applies, this is generally April 1 of the year that follows
the later of:
The calendar year in which you reach age 7012, or
The calendar year in which you retire from employ-
ment with the employer maintaining the plan.
However, your plan may require you to begin to receive
payments by April 1 of the year that follows the year in
which you reach 7012, even if you haven't retired.
For this purpose, a qualified retirement plan includes:
A qualified employee plan,
A qualified employee annuity plan,
An eligible section 457 deferred compensation plan,
A tax-sheltered annuity plan (403(b) plan) (for benefits
accruing after 1986), or
An IRA.
An excess accumulation is the undistributed re-
mainder of the required minimum distribution that
was left in your qualified retirement plan.
5% owners. If you own (or are considered to own under
section 318 of the Internal Revenue Code) more than 5%
of the company maintaining your qualified retirement plan,
you must begin to receive distributions from the plan by
April 1 of the year after the calendar year in which you
reach age 7012. See Pub. 575 for more information.
Amount of tax. If you don't receive the required mini-
mum distribution, you are subject to an additional tax. The
tax equals 50% of the difference between the amount that
must be distributed and the amount that was distributed
during the tax year. You can get this excise tax excused if
you establish that the shortfall in distributions was due to
reasonable error and that you are taking reasonable steps
to remedy the shortfall.
TIP
Form 5329. You must file a Form 5329 if you owe a tax
because you didn't receive a minimum required distribu-
tion from your qualified retirement plan.
Additional information. For more detailed information
on the tax on excess accumulation, see Pub. 575.
Insurance Premiums for Retired Public
Safety Officers
If you are an eligible retired public safety officer (law en-
forcement officer, firefighter, chaplain, or member of a res-
cue squad or ambulance crew), you can elect to exclude
from income distributions made from your eligible retire-
ment plan that are used to pay the premiums for accident
or health insurance or long-term care insurance. The pre-
miums can be for coverage for you, your spouse, or de-
pendent(s). The distribution must be made directly from
the plan to the insurance provider. You can exclude from
income the smaller of the amount of the insurance premi-
ums or $3,000. You can only make this election for
amounts that would otherwise be included in your income.
The amount excluded from your income can't be used to
claim a medical expense deduction.
An eligible retirement plan is a governmental plan that
is a:
Qualified trust,
Section 403(a) plan,
Section 403(b) annuity, or
Section 457(b) plan.
If you make this election, reduce the otherwise taxable
amount of your pension or annuity by the amount exclu-
ded. The taxable amount shown in box 2a of any Form
1099-R that you receive doesn't reflect the exclusion. Re-
port your total distributions on Form 1040, line 16a; Form
1040A, line 12a; or Form 1040NR, line 17a. Report the
taxable amount on Form 1040, line 16b; Form 1040A,
line 12b; or Form 1040NR, line 17b. Enter “PSO” next to
the appropriate line on which you report the taxable
amount.
Railroad Retirement Benefits
Benefits paid under the Railroad Retirement Act fall into
two categories. These categories are treated differently
for income tax purposes.
Social security equivalent benefits. The first category
is the amount of tier 1 railroad retirement benefits that
equals the social security benefit that a railroad employee
or beneficiary would have been entitled to receive under
the social security system. This part of the tier 1 benefit is
the social security equivalent benefit (SSEB) and is trea-
ted for tax purposes like social security benefits. (See So-
cial Security and Equivalent Railroad Retirement Benefits,
later.)
Non-social security equivalent benefits. The second
category contains the rest of the tier 1 benefits, called the
Chapter 2 Taxable and Nontaxable Income Page 11
Page 12 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
non-social security equivalent benefit (NSSEB). It also
contains any tier 2 benefit, vested dual benefit (VDB), and
supplemental annuity benefit. This category of benefits is
treated as an amount received from a qualified employee
plan. This allows for the tax-free (nontaxable) recovery of
employee contributions from the tier 2 benefits and the
NSSEB part of the tier 1 benefits. Vested dual benefits
and supplemental annuity benefits are non-contributory
pensions and are fully taxable.
More information. For more information about railroad
retirement benefits, see Pub. 575.
Military Retirement Pay
Military retirement pay based on age or length of service
is taxable and must be included in income as a pension
on Form 1040, lines 16a and 16b; on Form 1040A, lines
12a and 12b; or on Form 1040NR, lines 17a and 17b. But,
certain military and government disability pensions that
are based on a percentage of disability from active service
in the Armed Forces of any country generally aren't taxa-
ble. For more information, including information about vet-
erans' benefits and insurance, see Pub. 525.
Social Security and
Equivalent Railroad
Retirement Benefits
This discussion explains the federal income tax rules for
social security benefits and equivalent tier 1 railroad retire-
ment benefits.
Social security benefits include monthly retirement, sur-
vivor, and disability benefits. They don't include supple-
mental security income (SSI) payments, which aren't taxa-
ble.
Equivalent tier 1 railroad retirement benefits are the
part of tier 1 benefits that a railroad employee or benefi-
ciary would have been entitled to receive under the social
security system. They commonly are called the social se-
curity equivalent benefit (SSEB) portion of tier 1 benefits.
If you received these benefits during 2017, you should
have received a Form SSA-1099 or Form RRB-1099
(Form SSA-1042S or Form RRB-1042S if you are a non-
resident alien), showing the amount of the benefits.
Social Security Information
Obtaining social security information. Social security
beneficiaries may quickly and easily obtain various infor-
mation from the SSA's website with a my Social Security
account to:
Keep track of your earnings and verify them every
year,
Get an estimate of your future benefits if you are still
working,
Get a letter with proof of your benefits if you currently
receive them,
Change your address,
Start or change your direct deposit,
Get a replacement Medicare card, and
Get a replacement SSA-1099 or SSA-1042S for the
tax season.
For more information and to set up an account, go to
SSA.gov/myaccount.
Are Any of Your Benefits Taxable?
Note. When the term “benefits” is used in this section,
it applies to both social security benefits and the SSEB
portion of tier 1 railroad retirement benefits.
To find out whether any of your benefits may be taxable,
compare the base amount for your filing status (explained
later) with the total of:
One-half of your benefits; plus
All your other income, including tax-exempt interest.
When making this comparison, don't reduce your other
income by any exclusions for:
Interest from qualified U.S. savings bonds,
Employer-provided adoption benefits,
Foreign earned income or foreign housing, or
Income earned in American Samoa or Puerto Rico by
bona fide residents.
Figuring total income. To figure the total of one-half of
your benefits plus your other income, use Worksheet 2-B.
If that total amount is more than your base amount, part of
your benefits may be taxable.
If you are married and file a joint return for 2017, you
and your spouse must combine your incomes and your
benefits to figure whether any of your combined benefits
are taxable. Even if your spouse didn't receive any bene-
fits, you must add your spouse's income to yours to figure
whether any of your benefits are taxable.
If the only income you received during 2017 was
your social security or the SSEB portion of tier 1
railroad retirement benefits, your benefits gener-
ally aren't taxable and you probably don't have to file a re-
turn. If you have income in addition to your benefits, you
may have to file a return even if none of your benefits are
taxable.
Base Amount
Your base amount is:
$25,000 if you are single, head of household, or quali-
fying widow(er);
$25,000 if you are married filing separately and lived
apart from your spouse for all of 2017;
TIP
Page 12 Chapter 2 Taxable and Nontaxable Income
Page 13 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
$32,000 if you are married filing jointly; or
$0 if you are married filing separately and lived with
your spouse at any time during 2017.
Repayment of Benefits
Any repayment of benefits you made during 2017 must be
subtracted from the gross benefits you received in 2017. It
doesn't matter whether the repayment was for a benefit
you received in 2017 or in an earlier year. If you repaid
more than the gross benefits you received in 2017, see
Repayments More Than Gross Benefits, later.
Your gross benefits are shown in box 3 of Form
SSA-1099 or Form RRB-1099. Your repayments are
shown in box 4. The amount in box 5 shows your net ben-
efits for 2017 (box 3 minus box 4). Use the amount in
box 5 to figure whether any of your benefits are taxable.
Tax Withholding and Estimated Tax
You can choose to have federal income tax withheld from
your social security and/or the SSEB portion of your tier 1
railroad retirement benefits. If you choose to do this, you
must complete a Form W-4V, Voluntary Withholding Re-
quest.
If you don't choose to have income tax withheld, you
may have to request additional withholding from other in-
come, or pay estimated tax during the year. For details,
see Pub. 505, Tax Withholding and Estimated Tax, or the
Instructions for Form 1040-ES, Estimated Tax for Individu-
als.
How Much Is Taxable?
If part of your benefits is taxable, how much is taxable de-
pends on the total amount of your benefits and other in-
come. Generally, the higher that total amount, the greater
the taxable part of your benefits.
Maximum taxable part. The taxable part of your bene-
fits usually can't be more than 50%. However, up to 85%
of your benefits can be taxable if either of the following sit-
uations applies to you.
The total of one-half of your benefits and all your other
income is more than $34,000 ($44,000 if you are mar-
ried filing jointly).
You are married filing separately and lived with your
spouse at any time during 2017.
If you are a nonresident alien, 85% of your benefits are
taxable. However, this income is exempt under some tax
treaties.
Which worksheet to use. A worksheet to figure your
taxable benefits is in the instructions for your Form 1040
or 1040A. However, you will need to use a different work-
sheet(s) if any of the following situations applies to you.
Worksheet 2-B. A Quick Way To Check if Your Benefits May
Be Taxable Keep for Your Records
A. Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Include
the full amount of any lump-sum benefit payments received in 2017, for 2017 and
earlier years. (If you received more than one form, combine the amounts from box 5
and enter the total.) ............................................................ A.
Note. If the amount on line A is zero or less, stop here; none of your benefits are
taxable this year.
B. Enter one-half of the amount on line A ............................................. B.
C. Enter your taxable pensions, wages, interest, dividends, and other taxable income ........ C.
D. Enter any tax-exempt interest income (such as interest on municipal bonds) plus any
exclusions from income for:
• Interest from qualified U.S. savings bonds,
• Employer-provided adoption benefits,
• Foreign earned income or foreign housing, or
• Income earned in American Samoa or Puerto Rico by bona fide residents .............. D.
E. Add lines B, C, and D and enter the total .......................................... E.
F. If you are:
• Married filing jointly, enter $32,000;
• Single, head of household, qualifying widow(er), or married filing separately and you
lived apart from your spouse for all of 2017, enter $25,000; or
• Married filing separately and you lived with your spouse at any time during 2017
enter -0- ................................................................... F.
G. Is the amount on line F less than or equal to the amount on line E?
No. None of your benefits are taxable this year.
Yes. Some of your benefits may be taxable. To figure how much of your benefits
are taxable, see Which worksheet to use under How Much Is Taxable.
Chapter 2 Taxable and Nontaxable Income Page 13
Page 14 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
1. You contributed to a traditional individual retirement
arrangement (IRA) and you or your spouse were cov-
ered by a retirement plan at work. In this situation, you
must use the special worksheets in Pub. 590-A to fig-
ure both your IRA deduction and your taxable bene-
fits.
2. Situation (1) doesn't apply and you take one or more
of the following exclusions.
Interest from qualified U.S. savings bonds (Form
8815).
Employer-provided adoption benefits (Form
8839).
Foreign earned income or housing (Form 2555 or
Form 2555-EZ).
Income earned in American Samoa (Form 4563)
or Puerto Rico by bona fide residents.
In these situations, you must use Worksheet 1 in
Pub. 915, Social Security and Equivalent Railroad Re-
tirement Benefits, to figure your taxable benefits.
3. You received a lump-sum payment for an earlier year.
In this situation, also complete Worksheet 2 or 3 and
Worksheet 4 in Pub. 915. See Lump-Sum Election,
later.
How To Report Your Benefits
If part of your benefits are taxable, you must use Form
1040, Form 1040A, or Form 1040NR. You can't use Form
1040EZ.
Reporting on Form 1040. Report your net benefits (the
amount in box 5 of your Form SSA-1099 or Form
RRB-1099) on line 20a and the taxable part on line 20b. If
you are married filing separately and you lived apart from
your spouse for all of 2017, also enter “D” to the right of
the word “benefits” on line 20a.
Reporting on Form 1040A. Report your net benefits
(the amount in box 5 of your Form SSA-1099 or Form
RRB-1099) on line 14a and the taxable part on line 14b. If
you are married filing separately and you lived apart from
your spouse for all of 2017, also enter “D” to the right of
the word “benefits” on line 14a.
Reporting on Form 1040NR. Report 85% of the total
amount of your benefits (box 5 of your Form SSA-1042S
or Form RRB-1042S) in the appropriate column of Form
1040NR, Schedule NEC, line 8.
Benefits not taxable. If you are filing Form 1040EZ,
don't report any benefits on your tax return. If you are filing
Form 1040 or Form 1040A, report your net benefits (the
amount in box 5 of your Form SSA-1099 or Form
RRB-1099) on Form 1040, line 20a, or Form 1040A,
line 14a. Enter -0- on Form 1040, line 20b, or Form
1040A, line 14b. If you are married filing separately and
you lived apart from your spouse for all of 2017, also enter
“D” to the right of the word “benefits” on Form 1040,
line 20a, or Form 1040A, line 14a.
Lump-Sum Election
You must include the taxable part of a lump-sum (retroac-
tive) payment of benefits received in 2017 in your 2017 in-
come, even if the payment includes benefits for an earlier
year.
This type of lump-sum benefit payment shouldn't
be confused with the lump-sum death benefit that
both the SSA and RRB pay to many of their bene-
ficiaries. No part of the lump-sum death benefit is subject
to tax. For more information about the lump-sum death
benefit, visit the Social Security Administration website at
SSA.gov, and use keyword: death benefit.
Generally, you use your 2017 income to figure the taxa-
ble part of the total benefits received in 2017. However,
you may be able to figure the taxable part of a lump-sum
payment for an earlier year separately, using your income
for the earlier year. You can elect this method if it lowers
your taxable benefits. See Pub. 915 for more information.
Repayments More Than Gross
Benefits
In some situations, your Form SSA-1099 or Form
RRB-1099 will show that the total benefits you repaid
(box 4) are more than the gross benefits (box 3) you re-
ceived. If this occurred, your net benefits in box 5 will be a
negative figure (a figure in parentheses) and none of your
benefits will be taxable. If you receive more than one form,
a negative figure in box 5 of one form is used to offset a
positive figure in box 5 of another form for that same year.
If you have any questions about this negative figure,
contact your local Social Security Administration office or
your local U.S. Railroad Retirement Board field office.
Joint return. If you and your spouse file a joint return,
and your Form SSA-1099 or RRB-1099 has a negative
figure in box 5 but your spouse's doesn't, subtract the
box 5 amount on your form from the box 5 amount on your
spouse's form. You do this to get your net benefits when
figuring if your combined benefits are taxable.
Repayment of benefits received in an earlier year. If
the total amount shown in box 5 of all of your Forms
SSA-1099 and RRB-1099 is a negative figure, you can
take an itemized deduction for the part of this negative fig-
ure that represents benefits you included in gross income
in an earlier year.
If this deduction is $3,000 or less, it is subject to the
2%-of-adjusted-gross-income limit that applies to certain
miscellaneous itemized deductions. Claim it on Sched-
ule A (Form 1040), line 23.
If this deduction is more than $3,000, you have to follow
some special instructions. See Pub. 915 for those instruc-
tions.
TIP
Page 14 Chapter 2 Taxable and Nontaxable Income
Page 15 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Sickness and Injury Benefits
Generally, you must report as income any amount you re-
ceive for personal injury or sickness through an accident
or health plan that is paid for by your employer. If both you
and your employer pay for the plan, only the amount you
receive that is due to your employer's payments is repor-
ted as income. However, certain payments may not be
taxable to you. Some of these payments are discussed
later in this section. Also, see Military and Government
Disability Pensions and Other Sickness and Injury Bene-
fits in Pub. 525.
Cost paid by you. If you pay the entire cost of an acci-
dent or health plan, don't include any amounts you receive
from the plan for personal injury or sickness as income on
your tax return. If your plan reimbursed you for medical
expenses you deducted in an earlier year, you may have
to include some, or all, of the reimbursement in your in-
come.
Disability Pensions
If you retired on disability, you must include in income any
disability pension you receive under a plan that is paid for
by your employer. You must report your taxable disability
payments as wages on line 7 of Form 1040 or Form
1040A or on line 8 of Form 1040NR until you reach mini-
mum retirement age. Minimum retirement age generally is
the age at which you can first receive a pension or annuity
if you aren't disabled.
If you were 65 or older by the end of 2017 or you
were retired on permanent and total disability and
received taxable disability income, you may be
able to claim the credit for the elderly or the disabled. See
Credit for the Elderly or the Disabled, later. For more infor-
mation on this credit, see Pub. 524, Credit for the Elderly
or the Disabled.
Beginning on the day after you reach minimum retire-
ment age, payments you receive are taxable as a pension
or annuity. Report the payments on lines 16a and 16b of
Form 1040, on lines 12a and 12b of Form 1040A, or on
lines 17a and 17b of Form 1040NR. For more information
on pensions and annuities, see Pub. 575.
Note. Don’t include in your income disability payments
you receive for injuries incurred as a direct result of terro-
rist attacks directed against the United States (or its al-
lies), whether outside or within the United States. For
more information, see Terrorist attacks in Pub. 525, Taxa-
ble and Nontaxable Income.
Retirement and profit-sharing plans. If you receive
payments from a retirement or profit-sharing plan that
doesn't provide for disability retirement, don't treat the
payments as a disability pension. The payments must be
reported as a pension or annuity.
TIP
Accrued leave payment. If you retire on disability, any
lump-sum payment you receive for accrued annual leave
is a salary payment. The payment isn't a disability pay-
ment. Include it in your income in the tax year you receive
it.
Long-Term Care Insurance Contracts
In most cases, long-term care insurance contracts are
treated as accident and health insurance contracts.
Amounts you receive from them (other than policyholder
dividends or premium refunds) generally are excludable
from income as amounts received for personal injury or
sickness. However, the amount you can exclude may be
limited. Long-term care insurance contracts are discussed
in more detail in Pub. 525.
Workers' Compensation
Amounts you receive as workers' compensation for an oc-
cupational sickness or injury are fully exempt from tax if
they are paid under a workers' compensation act or a stat-
ute in the nature of a workers' compensation act. The ex-
emption also applies to your survivors. The exemption,
however, doesn't apply to retirement plan benefits you re-
ceive based on your age, length of service, or prior contri-
butions to the plan, even if you retired because of an oc-
cupational sickness or injury.
If part of your workers' compensation reduces
your social security or equivalent railroad retire-
ment benefits, that part is considered social se-
curity (or equivalent railroad retirement) benefits and may
be taxable. For a discussion of the taxability of these ben-
efits, see Social Security and Equivalent Railroad Retire-
ment Benefits, earlier.
Return to work. If you return to work after qualifying for
workers' compensation, salary payments you receive for
performing light duties are taxable as wages.
Other Sickness and Injury Benefits
In addition to disability pensions and annuities, you may
receive other payments for sickness or injury.
Federal Employees' Compensation Act (FECA). Pay-
ments received under this Act for personal injury or sick-
ness, including payments to beneficiaries in case of
death, aren't taxable. However, you are taxed on amounts
you receive under this Act as continuation of pay for up to
45 days while a claim is being decided. Report this in-
come on Form 1040, line 7; Form 1040A, line 7; Form
1040EZ, line 1; or Form 1040NR, line 8. Also, pay for sick
leave while a claim is being processed is taxable and
must be included in your income as wages.
CAUTION
!
Chapter 2 Taxable and Nontaxable Income Page 15
Page 16 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
If part of the payments you receive under FECA
reduces your social security or equivalent railroad
retirement benefits, that part is considered social
security (or equivalent railroad retirement) benefits and
may be taxable. For a discussion of the taxability of these
benefits, see Social Security and Equivalent Railroad Re-
tirement Benefits, earlier.
Other compensation. Many other amounts you receive
as compensation for sickness or injury aren't taxable.
These include the following amounts.
Benefits you receive under an accident or health in-
surance policy on which either you paid the premiums
or your employer paid the premiums but you had to in-
clude them in your income.
Disability benefits you receive for loss of income or
earning capacity as a result of injuries under a no-fault
car insurance policy.
Compensation you receive for permanent loss or loss
of use of a part or function of your body, for your per-
manent disfigurement, or for such loss or disfigure-
ment suffered by your spouse or dependent(s). This
compensation must be based only on the injury and
not on the period of your absence from work. These
benefits aren't taxable even if your employer pays for
the accident and health plan that provides these bene-
fits.
Life Insurance Proceeds
Life insurance proceeds paid to you because of the death
of the insured person aren't taxable unless the policy was
turned over to you for a price. This is true even if the pro-
ceeds were paid under an accident or health insurance
policy or an endowment contract.
Proceeds not received in installments. If death bene-
fits are paid to you in a lump-sum or other than at regular
intervals, include in your income only the benefits that are
more than the amount payable to you at the time of the in-
sured person's death. If the benefit payable at death isn't
specified, include in your income the benefit payments
that are more than the present value of the payments at
the time of death.
Proceeds received in installments. If you receive life
insurance proceeds in installments, you can exclude part
of each installment from your income.
To determine the excluded part, divide the amount held
by the insurance company (generally the total lump-sum
payable at the death of the insured person) by the number
of installments to be paid. Include anything over this ex-
cluded part in your income as interest.
Installments for life. If, as the beneficiary under an in-
surance contract, you are entitled to receive the proceeds
in installments for the rest of your life without a refund or
period-certain guarantee, figure the excluded part of each
installment by dividing the amount held by the insurance
CAUTION
!
company by your life expectancy. If there is a refund or
period-certain guarantee, the amount held by the insur-
ance company for this purpose is reduced by the actuarial
value of the guarantee.
Surviving spouse. If your spouse died before Octo-
ber 23, 1986, and insurance proceeds paid to you be-
cause of the death of your spouse are received in install-
ments, you can exclude, in any year, up to $1,000 of the
interest included in the installments. If you remarry, you
can continue to take the exclusion.
Surrender of policy for cash. If you surrender a life in-
surance policy for cash, you must include in income any
proceeds that are more than the cost of the life insurance
policy. In general, your cost (or investment in the contract)
is the total of premiums that you paid for the life insurance
policy, less any refunded premiums, rebates, dividends,
or unrepaid loans that weren't included in your income.
You should receive a Form 1099-R showing the total pro-
ceeds and the taxable part. Report these amounts on
Form 1040, lines 16a and 16b; Form 1040A, lines 12a and
12b; or Form 1040NR, lines 17a and 17b.
Endowment Contract Proceeds
An endowment contract is a policy that pays you a speci-
fied amount of money on a certain date unless you die be-
fore that date, in which case the money is paid to your
designated beneficiary. Endowment proceeds paid in a
lump-sum to you at maturity are taxable only if the pro-
ceeds are more than the cost of the policy. To determine
your cost, subtract from the total premiums (or other con-
sideration) paid for the contract any amount that you pre-
viously received under the contract and excluded from
your income. Include in your income the part of the
lump-sum payment that is more than your cost.
Endowment proceeds that you choose to receive in in-
stallments instead of a lump-sum payment at the maturity
of the policy are taxed as an annuity. The tax treatment of
an annuity is explained in Pub. 575. For this treatment to
apply, you must choose to receive the proceeds in install-
ments before receiving any part of the lump-sum. This
election must be made within 60 days after the lump-sum
payment first becomes payable to you.
Accelerated Death Benefits
Certain amounts paid as accelerated death benefits under
a life insurance contract or viatical settlement before the
insured's death generally are excluded from income if the
insured is terminally or chronically ill. However, see Ex-
ception, later. For a chronically ill individual, accelerated
death benefits paid on the basis of costs incurred for
qualified long-term care services are fully excludable. Ac-
celerated death benefits paid on a per diem or other peri-
odic basis without regard to the costs are excludable up to
a limit.
In addition, if any portion of a death benefit under a life
insurance contract on the life of a terminally or chronically
ill individual is sold or assigned to a viatical settlement
Page 16 Chapter 2 Taxable and Nontaxable Income
Page 17 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
provider, the amount received also is excluded from in-
come. Generally, a viatical settlement provider is one who
regularly engages in the business of buying or taking as-
signment of life insurance contracts on the lives of insured
individuals who are terminally or chronically ill.
To report taxable accelerated death benefits made on a
per diem or other periodic basis, you must file Form 8853,
Archer MSAs and Long-Term Care Insurance Contracts,
with your return.
Terminally or chronically ill defined. A terminally ill
person is one who has been certified by a physician as
having an illness or physical condition that reasonably can
be expected to result in death within 24 months from the
date of the certification. A chronically ill person is one who
isn't terminally ill but has been certified (within the previ-
ous 12 months) by a licensed health care practitioner as
meeting either of the following conditions.
The person is unable to perform (without substantial
help) at least two activities of daily living (eating, toilet-
ing, transferring, bathing, dressing, and continence)
for a period of 90 days or more because of a loss of
functional capacity.
The person requires substantial supervision to protect
himself or herself from threats to health and safety due
to severe cognitive impairment.
Exception. The exclusion doesn't apply to any amount
paid to a person other than the insured if that other person
has an insurable interest in the life of the insured because
the insured:
Is a director, officer, or employee of the other person;
or
Has a financial interest in the business of the other
person.
Sale of Home
You may be able to exclude from income any gain up to
$250,000 ($500,000 on a joint return in most cases) on
the sale of your main home. Generally, if you can exclude
all of the gain, you don't need to report the sale on your
tax return. You can choose not to take the exclusion by in-
cluding the gain from the sale in your gross income on
your tax return for the year of the sale.
Main home. Usually, your main home is the home you
live in most of the time and can be a:
House,
Houseboat,
Mobile home,
Cooperative apartment, or
Condominium.
Repaying the first-time homebuyer credit. If you pur-
chased your home in 2008 and claimed the first-time
homebuyer credit, you must continue repaying the credit
with your 2017 tax return. If you are required to repay the
credit because you sold the home or it otherwise ceased
to be your main home in 2017, you generally must repay
the balance of the unpaid credit with your 2017 return.
See the Instructions for Form 5405 for more information
and exceptions.
Maximum Amount of Exclusion
You generally can exclude up to $250,000 of the gain
(other than gain allocated to periods of nonqualified use)
on the sale of your main home if all of the following are
true.
You meet the ownership test.
You meet the use test.
During the 2-year period ending on the date of the
sale, you didn't exclude gain from the sale of another
home.
Joint returns. You may be able to exclude up to
$500,000 of the gain (other than gain allocated to periods
of nonqualified use) on the sale of your main home if you
are married and file a joint return and meet the require-
ments listed in the discussion of the special rules for joint
returns, later, under Married Persons.
Reduced exclusion. Even if you don't meet the require-
ments described above, you can still claim an exclusion in
some cases. Generally, you must have sold the home due
to a change in place of employment, health, or unforeseen
circumstances. The maximum amount you can exclude
will be reduced. See Pub. 523, Selling Your Home, for
more information.
Expatriation tax. You can't exclude gain from the sale of
your home if you are subject to the expatriation tax. See
Pub. 519 for more information about the expatriation tax.
Ownership and Use Tests
To claim the exclusion, you must meet the ownership and
use tests. These tests generally require that during the
5-year period ending on the date of the sale, you must
have:
Owned the home for at least 2 years (the ownership
test), and
Lived in the home as your main home for at least 2
years (the use test). The 2 years of residence can fall
anywhere within the 5-year period, and it doesn't need
to be a single block of time.
Exception to use test for individuals with a disability.
There is an exception to the use test if, during the 5-year
period before the sale of your home:
You become physically or mentally unable to care for
yourself, and
You owned and lived in your home as your main home
for a total of at least 1 year.
Chapter 2 Taxable and Nontaxable Income Page 17
Page 18 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
If you qualify for this exception, you are considered to live
in your home during any time that you own the home and
live in a facility (including a nursing home) that is licensed
by a state or political subdivision to care for persons in
your condition.
If you meet this exception to the use test, you still have
to meet the 2-out-of-5-year ownership test to claim the ex-
clusion.
Exception to ownership test for property acquired in
a like-kind exchange. If you acquired your main home in
a like-kind exchange, you must own the home for 5 years
before you qualify for the exclusion. This special 5-year
ownership rule continues to apply to the home even if you
give it to another person. A like-kind exchange is an ex-
change of property held for productive use in a trade or
business or for investment in which no gain or loss is rec-
ognized. See Pub. 523 for more information.
Period of nonqualified use. Generally, the gain from
the sale or exchange of your main home won't qualify for
the exclusion to the extent that the gain is allocated to pe-
riods of nonqualified use. Nonqualified use is any period
after December 31, 2008, during which the property isn't
used as the main home. See Pub. 523 for more informa-
tion.
Married Persons
Generally, if the home you sold counts as your main home
and you are a married person filing separately, the first
$250,000 of gain isn't taxable if all of the following are
true.
You meet the ownership test.
You meet the use test.
During the 2-year period ending on the date of the
sale, you didn’t exclude gain from the sale of another
home.
You may be able to exclude up to $500,000 of the gain
(other than gain allocated to periods of nonqualified use)
on the sale of your main home if you are married and file a
joint return and meet the requirements for joint returns dis-
cussed under Special rules for joint returns next.
Special rules for joint returns. You can exclude up to
$500,000 of the gain on the sale of your main home if all of
the following are true.
You are married and file a joint return for the year.
Either you or your spouse meets the ownership test.
Both you and your spouse meet the use test.
During the 2-year period ending on the date of the
sale, neither you nor your spouse exclude gain from
the sale of another home.
Sale of home by surviving spouse. If your spouse died
and you didn't remarry before the date of sale, you are
considered to have owned and lived in the property as
your main home during any period of time when your
spouse owned and lived in it as a main home.
If you meet all of the following requirements, you may
qualify to exclude up to $500,000 of any gain from the sale
or exchange of your main home in 2017.
The sale or exchange took place no more than 2 years
after the date of death of your spouse.
You haven't remarried.
You and your spouse met the use test at the time of
your spouse's death.
You or your spouse met the ownership test at the time
of your spouse's death.
Neither you nor your spouse excluded gain from the
sale of another home during the last 2 years.
Home transferred from spouse. If your home was
transferred to you by your spouse (or former spouse if the
transfer was incident to divorce), you are considered to
have owned it during any period of time when your spouse
owned it.
Use of home after divorce. You are considered to have
used property as your main home during any period when:
You owned it, and
Your spouse or former spouse is allowed to live in it
under a divorce or separation instrument and uses it
as his or her main home.
Business Use or Rental of Home
You may be able to exclude gain from the sale of a home
that you have used for business or to produce rental in-
come. However, you must meet the ownership and use
tests. See Pub. 523 for more information.
Recapturing depreciation. If you used all or part of your
home for business or rental after May 6, 1997, you may
need to pay back (recapture) some or all of the deprecia-
tion you were entitled to take on your property when you
sell it. See Pub. 523 for more information.
Reporting the Sale
Don't report the 2017 sale of your main home on your tax
return unless:
You received Form 1099-S,
You have a gain and you don't qualify to exclude all of
it,
You have a gain and you choose not to exclude it, or
You have a loss from the sale that is deductible.
A loss from the sale of your home, or the personal
part of your home if it also was used for business
or to produce rental income, isn’t deductible.
If any of the above apply, report the sale on Part I or
Part II of Form 8949 as a short-term or long-term transac-
tion, depending on how long you owned the home. If you
used your home for business or to produce rental income,
CAUTION
!
Page 18 Chapter 2 Taxable and Nontaxable Income
Page 19 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
you may have to use Form 4797, Sales of Business Prop-
erty, to report the sale of the business or rental part. See
Pub. 523 for more information.
Reverse Mortgages
A reverse mortgage is a loan where the lender pays you
(in a lump-sum, a monthly advance, a line of credit, or a
combination of all three) while you continue to live in your
home. With a reverse mortgage, you retain title to your
home. Depending on the plan, your reverse mortgage be-
comes due with interest when you move, sell your home,
reach the end of a pre-selected loan period, or die. Be-
cause reverse mortgages are considered loan advances
and not income, the amount you receive isn't taxable. Any
interest (including original interest discount) accrued on a
reverse mortgage isn't deductible until you actually pay it,
which is usually when you pay off the loan in full. Your de-
duction of interest also may be limited because a reverse
mortgage loan generally is subject to the limit on home
equity debt discussed in Pub. 936, Home Mortgage Inter-
est Deduction.
Other Items
The following items generally are excluded from taxable
income. You shouldn't report them on your return, unless
otherwise indicated as taxable or includable in income.
Gifts and inheritances. In most cases, property you re-
ceive as a gift, bequest, or inheritance isn't included in
your income. However, if property you receive this way
later produces income such as interest, dividends, or
rents, that income is taxable to you. If property is given to
a trust and the income from it is paid, credited, or distrib-
uted to you, that income also is taxable to you. If the gift,
bequest, or inheritance is the income from property, that
income is taxable to you.
Veterans' benefits. Don't include in your income any
veterans' benefits paid under any law, regulation, or ad-
ministrative practice administered by the Department of
Veterans Affairs (VA). See Pub. 525.
Public assistance benefits. Other items that generally
are excluded from taxable income also include the follow-
ing public assistance benefits.
Welfare benefits. Don't include in your income benefit
payments from a public welfare fund based upon need,
such as payments due to blindness. However, you must
include in your income any welfare payments that are
compensation for services or that are obtained fraudu-
lently.
Payments from a state fund for victims of crime.
Don't include in your income payments from a state fund
for victims of crime, if the payments are in the nature of
welfare payments. Don't deduct medical expenses that
are reimbursed by such a fund.
Home Affordable Modification Program (HAMP). If
you benefit from Pay-for-Performance Success Payments
or PRA investor incentive payments under HAMP, the
payments generally aren’t taxable. For more information,
see Pub. 4681.
Mortgage assistance payments. Payments made
under section 235 of the National Housing Act for mort-
gage assistance aren't included in the homeowner's in-
come. Interest paid for the homeowner under the mort-
gage assistance program can't be deducted.
Also, mortgage payments provided under the Depart-
ment of Housing and Urban Development's Emergency
Homeowners' Loan Program (EHLP), state housing fi-
nance authorities receiving funds allocated from the
Housing Finance Agency Innovation Fund for the Hard-
est-Hit Housing Markets (HFA Hardest Hit Fund), or other
similar state programs receiving funding from EHLP are
excluded from income. Interest paid for the homeowner
under the EHLP or the HFA Hardest Hit Fund may be de-
ductible. See Form 1098-MA, Mortgage Assistance Pay-
ments, and its instructions for details.
Payments to reduce cost of winter energy use.
Payments made by a state to qualified people on the ba-
sis of need to reduce their cost of winter energy use aren't
taxable.
Nutrition Program for the Elderly. Food benefits you
receive under the Nutrition Program for the Elderly (now
known as the Nutrition Services Incentive Program) aren't
taxable. If you prepare and serve free meals for the pro-
gram, include in your income as wages the cash pay you
receive, even if you also are eligible for food benefits.
Reemployment Trade Adjustment Assistance
(RTAA). Payments you receive from a state agency un-
der the RTAA must be included in your income. The state
must send you Form 1099-G to advise you of the amount
you should include in income. The amount should be re-
ported on Form 1040, line 21, or Form 1040NR, line 21.
Persons with disabilities. If you have a disability, in-
clude in income compensation you receive for services
you perform unless the compensation is otherwise exclu-
ded. However, don't include in income the value of goods,
services, and cash that you receive, not in return for your
services, but for your training and rehabilitation because
you have a disability. Excludable amounts include pay-
ments for transportation and attendant care, such as inter-
preter services for the deaf, reader services for the blind,
and services to help individuals with an intellectual disabil-
ity do their work.
Medicare. Medicare benefits received under Title XVIII of
the Social Security Act aren't includible in the gross in-
come of the individuals for whom they are paid. This in-
cludes basic (part A (Hospital Insurance Benefits for the
Aged)) and supplementary (part B (Supplementary Medi-
cal Insurance Benefits for the Aged)).
Social security benefits. The Social Security Adminis-
tration (SSA) provides benefits such as old-age benefits,
benefits to disabled workers, and benefits to spouses and
Chapter 2 Taxable and Nontaxable Income Page 19
Page 20 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
dependents. These benefits may be subject to federal in-
come tax depending on your filing status and other in-
come. See Pub. 915 for more information. An individual
originally denied benefits, but later approved, may receive
a lump-sum payment for the period when benefits were
denied (which may be prior years). See Pub. 915 for infor-
mation on how to make a lump-sum election, which may
reduce your tax liability. There are also other types of ben-
efits paid by the SSA. However, supplemental security in-
come (SSI) benefits and lump-sum death benefits (one-
time payment to spouse and children of deceased) aren’t
subject to federal income tax. For more information on
these benefits, go to SSA.gov.
Social security benefits are includible in gross income if
(a) you are married filing a separate return and you lived
with your spouse at any time in 2017 or (b) one-half of
your social security benefits plus your other gross income
and any tax-exempt interest is more than $25,000
($32,000 if married filing jointly).
3.
Adjustments to Income
You may be able to subtract amounts from your total in-
come (Form 1040, line 22 or Form 1040A, line 15) or total
effectively connected income (Form 1040NR, line 23) to
get your adjusted gross income (Form 1040, line 37; Form
1040A, line 21; or Form 1040NR, line 36). Some adjust-
ments to income follow.
Contributions to your individual retirement arrange-
ment (IRA) (Form 1040, line 32; Form 1040A, line 17;
or Form 1040NR, line 32), explained later.
Certain moving expenses (Form 1040, line 26 or Form
1040NR, line 26) if you changed job locations or star-
ted a new job in 2017. See Pub. 521, Moving Expen-
ses, or see Form 3903, Moving Expenses, and its in-
structions.
Some health insurance costs (Form 1040, line 29 or
Form 1040NR, line 29) if you were self-employed and
had a net profit for the year, or if you received wages
in 2017 from an S corporation in which you were a
more-than-2% shareholder. For more details, see
Pub. 535, Business Expenses.
Payments to your self-employed SEP, SIMPLE, or
qualified plan (Form 1040, line 28 or Form 1040NR,
line 28). For more information, including limits on how
much you can deduct, see Pub. 560, Retirement
Plans for Small Business.
Penalties paid on early withdrawal of savings (Form
1040, line 30 or Form 1040NR, line 30). Form
1099-INT, Interest Income, or Form 1099-OID, Origi-
nal Issue Discount, will show the amount of any pen-
alty you were charged.
Alimony payments (Form 1040, line 31a). For more in-
formation, see Pub. 504, Divorced or Separated Indi-
viduals.
There are other items you can claim as adjustments to in-
come. These adjustments are discussed in your tax return
instructions.
Individual Retirement
Arrangement (IRA)
Contributions and Deductions
This section explains the tax treatment of amounts you
pay into traditional IRAs. A traditional IRA is any IRA that
isn't a Roth or SIMPLE IRA. Roth and SIMPLE IRAs are
defined earlier in the IRA discussion under Retirement
Plan Distributions. For more detailed information, see
Pub. 590-A and Pub. 590-B.
Contributions. An IRA is a personal savings plan that of-
fers you tax advantages to set aside money for your retire-
ment. Two advantages of a traditional IRA are:
You may be able to deduct some or all of your contri-
butions to it, depending on your circumstances; and
Generally, amounts in your IRA, including earnings
and gains, aren't taxed until distributed.
Although interest earned from your traditional IRA
generally isn't taxed in the year earned, it isn't
tax-exempt interest. Don't report this interest on
your tax return as tax-exempt interest.
General limit. The most that can be contributed for 2017
to your traditional IRA is the smaller of the following
amounts.
Your taxable compensation for the year, or
$5,500 ($6,500 if you were age 50 or older by the end
of 2017).
Contributions to Kay Bailey Hutchison Spousal
IRAs. In the case of a married couple filing a joint return
for 2017, up to $5,500 ($6,500 for each spouse age 50 or
older by the end of 2017) can be contributed to IRAs on
behalf of each spouse, even if one spouse has little or no
compensation.
For more information on the general limit and the Kay
Bailey Hutchison Spousal IRA limit, see How Much Can
Be Contributed? in Pub. 590-A.
Deductible contribution. Generally, you can deduct
the lesser of the contributions to your traditional IRA for
the year or the general limit (or Kay Bailey Hutchison
Spousal IRA limit, if applicable) just explained. However, if
you or your spouse was covered by an employer retire-
ment plan at any time during the year for which contribu-
tions were made, you may not be able to deduct all of the
contributions. Your deduction may be reduced or elimina-
ted, depending on your filing status and the amount of
CAUTION
!
Page 20 Chapter 3 Adjustments to Income
Page 21 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
your income. For more information, see Limit if Covered
by Employer Plan in Pub. 590-A.
Nondeductible contribution. The difference be-
tween your total permitted contributions and your IRA de-
duction, if any, is your nondeductible contribution. You
must file Form 8606, to report nondeductible contributions
even if you don't have to file a tax return for the year.
4.
Deductions
Most taxpayers have a choice of taking a standard deduc-
tion or itemizing their deductions. You benefit from the
standard deduction if your standard deduction is more
than the total of your allowable itemized deductions. If you
have a choice, you should use the method that gives you
the lower tax.
Standard Deduction
The standard deduction amount depends on your filing
status, whether you are 65 or older or blind, and whether
an exemption can be claimed for you by another taxpayer.
Generally, the standard deduction amounts are adjusted
each year for inflation. In most cases, you can use Work-
sheet 4-1 to figure your standard deduction amount.
Persons not eligible for the standard deduction. Your
standard deduction is zero and you should itemize any
deductions you have if:
You are married and filing a separate return, and your
spouse itemizes deductions,
You are filing a tax return for a short tax year because
of a change in your annual accounting period, or
You are a nonresident or dual-status alien during the
year. You are considered a dual-status alien if you
were both a nonresident alien and a resident alien
during the year.
If you are a nonresident alien who is married to a U.S.
citizen or resident alien at the end of the year, you can
choose to be treated as a U.S. resident. See Pub. 519,
U.S. Tax Guide for Aliens. If you make this choice, you
can take the standard deduction.
Decedent's final return. The amount of the standard de-
duction for a decedent's final tax return is the same as it
would have been had the decedent continued to live.
However, if the decedent wasn't 65 or older at the time of
death, the higher standard deduction for age can't be
claimed. See Death before age 65, later.
Higher standard deduction for age (65 or older). If
you don't itemize deductions, you are entitled to a higher
standard deduction if you are age 65 or older at the end of
the year. You are considered age 65 on the day before
your 65th birthday. Therefore, you can take a higher
standard deduction for 2017 if you were born before Janu-
ary 2, 1953.
Death before age 65. If you are preparing a return for
someone who died in 2017, consider the taxpayer to be
65 or older at the end of 2017 only if he or she was 65 or
older at the time of death. A taxpayer is considered age
65 on the day before his or her birthday.
Example. Your spouse was born on February
14,1952, and died on February 13, 2017. Your spouse is
considered age 65 at the time of death. However, if your
spouse died on February 12, 2017, your spouse isn't con-
sidered age 65 at the time of death and isn't 65 or older at
the end of 2017.
Higher standard deduction for blindness. If you are
blind on the last day of the year and you don't itemize de-
ductions, you are entitled to a higher standard deduction.
Not totally blind. If you aren't totally blind, you must get
a certified statement from an eye doctor (ophthalmologist
or optometrist) that:
You can't see better than 20/200 in the better eye with
glasses or contact lenses, or
Your field of vision isn't more than 20 degrees.
If your eye condition isn’t likely to improve beyond
these limits, the statement should include this fact. You
must keep the statement in your records.
If your vision can be corrected beyond these limits only
by contact lenses that you can wear only briefly because
of pain, infection, or ulcers, you can take the higher stand-
ard deduction for blindness if you otherwise qualify.
Spouse 65 or older or blind. You can take the higher
standard deduction if your spouse is age 65 or older or
blind and:
You file a joint return, or
You file a separate return and can claim an exemption
for your spouse because your spouse had no gross in-
come and an exemption for your spouse couldn't be
claimed by another taxpayer.
You can't claim the higher standard deduction for
an individual other than yourself and your spouse.
Example. This example illustrates how to determine
your standard deduction using Worksheet 4-1.
Bill and Lisa are filing a joint return for 2017. Both are
over age 65. Neither is blind, and neither can be claimed
as a dependent. They don't itemize deductions, so they
use Worksheet 4-1. Because they are married filing jointly,
they enter $12,700 on line 1. They check the “No” box on
line 2, so they also enter $12,700 on line 4. Because they
are both over age 65, they enter $2,500 ($1,250 × 2) on
CAUTION
!
Chapter 4 Deductions Page 21
Page 22 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
line 5. They enter $15,200 ($12,700 + $2,500) on line 6,
so their standard deduction is $15,200.
Standard Deduction for Dependents
The standard deduction for an individual for whom an ex-
emption can be claimed on another person's tax return
generally is limited to the greater of:
$1,050, or
The individual's earned income for the year plus $350
(but not more than the regular standard deduction
amount, generally $6,350).
However, the standard deduction may be higher if the
individual is 65 or older or blind.
If an exemption for you (or your spouse if you are filing
jointly) can be claimed on someone else's return, use
Worksheet 4-1, if applicable, to determine your standard
deduction.
Itemized Deductions
Some individuals should itemize their deductions because
it will save them money. Others should itemize because
they don't qualify for the standard deduction. See the dis-
cussion under Standard Deduction, earlier, to decide if it
would be to your advantage to itemize deductions.
You may be subject to a limit on some of your
itemized deductions if your adjusted gross in-
come is more than $156,900. For more informa-
tion, see Overall limitation, later.
Medical and dental expenses, some taxes, certain in-
terest expenses, charitable contributions, casualty and
theft losses, and certain other miscellaneous expenses
may be itemized as deductions on Schedule A (Form
1040).
You may benefit from itemizing your deductions on
Schedule A (Form 1040) if you:
Can't take the standard deduction,
Had uninsured medical or dental expenses that are
more than 7.5% of your adjusted gross income (AGI),
Paid interest on your home,
Paid real estate or personal property taxes,
Paid state and local income taxes or general sales
taxes,
CAUTION
!
2017 Standard Deduction WorksheetWorksheet 4-1. Keep for Your Records
Caution. If you are married filing separately and your spouse itemizes deductions, or if you are a dual-status alien, don't complete this worksheet.
If you were born before January 2, 1953, and/or you were blind at the end of 2017, check the correct box(es) below. Put the total
number of boxes checked in box c and go to line 1.
a. You Born before January 2, 1953 Blind
b. Your spouse, if claiming
spouse's exemption Born before January 2, 1953 Blind
c. Total boxes checked
1. Enter the amount shown below for your filing status.
Single or married filing separately — $6,350
Married filing jointly or qualifying widow(er) —
$12,700
Head of household — $9,350
............................ 1.
2. Can you (or your spouse if filing jointly) be claimed as a dependent on someone else's return?
No. Skip line 3; enter the amount from line 1 on line 4.
Yes. Go to line 3.
3. Is your earned income* more than $700?
Yes. Add $350 to your earned income. Enter the total. ............................ 3.
No. Enter $1,050.
4. Enter the smaller of line 1 or line 3 ............................................................ 4.
5. If born before January 2, 1953, or blind, multiply the number in box c by $1,250 ($1,550 if single or head of
household). Enter the result here. Otherwise, enter -0- ........................................... 5.
6. Add lines 4 and 5. This is your standard deduction for 2017** ...................................... 6.
* Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. It also
includes any taxable scholarship or fellowship grant. Generally, your earned income is the total of the amount(s) you reported on Form 1040, lines
7, 12, and 18, minus the amount, if any, on line 27 (or the amount you reported on Form 1040A, line 7).
** You may be able to increase the amount of your standard deduction on line 6 by a loss you suffered related to property in one of
the Presidentially declared disaster areas eligible for that relief. See Pub. 976 for more information.
Page 22 Chapter 4 Deductions
Page 23 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Had large unreimbursed employee business expen-
ses or other miscellaneous deductions,
Had large uninsured casualty or theft losses,
Made large contributions to qualified charities (see
Pub. 526, Charitable Contributions), or
Have total itemized deductions that are more than the
standard deduction that applies to you.
See the Instructions for Schedule A (Form 1040) for
more information.
Overall limitation. You may not be able to deduct all of
your itemized deductions if your adjusted gross income is
more than:
$156,900, if married filing separately;
$261,500, if single;
$287,650, if head of household; or
$313,800, if married filing jointly or qualifying
widow(er).
If your adjusted gross income exceeds the applicable
amount, use the Itemized Deductions Worksheet in the In-
structions for Schedule A (Form 1040) to figure your total
itemized deductions.
Medical and Dental Expenses
You can deduct certain medical and dental expenses you
paid for yourself, your spouse, and your dependent(s) if
you itemize your deductions on Schedule A (Form 1040).
Table 4-1 shows some common items that you can or
can't include in figuring your medical expense deduction.
For more information, see the following discussions of se-
lected items, which are presented in alphabetical order. A
more extensive list of items and further details can be
found in Pub. 502, Medical and Dental Expenses.
You can deduct only the amount of your medical
and dental expenses that is more than 7.5% of
your adjusted gross income.
What to include. Generally, you can include only the
medical and dental expenses you paid this year, regard-
less of when the services were provided. If you pay medi-
cal expenses by check, the day you mail or deliver the
check generally is the date of payment. If you use a
pay-by-phone or online account to pay your medical ex-
penses, the date reported on the statement of the financial
institution showing when payment was made is the date of
payment. You can include medical expenses you charge
to your credit card in the year the charge is made. It
doesn't matter when you actually pay the amount
charged.
CAUTION
!
Table 4-1. Medical and Dental Expenses Checklist
You can include: You can't include:
Bandages
Capital expenses for
equipment or
improvements to your
home needed for
medical care (see Pub.
502)
Certain weight-loss
expenses for obesity
Diagnostic devices
Expenses of an organ
donor
Eye surgery—to promote
the correct function of
the eye
Guide dogs or other
animals aiding the blind,
deaf, and disabled
Hospital services fees
(lab work, therapy,
nursing services,
surgery, etc.)
Lead-based paint
removal (see Pub. 502)
Long-term care
contracts, qualified (see
Pub. 502)
Meals and lodging
provided by a hospital
during medical treatment
Medical and hospital
insurance premiums
Medical services fees
(from doctors, dentists,
surgeons, specialists,
and other medical
practitioners)
Medicare Part D
premiums
Oxygen equipment and
oxygen
Part of life-care fee paid
to retirement home
designated for medical
care
Prescription medicines
(prescribed by a doctor)
and insulin
Psychiatric and
psychological treatment
Social security tax,
Medicare tax, FUTA, and
state employment tax for
worker providing medical
care (see Pub. 502)
Special items (artificial
limbs, false teeth,
eyeglasses, contact
lenses, hearing aids,
crutches, wheelchair,
etc.)
Special education for
mentally or physically
disabled persons (see
Pub. 502)
Stop-smoking programs
Transportation for
needed medical care
Treatment at a drug or
alcohol center (includes
meals and lodging
provided by the center)
Wages for nursing
services (see Pub. 502)
Contributions to Archer
MSAs (see Pub. 969)
Bottled water
Diaper service
Expenses for your
general health (even if
following your doctor's
advice) such as:
—Health club dues
—Household help (even if
recommended by a
doctor)
—Social activities, such
as dancing or swimming
lessons
—Trip for general health
improvement
Flexible spending
account reimbursements
for medical expenses (if
contributions were on a
pretax basis) (see Pub.
502)
Funeral, burial, or
cremation expenses
Health savings account
payments for medical
expenses (see Pub. 502)
Illegal operation or
treatment
Life insurance or income
protection policies, or
policies providing
payment for loss of life,
limb, sight, etc.
Medical insurance
included in a car
insurance policy
covering all persons
injured in or by your car
Medicine you buy
without a prescription
Nursing care for a
healthy baby
Prescription drugs you
brought in (or ordered
shipped) from another
country, in most cases
(see Pub. 502)
Surgery for purely
cosmetic reasons (see
Pub. 502)
Toothpaste, toiletries,
cosmetics, etc.
Teeth whitening
Weight-loss expenses
not for the treatment of
obesity or other disease
Chapter 4 Deductions Page 23
Page 24 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Home Improvements
You can include in medical expenses amounts you pay for
home improvements if their main purpose is medical care
for you, your spouse, or your dependent.
Only reasonable costs to accommodate a home to your
disabled condition (or that of your spouse or your depend-
ent(s) who live with you) are considered medical care. Ad-
ditional costs for personal motives, such as for architec-
tural or aesthetic reasons, aren't medical expenses. Pub.
502 contains additional information and examples, includ-
ing a capital expense worksheet, to assist you in figuring
the amount of the capital expense that you can include in
your medical expenses. Also, see Pub. 502 for informa-
tion about deductible operating and upkeep expenses re-
lated to such capital expense items, and for information
about improvements, for medical reasons, to property ren-
ted by a person with disabilities.
Household Help
You can't include in medical expenses the cost of house-
hold help, even if such help is recommended by a doctor.
This is a personal expense that isn't deductible. However,
you may be able to include certain expenses paid to a
person providing nursing-type services. For more informa-
tion, see Nursing Services, later. Also, certain mainte-
nance or personal care services provided for qualified
long-term care can be included in medical expenses. For
more information, see Qualified long-term care services
under Long-Term Care, later.
Hospital Services
You can include in medical expenses amounts you pay for
the cost of inpatient care at a hospital or similar institution
if a principal reason for being there is to receive medical
care. This includes amounts paid for meals and lodging.
Also, see Meals and Lodging, later.
Long-Term Care
You can include in medical expenses amounts paid for
qualified long-term care services and premiums paid for
qualified long-term care insurance contracts.
Qualified long-term care services. Qualified long-term
care services are necessary diagnostic, preventive, thera-
peutic, curing, treating, mitigating, rehabilitative services,
and maintenance and personal care services (defined
later) that are:
1. Required by a chronically ill individual, and
2. Provided under a plan of care prescribed by a li-
censed health care practitioner.
Chronically ill individual. An individual is chronically
ill if, within the previous 12 months, a licensed health care
practitioner has certified that the individual meets either of
the following descriptions.
1. He or she is unable to perform at least two activities of
daily living without substantial assistance from an-
other individual for at least 90 days, due to a loss of
functional capacity. Activities of daily living are eating,
toileting, transferring, bathing, dressing, and conti-
nence.
2. He or she requires substantial supervision to be pro-
tected from threats to health and safety due to severe
cognitive impairment.
Maintenance and personal care services. Mainte-
nance or personal care services is care which has as its
primary purpose the providing of a chronically ill individual
with needed assistance with his or her disabilities (includ-
ing protection from threats to health and safety due to se-
vere cognitive impairment).
Qualified long-term care insurance contracts. A
qualified long-term care insurance contract is an insur-
ance contract that provides only coverage of qualified
long-term care services. The contract must:
1. Be guaranteed renewable;
2. Not provide for a cash surrender value or other money
that can be paid, assigned, pledged, or borrowed;
3. Provide that refunds, other than refunds on the death
of the insured or complete surrender or cancellation
of the contract, and dividends under the contract must
be used only to reduce future premiums or increase
future benefits; and
4. Generally not pay or reimburse expenses incurred for
services or items that would be reimbursed under
Medicare, except where Medicare is a secondary
payer, or the contract makes per diem or other peri-
odic payments without regard to expenses.
The amount of qualified long-term care premiums you
can include is limited. You can include the following as
medical expenses on Schedule A (Form 1040).
1. Qualified long-term care premiums up to the following
amounts.
a. Age 40 or under—$410.
b. Age 41 to 50—$770.
c. Age 51 to 60—$1,530.
d. Age 61 to 70—$4,090.
e. Age 71 or over—$5,110.
2. Unreimbursed expenses for qualified long-term care
services.
Note. The limit on premiums is for each person.
Meals and Lodging
You can include in medical expenses the cost of meals
and lodging at a hospital or similar institution if your main
reason for being there is to receive medical care.
Page 24 Chapter 4 Deductions
Page 25 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
You may be able to include in medical expenses the
cost of lodging (but not meals) not provided in a hospital
or similar institution. You can include the cost of such
lodging while away from home if all of the following re-
quirements are met.
The lodging is primarily for, and essential to, medical
care.
The medical care is provided by a doctor in a licensed
hospital or in a medical care facility related to, or the
equivalent of, a licensed hospital.
The lodging isn't lavish or extravagant under the cir-
cumstances.
There is no significant element of personal pleasure,
recreation, or vacation in the travel away from home.
The amount you include in medical expenses for lodg-
ing can't be more than $50 per night for each person. You
can include lodging for a person traveling with the person
receiving the medical care. For example, if a parent is
traveling with a sick child, up to $100 per night can be in-
cluded as a medical expense for lodging. (Meals aren't in-
cluded.)
Nursing home. You can include in medical expenses the
cost of medical care in a nursing home or a home for the
aged for yourself, your spouse, or your dependent(s). This
includes the cost of meals and lodging in the home if a
main reason for being there is to get medical care.
Don't include the cost of meals and lodging if the rea-
son for being in the home is personal. However, you can
include in medical expenses the part of the cost that is for
medical or nursing care.
Medical Insurance Premiums
You can include in medical expenses insurance premiums
you pay for policies that cover medical care. Policies can
provide payment for:
Hospitalization, surgical fees, X-rays;
Prescription drugs and insulin;
Dental care;
Replacement of lost or damaged contact lenses; and
Qualified long-term care insurance contracts (subject
to the additional limits included in the discussion on
qualified long-term care insurance contracts under
Long-Term Care, earlier).
If you have a policy that provides payments for other
than medical care, you can include the premiums for the
medical care part of the policy if the charge for the medi-
cal part is reasonable. The cost of the medical portion
must be separately stated in the insurance contract or
given to you in a separate statement.
Medicare Part A. If you are covered under social secur-
ity (or if you are a government employee who paid Medi-
care tax), you are enrolled in Medicare Part A. The payroll
tax paid for Medicare Part A isn't a medical expense. If
you aren't covered under social security (or weren't a gov-
ernment employee who paid Medicare tax), you can enroll
voluntarily in Medicare Part A. In this situation, you can in-
clude the premiums you paid for Medicare Part A as a
medical expense.
Medicare Part B. Medicare Part B is a supplemental
medical insurance. Premiums you pay for Medicare Part B
are a medical expense. Check the information you re-
ceived from the Social Security Administration to find out
your premium.
Social security beneficiaries may quickly and easily ob-
tain various information from SSA’s website with a my So-
cial Security account, including getting a replacement
SSA-1099 or SSA-1042S. For more information, see Ob-
taining social security information, earlier.
Medicare Part D. Medicare Part D is a voluntary pre-
scription drug insurance program for persons with Medi-
care Part A or Part B. You can include as a medical ex-
pense premiums you pay for Medicare Part D.
Prepaid insurance premiums. Insurance premiums you
pay before you are age 65 for medical care for yourself,
your spouse, or your dependents after you reach age 65
are medical care expenses in the year paid if they are:
Payable in equal yearly installments or more often;
and
Payable for at least 10 years, or until you reach age 65
(but not for less than 5 years).
Medicines
You can include in medical expenses amounts you pay for
prescribed medicines and drugs. A prescribed drug is one
that requires a prescription by a doctor for its use by an in-
dividual. You also can include amounts you pay for insu-
lin. Except for insulin, you can't include in medical expen-
ses amounts you pay for a drug that isn't prescribed.
Imported medicines and drugs. If you import medi-
cines or drugs from other countries, see Medicines and
Drugs From Other Countries, under What Expenses
Aren't Includible, in Pub. 502.
Nursing Services
You can include in medical expenses wages and other
amounts you pay for nursing services. The services need
not be performed by a nurse as long as the services are of
a kind generally performed by a nurse. This includes serv-
ices connected with caring for the patient's condition,
such as giving medication or changing dressings, as well
as bathing and grooming the patient. These services can
be provided in your home or another care facility.
Generally, only the amount spent for nursing services is
a medical expense. If the attendant also provides per-
sonal and household services, amounts paid to the at-
tendant must be divided between the time spent perform-
ing household and personal services and the time spent
Chapter 4 Deductions Page 25
Page 26 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
for nursing services. However, certain maintenance or
personal care services provided for qualified long-term
care can be included in medical expenses. See Mainte-
nance and personal care services under Qualified
long-term care services, earlier. Additionally, certain ex-
penses for household services or for the care of a qualify-
ing individual incurred to allow you to work may qualify for
the child and dependent care credit. See Child and De-
pendent Care Credit, later, and Pub. 503, Child and De-
pendent Care Expenses.
You also can include in medical expenses part of the
amount you pay for that attendant's meals. Divide the food
expense among the household members to find the cost
of the attendant's food. Then divide that cost in the same
manner as in the preceding paragraph. If you had to pay
additional amounts for household upkeep because of the
attendant, you can include the extra amounts with your
medical expenses. This includes extra rent or utilities you
pay because you moved to a larger apartment to provide
space for the attendant.
Employment taxes. You can include as a medical ex-
pense social security tax, FUTA, Medicare tax, and state
employment taxes you pay for a nurse, attendant, or other
person who provides medical care. If the attendant also
provides personal and household services, you can in-
clude as a medical expense only the amount of employ-
ment taxes paid for medical services as explained earlier
under Nursing Services. For information on employment
tax responsibilities of household employers, see Pub.
926, Household Employer's Tax Guide.
Transportation
You can include in medical expenses amounts paid for
transportation primarily for, and essential to, medical care.
Car expenses. You can include out-of-pocket expenses,
such as the cost of gas and oil, when you use a car for
medical reasons. You can't include depreciation, insur-
ance, general repair, or maintenance expenses.
If you don't want to use your actual expenses for 2017,
you can use the standard medical mileage rate of 17
cents a mile.
You also can include parking fees and tolls. You can
add these fees and tolls to your medical expenses
whether you use actual expenses or use the standard
mileage rate.
You also can include:
Bus, taxi, train, or plane fares or ambulance service;
and
Transportation expenses of a nurse or other person
who can give injections, medications, or other treat-
ment required by a patient who is traveling to get med-
ical care and is unable to travel alone.
Don't include transportation expenses if, for
purely personal reasons, you choose to travel to
another city for an operation or other medical care
prescribed by your doctor.
5.
Credits
This chapter briefly discusses the credit for the elderly or
disabled, the child and dependent care credit, and the
earned income credit. You may be able to reduce your
federal income tax by claiming one or more of these cred-
its. You also may be able to increase your refund by
claiming the earned income credit.
Credit for the Elderly
or the Disabled
This section explains who qualifies for the credit for the
elderly or the disabled and how to figure this credit. For
more information, see Pub. 524, Credit for the Elderly or
the Disabled.
You can take the credit only if you file Form 1040
or Form 1040A. You can't take the credit if you file
Form 1040EZ or Form 1040NR.
Can You Take the Credit?
You can take the credit for the elderly or the disabled if
you meet both of the following requirements.
You are a qualified individual.
Your income isn't more than certain limits.
You can use Figure 5-A and Figure 5-B as guides to see if
you are eligible for the credit.
CAUTION
!
CAUTION
!
Page 26 Chapter 5 Credits
Page 27 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Qualified Individual
You are a qualified individual for this credit if you are a
U.S. citizen or resident alien, and either of the following
applies.
1. You were age 65 or older at the end of 2017.
2. You were under age 65 at the end of 2017 and all
three of the following statements are true.
a. You retired on permanent and total disability (ex-
plained later).
b. You received taxable disability income for 2017.
c. On January 1, 2017, you had not reached manda-
tory retirement age (defined later under Disability
income).
Age 65. You are considered to be age 65 on the
day before your 65th birthday. Therefore, you are
considered to be age 65 at the end of 2017 if you
were born before January 2, 1953.
U.S. citizen or resident alien. You must be a U.S. citi-
zen or resident alien (or be treated as a resident alien) to
take the credit. Generally, you can't take the credit if you
were a nonresident alien at any time during the tax year.
TIP
Exceptions. You may be able to take the credit if you
are a nonresident alien who is married to a U.S. citizen or
resident alien at the end of the tax year and you and your
spouse choose to treat you as a U.S. resident alien. If you
make that choice, both you and your spouse are taxed on
your worldwide income.
If you were a nonresident alien at the beginning of the
year and a resident alien at the end of the year, and you
were married to a U.S. citizen or resident alien at the end
of the year, you may be able to choose to be treated as a
U.S. resident alien for the entire year. In that case, you
may be allowed to take the credit.
For information on these choices, see chapter 1 of Pub.
519, U.S. Tax Guide for Aliens.
Married persons. Generally, if you are married at the
end of the tax year, you and your spouse must file a joint
return to take the credit. However, if you and your spouse
didn't live in the same household at any time during the
tax year, you can file either a joint return or separate re-
turns and still take the credit.
Head of household. You can file as head of household
and qualify to take the credit even if your spouse lived with
you during the first 6 months of the year if you meet cer-
tain tests. See Pub. 524 and Pub. 501.
Figure 5-A. Are You a Qualified Individual?
Were you married at the end of the tax
year?
No
Yes
No
Yes
Yes
Did you receive taxable disability
benets during the tax year?
You are a qualied
individual and may be able
to take the credit for the
elderly or the disabled
unless your income
exceeds the limits in
Figure 5-B.
Yes
You aren’t a qualied
individual and can’t
take the credit for the
elderly or the disabled.
Yes
No
Yes
If you were a nonresident alien at any time during the tax year and were married to a U.S. citizen or resident alien at the end of the tax year, see U.S. Citizen or
Resident Alien underQualified Individual. If you and your spouse choose to treat you as a U.S. resident alien, answer “Yes” to this question.
Mandatory retirement age is the age set by your employer at which you would have been required to retire, had you not become disabled.
START HERE
2
3
Did you live with your
spouse at any time
during the tax year?
Are you a U.S. citizen or resident alien?2
No
Yes
Are you ling a joint
return with your spouse?
Yes
Were you 65 or older at the end of
the tax year?
No
Are you retired on permanent and
total disability?
No
No
Did you reach mandatory retirement
age before the tax year? 3
No
1
1However, you may be able to claim this credit even if you lived with your spouse during the rst 6 months of the tax year, as long as you qualify to le as head of
household. You qualify to le as head of household if you are considered unmarried and meet certain other conditions. See Pub. 501 for more information.
Chapter 5 Credits Page 27
Page 28 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Under age 65. If you are under age 65 at the end of
2017, you can qualify for the credit only if you are retired
on permanent and total disability and have taxable disabil-
ity income (discussed later under Disability income). You
are considered to be under age 65 at the end of 2017 if
you were born after January 1, 1953. You are retired on
permanent and total disability if:
You were permanently and totally disabled when you
retired, and
You retired on disability before the end of the tax year.
Even if you don't retire formally, you may be considered
retired on disability when you have stopped working be-
cause of your disability. If you retired on disability before
1977 and weren't permanently and totally disabled at the
time, you can qualify for the credit if you were permanently
and totally disabled on January 1, 1976, or January 1,
1977.
Permanent and total disability. You are permanently
and totally disabled if you can't engage in any substantial
gainful activity because of your physical or mental condi-
tion. A physician must certify that the condition has lasted
or can be expected to last continuously for 12 months or
more, or that the condition can be expected to result in
death. See Physician's statement, later.
Substantial gainful activity. Substantial gainful activ-
ity is the performance of significant duties over a reasona-
ble period of time while working for pay or profit, or in work
generally done for pay or profit.
Full-time work (or part-time work done at the employ-
er's convenience) in a competitive work situation for at
least the minimum wage conclusively shows that you are
able to engage in substantial gainful activity.
Substantial gainful activity isn't work you do to take
care of yourself or your home. It isn't unpaid work on hob-
bies, institutional therapy or training, school attendance,
clubs, social programs, and similar activities. However,
doing this kind of work may show that you are able to en-
gage in substantial gainful activity.
The fact that you haven't worked or have been unem-
ployed for some time isn't, of itself, conclusive evidence
that you can't engage in substantial gainful activity.
Physician's statement. If you are under age 65, you
must have your physician complete a statement certifying
that you were permanently and totally disabled on the
date you retired.
You don't have to file this statement with your tax re-
turn, but you must keep it for your records. The Instruc-
tions for Schedule R (Form 1040A or 1040) include a
statement your physician can complete and that you can
keep for your records.
Veterans. If the Department of Veterans Affairs (VA)
certifies that you are permanently and totally disabled, you
can substitute VA Form 21-0172, Certification of Perma-
nent and Total Disability, for the physician's statement you
are required to keep. VA Form 21-0172 must be signed by
a person authorized by the VA to do so. You can get this
form from your local VA regional office.
Physician's statement obtained in earlier year. If
you got a physician's statement in an earlier year and, due
to your continued disability, you were unable to engage in
any substantial gainful activity during 2017, you may not
need to get another physician's statement for 2017. For a
detailed explanation of the conditions you must meet, see
the instructions for Schedule R (Form 1040A or 1040),
Part II. If you meet the required conditions, you must
check the box on Schedule R (Form 1040A or 1040), Part
II, line 2.
If you checked Schedule R (Form 1040A or 1040), Part
I, box 4, 5, or 6, print in the space above the box in Part II,
line 2, the first name(s) of the spouse(s) for whom the box
is checked.
Disability income. If you are under age 65, you also
must have taxable disability income to qualify for the
credit.
Disability income must meet the following two require-
ments.
It must be paid under your employer's accident or
health plan or pension plan.
It must be included in your income as wages (or pay-
ments in lieu of wages) for the time you are absent
from work because of permanent and total disability.
Figure 5-B. Income Limits
IF your filing status is...
THEN even if you qualify (see Figure 5-A), you CANNOT take the credit if:
Your adjusted gross income (AGI)* is
equal to or more than...
OR the total of your nontaxable social
security and other nontaxable pension(s),
annuities, or disability income is equal to or
more than...
single, head of household, or qualifying
widow(er)
$17,500 $5,000
married filing jointly and only one spouse
qualifies in Figure 5-A
$20,000 $5,000
married filing jointly and both spouses qualify in
Figure 5-A
$25,000 $7,500
married filing separately and you lived apart
from your spouse for all of 2017
$12,500 $3,750
*AGI is the amount on Form 1040A, line 22; or Form 1040, line 38.
Page 28 Chapter 5 Credits
Page 29 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Payments that aren't disability income. Any pay-
ment you receive from a plan that doesn't provide for disa-
bility retirement isn't disability income. Any lump-sum pay-
ment for accrued annual leave that you receive when you
retire on disability is a salary payment and isn't disability
income.
For purposes of the credit for the elderly or the disa-
bled, disability income doesn't include amounts you re-
ceive after you reach mandatory retirement age. Manda-
tory retirement age is the age set by your employer at
which you would have had to retire had you not become
disabled.
Figuring the Credit
You can figure the credit yourself or allow the IRS to figure
it for you.
Figuring the credit yourself. If you figure the credit
yourself, fill out the front of Schedule R (Form 1040A or
1040). Next, fill out Schedule R (Form 1040A or 1040),
Part III.
Credit figured for you. If you can take the credit and
you want the IRS to figure the credit for you, see Pub. 524
or the Instructions for Schedule R (Form 1040A or 1040).
If you want the IRS to figure your tax, see chapter 30 of
Pub. 17, Your Federal Income Tax.
Child and Dependent
Care Credit
You may be able to claim this credit if you pay someone to
care for your dependent who is under age 13 or for your
spouse or dependent who isn't able to care for himself or
herself. The credit can be up to 35% of your expenses. To
qualify, you must pay these expenses so you can work or
look for work.
If you claim this credit, you must include on your
return the name and taxpayer identification num-
ber (generally the social security number) of each
qualifying person for whom care is provided. You also
must show on your return the name, address, and the tax-
payer identification number of the person(s) or organiza-
tion(s) that provided the care. If the correct information
isn't shown, the credit may be reduced or disallowed.
For more information, see Pub. 503, Child and Depend-
ent Care Expenses.
Earned Income Credit (EIC)
The earned income credit (EIC) is a refundable tax credit
for certain people who work and have earned income un-
der $53,930. The EIC is available to persons with or with-
out a qualifying child.
CAUTION
!
Credit has no effect on certain welfare benefits. Any
refund you receive because of the EIC can't be counted
as income when determining whether you or anyone else
is eligible for benefits or assistance, or how much you or
anyone else can receive, under any federal program or
under any state or local program financed in whole or in
part with federal funds. These programs include the fol-
lowing.
Medicaid.
Supplemental Security Income (SSI).
Supplemental Nutrition Assistance Program (food
stamps).
Low-income housing.
Temporary Assistance for Needy Families (TANF).
In addition, when determining eligibility, the refund can't
be counted as a resource for at least 12 months after you
receive it. Check with your local benefit coordinator to find
out if your refund will affect your benefits.
Do You Qualify for the Earned Income
Credit (EIC)?
Use Table 5-1 as an initial guide to the rules you must
meet in order to qualify for the EIC. The specific rules you
must meet depend on whether you have a qualifying child.
If you have a qualifying child, the rules in Parts A, B,
and D apply to you.
If you don't have a qualifying child, the rules in Parts A,
C, and D apply to you.
If, after reading all the rules in each part that applies to
you, you think you may qualify for the credit, see Pub. 596,
Earned Income Credit, for more details about the EIC. You
also can find information about the EIC in the instructions
for Form 1040 (line 66a), Form 1040A (line 42a), or Form
1040EZ (line 8a).
The sections that follow provide additional information
for some of the rules.
Adjusted gross income (AGI). Under Rule 1, you can't
claim the EIC unless your AGI is less than the applicable
limit shown in Part A of Table 5-1. Your AGI is the amount
on line 37 (Form 1040), line 21 (Form 1040A), or line 4
(Form 1040EZ).
Social security number. Under Rule 2, you (and your
spouse if you are married filing jointly) must have a valid
social security number (SSN) issued by the Social Secur-
ity Administration (SSA). Any qualifying child listed on
Schedule EIC also must have a valid SSN. (See Qualify-
ing child, later, if you have a qualifying child.)
If your social security card (or your spouse's if you are
married filing jointly) says “Not valid for employment” and
your SSN was issued so that you (or your spouse) could
get a federally funded benefit, you can't get the EIC. An
example of a federally funded benefit is Medicaid.
Investment income. Under Rule 6, you can't claim the
EIC unless your investment income is $3,450 or less. If
Chapter 5 Credits Page 29
Page 30 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
your investment income is more than $3,450, you can't
claim the credit. For most people, investment income is
the total of the following amounts.
Taxable interest (line 8a of Form 1040 or 1040A).
Tax-exempt interest (line 8b of Form 1040 or 1040A).
Dividend income (line 9a of Form 1040 or 1040A).
Capital gain net income (line 13 of Form 1040, if more
than zero, or line 10 of Form 1040A).
If you file Form 1040EZ, your investment income is the to-
tal of the amount of line 2 and the amount of any tax-ex-
empt interest you wrote to the right of the words “Form
1040EZ” on line 2.
For more information about investment income, see
Pub. 596, Earned Income Credit.
Earned income. Under Rule 7, you must have earned in-
come to claim the EIC. Under Rule 15, you can't claim the
EIC unless your earned income is less than the applicable
limit shown in Table 5-1, Part D. Earned income includes
all of the following types of income.
1. Wages, salaries, tips, and other taxable employee
pay. Employee pay is earned income only if it is taxa-
ble. Nontaxable employee pay, such as certain de-
pendent care benefits and adoption benefits, isn't
earned income. But there is an exception for nontaxa-
ble combat pay, which you can choose to include in
earned income.
2. Net earnings from self-employment.
3. Gross income received as a statutory employee.
Gross income defined. Gross income means all income
you received in the form of money, goods, property, and
services that isn't exempt from tax, including any income
from sources outside the United States or from the sale of
your main home (even if you can exclude part or all of it).
Don't include any social security benefits unless (a) you
are married filing a separate tax return and you lived with
your spouse at any time in 2017 or (b) one-half of your so-
cial security benefits plus your other gross income and
any tax-exempt interest is more than $25,000 ($32,000 if
married filing jointly). If (a) or (b) applies, see the instruc-
tions for Form 1040, lines 20a and 20b to figure the taxa-
ble part of social security benefits you must include in
gross income.
Self-employed persons. If you are self-employed
and your net earnings are $400 or more, be sure to cor-
rectly fill out Schedule SE (Form 1040), Self-Employment
Table 5-1. Earned Income Credit (EIC) in a Nutshell
First, you must meet all the rules in this
column.
Second, you must meet all the rules in
one of these columns, whichever applies.
Third, you must meet
the rule in this column.
Part A.
Rules for Everyone
Part B.
Rules if You Have a
Qualifying Child
Part C.
Rules if You Don't
Have a Qualifying
Child
Part D.
Figuring and Claiming
the EIC
1. Your adjusted gross
income (AGI) must be
less than:
•$48,340 ($53,930 for
married filing jointly) if
you have three or
more qualifying
children,
•$45,007 ($50,597 for
married filing jointly) if
you have two
qualifying children,
•$39,617 ($45,207 for
married filing jointly) if
you have one
qualifying child, or
•$15,010 ($20,600 for
married filing jointly) if
you don't have a
qualifying child.
2. You must have a
valid social security
number by the due
date of your 2017
return (including
extensions).
3. Your filing status
can't be “Married filing
separately.”
4. You must be a U.S.
citizen or resident
alien all year.
(However, see Pub.
596 if your filing
status is married filing
jointly.)
5. You can't file Form
2555 or Form
2555-EZ (relating to
foreign earned
income).
6. Your investment
income must be
$3,450 or less.
7. You must have
earned income.
8. Your child must meet
the relationship, age,
residency, and joint
return tests.
9. Your qualifying child
can't be used by more
than one person to
claim the EIC.
10. You generally can't
be a qualifying child of
another person.
11. You must be at
least age 25 but
under age 65.
12. You can't be the
dependent of
another person.
13. You generally
can't be a qualifying
child of another
person.
14. You must have
lived in the United
States more than
half of the year.
15. Your earned income
must be less than:
•$48,340 ($53,930 for
married filing jointly) if you
have three or more
qualifying children,
•$45,007 ($50,597 for
married filing jointly) if you
have two qualifying
children,
•$39,617 ($45,207 for
married filing jointly) if you
have one qualifying child,
or
•$15,010 ($20,600 for
married filing jointly) if you
don't have a qualifying
child.
Page 30 Chapter 5 Credits
Page 31 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Tax, and pay the proper amount of self-employment tax. If
you don't, you may not get all the credit to which you are
entitled.
Disability benefits. If you retired on disability, taxable
benefits you receive under your employer's disability re-
tirement plan are considered earned income until you
reach minimum retirement age. Minimum retirement age
generally is the earliest age at which you could have re-
ceived a pension or annuity if you weren't disabled. Begin-
ning on the day after you reach minimum retirement age,
payments you receive are taxable as a pension and aren't
considered earned income.
Payments you received from a disability insurance pol-
icy that you paid the premiums for aren't earned income. It
doesn't matter whether you have reached minimum retire-
ment age. If this policy is through your employer, the
amount may be shown in box 12 of your Form W-2 with
code J.
Income that isn't earned income. Examples of items
that aren't earned income under Rule 7 include:
Interest and dividends;
Pensions and annuities;
Social security and railroad retirement benefits (in-
cluding disability benefits — except for payments cov-
ered under Disability benefits, earlier);
Alimony and child support;
Welfare benefits;
Workers' compensation benefits;
Unemployment compensation (insurance);
Nontaxable foster care payments;
Veterans' benefits, including VA rehabilitation pay-
ments; and
Medicaid waiver payments you exclude from income.
Don't include any of these items in your earned income.
Workfare payments. Nontaxable workfare payments
aren't earned income for the EIC. These are cash pay-
ments certain people receive from a state or local agency
that administers public assistance programs funded under
the federal Temporary Assistance for Needy Families
(TANF) program in return for certain work activities such
as (1) work experience activities (including remodeling or
repairing public housing) if sufficient private sector em-
ployment isn't available, or (2) community service pro-
gram activities.
Qualifying child. Under Rule 8, your child is a qualifying
child if your child meets four tests. The four tests are:
1. Relationship,
2. Age,
3. Joint return, and
4. Residency.
The four tests are illustrated in Figure 5-C, later. See
Pub. 596 for more information about each test.
Figuring the EIC
To figure the amount of your credit, you have two choices.
1. Have the IRS figure the EIC for you. If you want to do
this, see IRS Will Figure the EIC for You in Pub. 596.
2. Figure the EIC yourself. If you want to do this, see
How To Figure the EIC Yourself in Pub. 596.
6.
Estimated Tax
Estimated tax is a method used to pay tax on income that
isn't subject to withholding. This income includes self-em-
ployment income, interest, dividends, alimony, rent, gains
from the sale of assets, prizes, and awards.
Income tax generally is withheld from pensions and annu-
ity payments you receive. However, if the tax withheld
from your pension (or other) income isn't enough, you may
have to pay estimated tax. If you don't pay enough tax
through withholding, by making estimated tax payments,
or both, you may be charged a penalty.
Who Must Make Estimated
Tax Payments
If you had a tax liability for 2017, you may have to pay esti-
mated tax for 2018. In most cases, you must pay estima-
ted tax for 2018 if both of the following apply.
1. You expect to owe at least $1,000 in tax for 2018, af-
ter subtracting your withholding and refundable cred-
its.
2. You expect your withholding and refundable credits to
be less than the smaller of:
90% of the tax to be shown on your 2018 tax return, or
100% of the tax shown on your 2017 tax return. The
2017 tax return must cover all 12 months.
If all of your income will be subject to income tax with-
holding, you probably don't need to make estimated tax
payments.
For more information on estimated tax, see Pub. 505.
Chapter 6 Estimated Tax Page 31
Page 32 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
7.
How To Get Tax Help
If you have questions about a tax issue, need help prepar-
ing your tax return, or want to download free publications,
forms, or instructions, go to IRS.gov and find resources
that can help you right away.
Preparing and filing your tax return. Find free options
to prepare and file your return on IRS.gov or in your local
community if you qualify.
The Volunteer Income Tax Assistance (VITA) program
offers free tax help to people who generally make $54,000
or less, persons with disabilities, and limited-Eng-
lish-speaking taxpayers who need help preparing their
own tax returns. The Tax Counseling for the Elderly (TCE)
program offers free tax help for all taxpayers, particularly
those who are 60 years of age and older. TCE volunteers
specialize in answering questions about pensions and re-
tirement-related issues unique to seniors.
You can go to IRS.gov to see your options for preparing
and filing your return which include the following.
Free File. Go to IRS.gov/FreeFile. See if you qualify
to use brand-name software to prepare and e-file your
federal tax return for free.
VITA. Go to IRS.gov/Vita, download the free IRS2Go
app, or call 1-800-906-9887 to find the nearest VITA
location for free tax preparation.
TCE. Go to IRS.gov/TCE, download the free IRS2Go
app, or call 1-888-227-7669 to find the nearest TCE
location for free tax preparation.
Getting answers to your tax questions. On
IRS.gov get answers to your tax questions any-
time, anywhere.
Go to IRS.gov/Help or IRS.gov/LetUsHelp pages for a
variety of tools that will help you get answers to some
of the most common tax questions.
Go to IRS.gov/ITA for the Interactive Tax Assistant, a
tool that will ask you questions on a number of tax law
topics and provide answers. You can print the entire
interview and the final response for your records.
Figure 5-C. Tests for Qualifying Child
A qualifying child for the EIC is a child who is your...
Son, daughter, stepchild, foster child,
or a descendant of any of them (for example, your grandchild)
OR
Brother, sister, half brother, half sister, stepbrother,
stepsister, or a descendant of any of them (for example, your
niece or nephew)
AND
was ...
Under age 19 at the end of 2017 and younger than you (or your spouse if filing jointly)
OR
Under age 24 at the end of 2017, a student, and younger than you (or your spouse if filing jointly)
OR
Permanently and totally disabled at any time during the year, regardless of age
AND
who...
Isn’t filing a joint return for 2017
(or is filing a joint return for 2017 only as a claim for refund of income tax withheld or estimated tax paid)
AND
who...
Lived with you in the United States for more than half
of 2017.
If the child didn't live with you for the
required time, see Pub. 596 for more information.
Page 32 Chapter 7 How To Get Tax Help
Page 33 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Go to IRS.gov/Pub17 to get Pub. 17, Your Federal In-
come Tax for Individuals, which features details on
tax-saving opportunities, 2017 tax changes, and thou-
sands of interactive links to help you find answers to
your questions. View it online in HTML, as a PDF, or
download it to your mobile device as an eBook.
You also may be able to access tax law information in
your electronic filing software.
Getting tax forms and publications. Go to IRS.gov/
Forms to view, download, or print all of the forms and pub-
lications you may need. You also can download and view
popular tax publications and instructions (including the
1040 instructions) on mobile devices as an eBook at no
charge. Or, you can go to IRS.gov/OrderForms to place
an order and have forms mailed to you within 10 business
days.
Using direct deposit. The fastest way to receive a tax
refund is to combine direct deposit and IRS e-file. Direct
deposit securely and electronically transfers your refund
directly into your financial account. Eight in 10 taxpayers
use direct deposit to receive their refund. IRS issues more
than 90% of refunds in less than 21 days.
Delayed refund for returns claiming certain credits.
Due to changes in the law, the IRS can’t issue refunds be-
fore mid-February 2018, for returns that properly claimed
the earned income credit (EIC) or the additional child tax
credit (ACTC). This applies to the entire refund, not just
the portion associated with these credits.
Getting a transcript or copy of a return. The quickest
way to get a copy of your tax transcript is to go to IRS.gov/
Transcripts. Click on either "Get Transcript Online" or "Get
Transcript by Mail" to order a copy of your transcript. If
you prefer, you can:
Order your transcript by calling 1-800-908-9946.
Mail Form 4506-T or Form 4506T-EZ (both available
on IRS.gov).
Using online tools to help prepare your return. Go to
IRS.gov/Tools for the following.
The Earned Income Tax Credit Assistant (IRS.gov/
EIC) determines if you’re eligible for the EIC.
The Online EIN Application (IRS.gov/EIN) helps you
get an employer identification number.
The IRS Withholding Calculator (IRS.gov/W4App) es-
timates the amount you should have withheld from
your paycheck for federal income tax purposes.
The First Time Homebuyer Credit Account Look-up
(IRS.gov/HomeBuyer) tool provides information on
your repayments and account balance.
The Sales Tax Deduction Calculator (IRS.gov/
SalesTax) figures the amount you can claim if you
itemize deductions on Schedule A (Form 1040),
choose not to claim state and local income taxes, and
you didn’t save your receipts showing the sales tax
you paid.
Resolving tax-related identity theft issues.
The IRS doesn’t initiate contact with taxpayers by
email or telephone to request personal or financial in-
formation. This includes any type of electronic com-
munication, such as text messages and social media
channels.
Go to IRS.gov/IDProtection for information and vid-
eos.
If your SSN has been lost or stolen or you suspect
you’re a victim of tax-related identity theft, visit
IRS.gov/ID to learn what steps you should take.
Checking on the status of your refund.
Go to IRS.gov/Refunds.
Due to changes in the law, the IRS can’t issue refunds
before mid-February 2018, for returns that properly
claimed the EIC or the ACTC. This applies to the en-
tire refund, not just the portion associated with these
credits.
Download the official IRS2Go app to your mobile de-
vice to check your refund status.
Call the automated refund hotline at 1-800-829-1954.
Making a tax payment. The IRS uses the latest encryp-
tion technology to ensure your electronic payments are
safe and secure. You can make electronic payments on-
line, by phone, and from a mobile device using the
IRS2Go app. Paying electronically is quick, easy, and
faster than mailing in a check or money order. Go to
IRS.gov/Payments to make a payment using any of the
following options.
IRS Direct Pay: Pay your individual tax bill or estima-
ted tax payment directly from your checking or sav-
ings account at no cost to you.
Debit or credit card: Choose an approved payment
processor to pay online, by phone, and by mobile de-
vice.
Electronic Funds Withdrawal: Offered only when fil-
ing your federal taxes using tax preparation software
or through a tax professional.
Electronic Federal Tax Payment System: Best op-
tion for businesses. Enrollment is required.
Check or money order: Mail your payment to the ad-
dress listed on the notice or instructions.
Cash: You may be able to pay your taxes with cash at
a participating retail store.
What if I can’t pay now? Go to IRS.gov/Payments for
more information about your options.
Apply for an online payment agreement (IRS.gov/
OPA) to meet your tax obligation in monthly install-
ments if you can’t pay your taxes in full today. Once
you complete the online process, you will receive
Chapter 7 How To Get Tax Help Page 33
Page 34 of 34 Fileid: … tions/P554/2017/A/XML/Cycle03/source 9:27 - 23-Jan-2018
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
immediate notification of whether your agreement has
been approved.
Use the Offer in Compromise Pre-Qualifier (IRS.gov/
OIC) to see if you can settle your tax debt for less than
the full amount you owe.
Checking the status of an amended return. Go to
IRS.gov/WMAR to track the status of Form 1040X amen-
ded returns. Please note that it can take up to 3 weeks
from the date you mailed your amended return for it to
show up in our system and processing it can take up to 16
weeks.
Understanding an IRS notice or letter. Go to IRS.gov/
Notices to find additional information about responding to
an IRS notice or letter.
Contacting your local IRS office. Keep in mind, many
questions can be answered on IRS.gov without visiting an
IRS Tax Assistance Center (TAC). Go to IRS.gov/
LetUsHelp for the topics people ask about most. If you still
need help, IRS TACs provide tax help when a tax issue
can’t be handled online or by phone. All TACs now pro-
vide service by appointment so you’ll know in advance
that you can get the service you need without long wait
times. Before you visit, go to IRS.gov/TACLocator to find
the nearest TAC, check hours, available services, and ap-
pointment options. Or, on the IRS2Go app, under the Stay
Connected tab, choose the Contact Us option and click on
“Local Offices.”
Watching IRS videos. The IRS Video portal
(IRSvideos.gov) contains video and audio presentations
for individuals, small businesses, and tax professionals.
Getting tax information in other languages. For tax-
payers whose native language isn’t English, we have the
following resources available. Taxpayers can find informa-
tion on IRS.gov in the following languages.
Spanish (IRS.gov/Spanish).
Chinese (IRS.gov/Chinese).
Vietnamese (IRS.gov/Vietnamese).
Korean (IRS.gov/Korean).
Russian (IRS.gov/Russian).
The IRS TACs provide over-the-phone interpreter serv-
ice in over 170 languages, and the service is available
free to taxpayers.
The Taxpayer Advocate
Service Is Here To Help You
What is the Taxpayer Advocate
Service?
The Taxpayer Advocate Service (TAS) is an independ-
ent organization within the IRS that helps taxpayers and
protects taxpayer rights. Our job is to ensure that every
taxpayer is treated fairly and that you know and under-
stand your rights under the Taxpayer Bill of Rights.
What Can the Taxpayer Advocate
Service Do For You?
We can help you resolve problems that you can’t resolve
with the IRS. And our service is free. If you qualify for our
assistance, you will be assigned to one advocate who will
work with you throughout the process and will do every-
thing possible to resolve your issue. TAS can help you if:
Your problem is causing financial difficulty for you,
your family, or your business,
You face (or your business is facing) an immediate
threat of adverse action, or
You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
date promised.
How Can You Reach Us?
We have offices in every state, the District of Columbia,
and Puerto Rico. Your local advocate’s number is in your
local directory and at TaxpayerAdvocate.IRS.gov/
Contact-Us. You also can call us at 1-877-777-4778.
How Can You Learn About Your
Taxpayer Rights?
The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Our Tax
Toolkit at TaxpayerAdvocate.IRS.gov can help you under-
stand what these rights mean to you and how they apply.
These are your rights. Know them. Use them.
How Else Does the Taxpayer
Advocate Service Help Taxpayers?
TAS works to resolve large-scale problems that affect
many taxpayers. If you know of one of these broad issues,
please report it to us at IRS.gov/SAMS.
Low Income Taxpayer Clinics
Low Income Taxpayer Clinics (LITCs) are independent
from the IRS. LITCs represent individuals whose income
is below a certain level and need to resolve tax problems
with the IRS, such as audits, appeals, and tax collection
disputes. In addition, clinics can provide information about
taxpayer rights and responsibilities in different languages
for individuals who speak English as a second language.
Services are offered for free or a small fee. To find a clinic
near you, visit TaxpayerAdvocate.IRS.gov/LITCmap or
see IRS Publication 4134, Low Income Taxpayer Clinic
List.
Page 34 Chapter 7 How To Get Tax Help

Navigation menu