Publication 17
taxmap/pub17/p17-024.htm#en_us_publink1000171199taxmap/pub17/p17-024.htm#en_us_publink1000171203If you are a U.S. citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and
royalties).
If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. For details, see Publication
54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. The following topics are included.
- Bonuses and awards.
- Special rules for certain employees.
- Sickness and injury benefits.
The chapter explains what income is included in the employee's gross income and what is not
included.
taxmap/pub17/p17-024.htm#TXMP2f076b05Useful items
You may want to see:
Publication 463 Travel, Entertainment, Gift, and Car Expenses
525 Taxable and Nontaxable Income
taxmap/pub17/p17-024.htm#en_us_publink1000171204This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted
property.
taxmap/pub17/p17-024.htm#en_us_publink1000171205If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2.
If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. These wages must be included on line 7 of Form 1040. See Form 8919 for more information.
taxmap/pub17/p17-024.htm#en_us_publink1000171206If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do
it.
taxmap/pub17/p17-024.htm#en_us_publink1000171207If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to
you.
taxmap/pub17/p17-024.htm#en_us_publink1000171208This section discusses different types of employee compensation.
taxmap/pub17/p17-024.htm#en_us_publink1000171209If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive
them.
If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. See
Repayments in chapter 12.
If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication
463. If you are reimbursed for moving expenses, see Publication
521, Moving Expenses.
Include in income amounts you are awarded in a settlement or judgment for back pay. These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. They should be reported to you by your employer on Form
W-2.
taxmap/pub17/p17-024.htm#en_us_publink1000171213Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. These include prizes such as vacation trips for meeting sales goals. If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to
you.
taxmap/pub17/p17-024.htm#en_us_publink1000171214If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Your employer can tell you whether your award is a qualified plan award. Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised
pay.
However, the exclusion does not apply to the following awards.
- A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years.
- A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year.
Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income.
taxmap/pub17/p17-024.htm#en_us_publink1000236648This is any payment made to you by an employer for any period during which you are, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages you would have received from the employer during that period. These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. The payments are reported as wages on Form
W-2.
taxmap/pub17/p17-024.htm#en_us_publink1000171216Cost-of-living allowances generally are included in your income if you were a federal civilian employee or a federal court
employee.
Allowances and differentials that increase your basic pay as an incentive for taking a less desirable post of duty are part of your compensation and must be included in income. For example, your compensation includes Foreign Post, Foreign Service, and Overseas Tropical differentials. For more information on taxable and tax-free payments, see Publication
516, U.S. Government Civilian Employees Stationed Abroad.
Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. This amount is shown on Form W-2, box 12, using code Y. This amount is not included in your
income.
However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. This amount is included in your wages shown on Form W-2, box 1. It is also shown on Form W-2, box 12, using code
Z.
taxmap/pub17/p17-024.htm#en_us_publink1000171219If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Do not include that part again in your income. Include the rest of the payment in your income in the year of payment.
If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive
them.
taxmap/pub17/p17-024.htm#en_us_publink1000171220You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment
contract.
taxmap/pub17/p17-024.htm#en_us_publink1000171221If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2.
If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2.
taxmap/pub17/p17-024.htm#en_us_publink1000171222If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in
income.
However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form
1040).
taxmap/pub17/p17-024.htm#en_us_publink1000171223Pay you receive from your employer while you are sick or injured is part of your salary or wages. In addition, you must include in your income sick pay benefits received from any of the following payers.
- A welfare fund.
- A state sickness or disability fund.
- An association of employers or employees.
- An insurance company, if your employer paid for the plan.
However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. For more information, see Publication
525.
If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm
worker.
taxmap/pub17/p17-024.htm#en_us_publink1000171225Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. You include the cash payment in your income in the year you use the
right.
taxmap/pub17/p17-024.htm#en_us_publink1000171226Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these
rules.
taxmap/pub17/p17-024.htm#en_us_publink1000171227You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Your employer has the option to report taxable noncash fringe benefits by using either of the following rules.
- The general rule: benefits are reported for a full calendar year (January 1–December
31).
- The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current
year.
Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular
benefit.
You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example).
taxmap/pub17/p17-024.htm#en_us_publink1000171228Your employer reports your taxable fringe benefits in box 1 (Wages, tips, other compensation) of Form W-2. The total value of your fringe benefits also may be noted in box 14. The value of your fringe benefits may be added to your other compensation on one Form W-2, or you may receive a separate Form W-2 showing just the value of your fringe benefits in box 1 with a notation in box 14.
taxmap/pub17/p17-024.htm#en_us_publink1000171229In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Benefits you receive from the plan may be taxable, as explained later under
Sickness and Injury Benefits.
For information on the items covered in this section, other than
Long-term care coverage, see Publication
969, Health Savings Accounts and Other Tax-Favored Health Plans.
Contributions by your employer to provide coverage for long-term care services generally are not included in your income. However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. This amount will be reported as wages in box 1 of your Form
W-2.
Contributions you make to the plan are discussed in Publication 502, Medical and Dental
Expenses.
taxmap/pub17/p17-024.htm#en_us_publink1000171232
Contributions by your employer to your Archer MSA generally are not included in
your income. Their total will be reported in box 12 of Form W-2 with code R. You
must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance
Contracts. File the form with your return.
taxmap/pub17/p17-024.htm#en_us_publink1000171233If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your
income.
taxmap/pub17/p17-024.htm#en_us_publink1000171235If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your
income.
taxmap/pub17/p17-024.htm#en_us_publink1000171237If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Contributions made by your employer are not included in your income. Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Distributions not used for qualified medical expenses are included in your income. See Publication
969 for the requirements of an HSA.
Contributions by a partnership to a
bona fide
partner's HSA are not contributions by an employer. The contributions are
treated as a distribution of money and are not included in the partner's gross
income. Contributions by a partnership to a partner's HSA for services rendered
are treated as guaranteed payments that are includible in the partner's gross
income. In both situations, the partner can deduct the contribution made to the
partner's HSA.
Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. The shareholder-employee can deduct the contribution made to the shareholder-employee's
HSA.
taxmap/pub17/p17-024.htm#en_us_publink1000171238You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. See Publication
590 for the requirements for these qualified HSA funding distributions.
If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. This income is also subject to an additional 10% tax.
taxmap/pub17/p17-024.htm#en_us_publink1000171240You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. See the Instructions for Form 8839 for more
information.
Adoption benefits are reported by your employer in box 12 of Form W-2 with code
T. They also are included as social security and Medicare wages in boxes 3 and
5. However, they are not included as wages in box 1. To determine the taxable
and nontaxable amounts, you must complete Part III of Form 8839, Qualified
Adoption Expenses. File the form with your return.
taxmap/pub17/p17-024.htm#en_us_publink1000171241If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your
income.
taxmap/pub17/p17-024.htm#en_us_publink1000171242If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount
involved.
taxmap/pub17/p17-024.htm#en_us_publink1000171243You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. For more information, see Publication
970, Tax Benefits for Education.
In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the
insurance.
If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Also, it is shown separately in box 12 with code
C.
taxmap/pub17/p17-024.htm#en_us_publink1000171250This insurance is term life insurance protection (insurance for a fixed period of time) that:
- Provides a general death benefit,
- Is provided to a group of employees,
- Is provided under a policy carried by the employer, and
- Provides an amount of insurance to each employee based on a formula that prevents individual
selection.
If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Your employer should be able to tell you the amount to include in your income.
taxmap/pub17/p17-024.htm#en_us_publink1000171252Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life
insurance.
taxmap/pub17/p17-024.htm#en_us_publink1000171253If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Also, it is shown separately in box 12 with code C. Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. You must pay these taxes with your income tax return. Include them on line 60, Form 1040, and enter "UT" and the amount of the taxes on the dotted line next to line 60. For more information, see the Instructions for Form
1040.
taxmap/pub17/p17-024.htm#en_us_publink1000171254Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. You must figure how much to include in your income. Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return.
taxmap/pub17/p17-024.htm#en_us_publink1000171255Use the following worksheet to figure the amount to include in your
income.
taxmap/pub17/p17-024.htm#en_us_publink1000171256 | Worksheet 5-1. Figuring the Cost of Group-Term Life Insurance To Include in
Income | 1. | Enter the total amount of your insurance coverage from your
employer(s) | 1. | | | 2. | Limit on exclusion for employer-provided group-term life insurance
coverage | 2. | 50,000 | | 3. | Subtract line 2 from line 1 | 3. | | | 4. | Divide line 3 by $1,000. Figure to the nearest tenth | 4. | | | 5. | Go to Table 5-1. Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group
| 5. | | | 6. | Multiply line 4 by line 5 | 6. | | | 7. | Enter the number of full months of coverage at this cost. | 7. | | | 8. | Multiply line 6 by line 7 | 8. | | | 9. | Enter the premiums you paid per month | 9. | | | | | 10. | Enter the number of months you paid the premiums | 10. | | | | | 11. | Multiply line 9 by line 10. | 11. | | | 12. | Subtract line 11 from line 8.
Include this amount in your income as wages | 12. | |
|
Table 5-1. Cost of $1,000 of Group-Term Life Insurance for One
Month
| Age | Cost |
| Under 25 | $ .05 |
| 25 through 29 | .06 |
| 30 through 34 | .08 |
| 35 through 39 | .09 |
| 40 through 44 | .10 |
| 45 through 49 | .15 |
| 50 through 54 | .23 |
| 55 through 59 | .43 |
| 60 through 64 | .66 |
| 65 through 69 | 1.27 |
| 70 and older | 2.06 |
taxmap/pub17/p17-024.htm#en_us_publink1000266032 | Worksheet 5-1. Figuring the Cost of Group-Term Life Insurance to Include in
Income—Illustrated | 1. | Enter the total amount of your insurance coverage from your
employer(s) | 1. | 80,000 | | 2. | Limit on exclusion for employer-provided group-term life insurance
coverage | 2. | 50,000 | | 3. | Subtract line 2 from line 1 | 3. | 30,000 | | 4. | Divide line 3 by $1,000. Figure to the nearest tenth | 4. | 30.0 | | 5. | Go to Table 5-1. Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group
| 5. | .23 | | 6. | Multiply line 4 by line 5 | 6. | 6.90 | | 7. | Enter the number of full months of coverage at this cost. | 7. | 12 | | 8. | Multiply line 6 by line 7 | 8. | 82.80 | | 9. | Enter the premiums you paid per month | 9. | 4.15 | | | | 10. | Enter the number of months you paid the premiums | 10. | 12 | | | | 11. | Multiply line 9 by line 10. | 11. | 49.80 | | 12. | Subtract line 11 from line 8.
Include this amount in your income as wages | 12. | 33.00 |
|
taxmap/pub17/p17-024.htm#en_us_publink1000171262You are not taxed on the cost of group-term life insurance if any of the following circumstances apply.
- You are permanently and totally disabled and have ended your employment.
- Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year.
- A charitable organization (defined in
chapter 24) to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy.)
- The plan existed on January 1, 1984, and
- You retired before January 2, 1984, and were covered by the plan when you retired,
or
- You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983.
You are taxed on the entire cost of group-term life insurance if either of the following circumstances
apply.
- The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity
plan.
- You are a key employee and your employer's plan discriminates in favor of key employees.
If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer.
taxmap/pub17/p17-024.htm#en_us_publink1000171265If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. A qualified transportation fringe benefit is:
- Transportation in a commuter highway vehicle (such as a van) between your home and work
place,
- A transit pass,
- Qualified parking, or
- Qualified bicycle commuting reimbursement.
Cash reimbursement by your employer for these expenses under a
bona fide
reimbursement arrangement also is excludable. However, cash reimbursement for a
transit pass is excludable only if a voucher or similar item that can be
exchanged only for a transit pass is not readily available for direct
distribution to you.
The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $125 a
month.
The exclusion for the qualified parking fringe benefit cannot be more than $240 a month.
The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year.
If the benefits have a value that is more than these limits, the excess must be included in your income. You are not entitled to these exclusions if the reimbursements are made under a compensation reduction
agreement.
taxmap/pub17/p17-024.htm#en_us_publink1000171267This is a highway vehicle that seats at least six adults (not including the driver). At least 80% of the vehicle's mileage must reasonably be expected to be:
- For transporting employees between their homes and work place,
and
- On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the
driver).
This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation.
taxmap/pub17/p17-024.htm#en_us_publink1000207156This is parking provided to an employee at or near the employer's place of business. It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. It does not include parking at or near the employee's home.
taxmap/pub17/p17-024.htm#en_us_publink1000173508This is reimbursement based on the number of qualified bicycle commuting months for the year. A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and
storage.
taxmap/pub17/p17-024.htm#en_us_publink1000171270Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. (Your employer can tell you whether your retirement plan is qualified.) However, the cost of life insurance coverage included in the plan may have to be included. See
Group-Term Life Insurance, earlier, under
Fringe Benefits.
If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture.
 | For information on distributions from retirement plans, see Publication
575, Pension and Annuity Income (or Publication
721, Tax Guide to U.S. Civil Service Retirement Benefits, if you are a federal employee or retiree).
|
taxmap/pub17/p17-024.htm#en_us_publink1000171274If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. However, it is included in wages subject to social security and Medicare taxes.
Elective deferrals include elective contributions to the following retirement plans.
- Cash or deferred arrangements (section 401(k) plans).
- The Thrift Savings Plan for federal employees.
- Salary reduction simplified employee pension plans (SARSEP).
- Savings incentive match plans for employees (SIMPLE plans).
- Tax-sheltered annuity plans (403(b) plans).
- Section 501(c)(18)(D) plans.
- Section 457 plans.
Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. The notice must
explain:
- Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage,
and
- How contributions made will be invested in the absence of any investment decision by
you.
You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions.
taxmap/pub17/p17-024.htm#en_us_publink1000171276For 2012, in most cases, you should not have deferred more than a total of $17,000 of contributions to the plans listed in (1) through (3) and (5) above. The limit for SIMPLE plans is $11,500. The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. The limit for section 457 plans is the lesser of your includible compensation or $17,000. Amounts deferred under specific plan limits are part of the overall limit on
deferrals.
taxmap/pub17/p17-024.htm#en_us_publink1000171277Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Designated Roth contributions are treated as elective deferrals, except that they are included in
income.
taxmap/pub17/p17-024.htm#en_us_publink1000171278Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall
limit.
If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. See Publication
525 for a discussion of the tax treatment of excess deferrals.
You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year.
taxmap/pub17/p17-024.htm#en_us_publink1000171280If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option. However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. Your employer can tell you which kind of option you hold. For more information, see Publication
525.
In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. (You can choose to include the value of the property in your income in the year it is transferred to you.) For more information, see
Restricted Property
in Publication
525.
Dividends you receive on restricted stock are treated as compensation and not as dividend income. Your employer should include these payments on your Form W-2.
taxmap/pub17/p17-024.htm#en_us_publink1000171283Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. Report them on your return as dividends. For a discussion of dividends, see
chapter 8.
For information on how to treat dividends reported on both your Form W-2 and
Form 1099-DIV, see
Dividends received on restricted stock
in Publication
525.
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