Tax Topic 412 – Lump–Sum Distributions

If you receive a lump-sum distribution from a qualified retirement plan or a qualified retirement annuity and you were born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. These optional methods can be elected only once after 1986 for any eligible plan participant.

A lump-sum distribution is the distribution or payment, within a single tax year, of a plan participant’s entire balance from all of the employer’s qualified pension, profit-sharing, or stock bonus plans. All the participant’s accounts under the employer’s qualified pension, profit-sharing, or stock bonus plans must be distributed in order to be a lump-sum distribution.

If the lump-sum distribution qualifies, you can elect to treat the portion of the payment attributable to your active participation in the plan using one of five options:

1. Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and the part of the distribution from participation after 1973 as ordinary income.
2. Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and use the 10-year tax option to figure the tax on the part from participation after 1973 (if you qualify).
3. Use the 10-year tax option to figure the tax on the total taxable amount (if you qualify).
4. Roll over all or part of the distribution. No tax is currently due on the part rolled over. Report any part not rolled over as ordinary income.
5. Report the entire taxable part as ordinary income.

You should receive a Form 1099-R (PDF) from the payer of the lump-sum distribution showing your taxable distribution and the amount eligible for capital gain treatment. If you do not receive Form 1099-R by January 31st you should contact the payer of your lump-sum distribution.

You may defer tax on all or part of a lump-sum distribution by requesting that your employer directly roll over the taxable portion into an Individual Retirement Arrangement (IRA) or to an eligible retirement plan. You can also defer tax on a distribution paid to you by rolling over the taxable amount to an IRA within 60 days after receipt of the distribution. A rollover, however, eliminates the possibility of any future special tax treatment of the distribution. Refer to Topic 413 for more information on rollovers. Mandatory income tax withholding of 20% applies to most taxable distributions paid directly to you in a lump-sum from employer retirement plans regardless of whether you plan to roll over the taxable amount within 60 days.

Tax Topic 352 – Which Form – 1040, 1040A or 1040EZ?

Which Tax Form Should I Use?

The three forms used for filing individual federal income tax returns are:

Form 1040EZ (PDF)
Form 1040A (PDF)
Form 1040 (PDF).

Individual taxpayers recently advised they will no longer receive income tax packages in the mail from the IRS.

Form 1040EZ is the simplest form to fill out. You may use Form 1040EZ if you meet all the following conditions:

1. Your filing status is single or married filing jointly
2. You claim no dependents
3. You, and your spouse if filing a joint return, were under age 65 on January 1, 2011, and not blind at the end of 2010
4. You have only wages, salaries, tips, taxable scholarship and fellowship grants, unemployment compensation, qualified state tuition program earnings, or Alaska Permanent Fund dividends, and your taxable interest was not over $1,500
5. Your taxable income is less than $100,000
6. Your earned tips, if any, are included in boxes 5 and 7 of your Form W-2
7. You did not receive any advance earned income credit payments
8. You do not owe any household employment taxes on wages you paid to a household employee
9. You are not a debtor in a Chapter 11 bankruptcy case filed after October 16, 2005
10. You are not claiming the additional standard deduction for real estate taxes, net disaster losses, or qualified motor vehicle taxes
11. You do not claim a student loan interest deduction, an educator expense deduction, or a tuition and fees deduction, and
12. You do not claim an education credit, retirement savings contributions credit, or a health coverage tax credit

If you file Form 1040EZ, you cannot itemize deductions or claim any adjustments to income or tax credits (other than the earned income credit).

If you cannot use Form 1040EZ, you may be able to use Form 1040A if:

1. Your income is only from wages, salaries, tips, taxable scholarships and fellowship grants, interest, or ordinary dividends, capital gain distributions, pensions, annuities, IRAs, unemployment compensation, taxable social security or railroad retirement benefits, and Alaska Permanent Fund dividends
2. Your taxable income is less than $100,000
3. You do not itemize deductions
4. You did not have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option
5. You received advance earned income credit payments, dependent care benefits, or if you owe tax from the recapture of an education credit or the alternative minimum tax, and
6. Your only adjustments to income are the IRA deduction, the student loan interest deduction, the educator expenses deduction, and the tuition and fees deduction.

If you file Form 1040A, the only credits you can claim are the credit for child and dependent care expenses, the earned income credit, the making work pay credit, the credit for the elderly or the disabled, education credits, the child tax credit, the additional child tax credit, the government retiree credit, and the retirement savings contribution credit.

Finally, you must use Form 1040 under certain circumstances, such as:

1. Your taxable income is $100,000 or more
2. You have certain types of income such as unreported tips, certain nontaxable distributions, self-employment earnings, or income received as a partner, a shareholder in an “S” Corporation, or a beneficiary of an estate or trust
3. You itemize deductions or claim certain tax credits or adjustments to income, or
4. You owe household employment taxes

A complete list of conditions outlining when Form 1040 must be used is in the instructions for Form 1040A.

Tax Topic 308 – Amended Tax Returns

If you discover an error after your return has been mailed, you may need to amend your return. The service center may correct errors in math on a return and may accept returns with certain forms or schedules left out. In these instances, do not amend your return! However, do file an amended return if your filing status, your income, your deductions or credits are incorrect.

Use Form 1040X (PDF), Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040 (PDF), Form 1040A (PDF), Form 1040EZ (PDF), Form 1040NR (PDF), or Form 1040NR-EZ (PDF). If you are filing to claim an additional refund, wait until you have received your original refund (you may cash that check). If you owe additional tax for a tax year, file Form 1040X and pay the tax by April 15 of the following year to avoid penalties and interest. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. The Form 1040X Instructions list the addresses for the service centers.

File a separate Form 1040X for each year you are amending. Mail each form in a separate envelope. Be sure to indicate the year of the return you are amending on the front of Form 1040X.

The Form 1040X has been redesigned for tax year 2009. Previously the form consisted of three columns; Column A-Original amount, Column B-Net change, and Column C-Correct amount. The redesigned form now has just one column where the Correct Amount is the only figure entered, making it easier to make changes to previously filed returns. Do not include any interest or penalty corrections on Form 1040X; they will be adjusted automatically. See Publication 17, Your Federal Income Tax (For Individuals), Chapter 1, for more information.

There is an area on the front of the form to explain why you are filing Form 1040X. Generally, to claim a refund, Form 1040X must be filed within 3 years from the date of your original return or within 2 years from the date you paid the tax, whichever is later. If you file a claim for certain items, these dates and limits may not apply. See Publication 17, Chapter 1 for a complete list. Returns filed before the due date (without regard to extensions) are considered filed on the due date.

• Attach copies of any forms or schedules that are being changed as a result of the amendment, including any Form(s) W-2 received after the original return was filed.
• Tax forms can be obtained by calling 800-829-3676 or visiting www.irs.gov
• An amended tax return cannot be filed electronically under the e-file system.
• Normal processing time for Forms 1040X is 8 to 12 weeks from the IRS receipt date.

Please Note: Your state tax liability may be affected by a change made on your federal return. For information on how to correct your state tax return, contact your state tax agency.