# For use in preparing > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3Afaca0cad501c7be2 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Future Developments Publication 554 Tax Guide for Seniors For use in preparing 2025 Returns 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 Enhanced deduction for seniors. Beginning in 2025, taxpayers who are age 65 or older may be eligible for the enhanced deduction for seniors. The maximum amount of the deduction is $6,000 per person ($12,000 if married filing jointly and both spouses are eligible). For more information, see Enhanced Deduction for Seniors, later. Standard deduction amount increased. For 2025, the standard deduction amount has been increased for all filers. The amounts are: • Single or Married filing separately—$15,750; • Married filing jointly or Qualifying surviving spouse—$31,500; and • Head of household—$23,625. Alternative minimum tax (AMT) exemption increased. The AMT exemption amount has increased to $88,100 ($137,000 if married filing jointly or qualifying surviving spouse; $68,500 if married filing separately). Earned income credit. The maximum amount of income you can earn and still get the credit has changed. You may be able to take the credit if you earn less than: • $19,104 ($26,214 if married filing jointly), don’t have a qualifying child, and are at least 25 years old and under age 65; • $50,434 ($57,554 if married filing jointly), and you have one qualifying child; • $57,310 ($64,430 if married filing jointly), and you have two qualifying children; or • $61,555 ($68,675 if married filing jointly), and you have three or more qualifying children. For more information, see Earned Income Credit, later. Standard mileage rate. For 2025, the standard mileage rate allowed for operating expenses for a car when you use it for medical reasons is 21 cents a mile. Reminders Get forms and other information faster and easier at: • IRS.gov (English) • IRS.gov/Spanish (Español) • IRS.gov/Chinese (中文) Jan 16, 2026 • IRS.gov/Korean (한국어) • IRS.gov/Russian (Pусский) • IRS.gov/Vietnamese (Tiếng Việt) Increase in required minimum distribution age. If you reach age 72 in 2023 or later and have funds in a traditional IRA or a traditional SIMPLE IRA, the required beginning date for your first required minimum distribution is April 1 of the year following the year in which you reach age 73. Maximum age for traditional IRA contributions. The age restriction for contributions to a traditional IRA has been eliminated. Publication 554 (2025) Catalog Number 15102R Department of the Treasury Internal Revenue Service www.irs.gov Qualified disaster tax relief. Special rules provide for tax-favored withdrawals and repayments from certain retirement plans for taxpayers who suffered economic loss as a result of a qualified disaster. See Form 8915-F, Qualified Disaster Retirement Plan Distributions and Repayments, for more information. Form 1040-SR. Form 1040-SR, U.S. Income Tax Return for Seniors, was introduced in 2019. You can use this form if you are age 65 or older at the end of 2025. The form generally mirrors Form 1040. However, the Form 1040-SR has larger text and some helpful tips for older taxpayers. See the Instructions for Form 1040 for more information. 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 Use Only section of your return. Remember, however, that you are still responsible for the accuracy 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 allows the IRS to call the person you identified as your designee 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 instructions 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 benefits. Social security benefits information. Social security beneficiaries may quickly and easily obtain various information from the Social Security Administration’s (SSA’s) website with a my Social Security account, including getting a replacement Form 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 Revenue 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 taxpayers. This 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. 2 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 following 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 before 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 deduction 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 following year. • Enhanced deduction for seniors. If you are age 65 or older at the end of the year, you may be eligible for the enhanced deduction for seniors. 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. To determine if you qualify and how to figure this deduction, see Enhanced Deduction for Seniors, later. • 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) Foundation Tax-Aide site near you. Volunteer Income Tax Assistance and Tax Counseling for the Elderly. These programs provide free help for low-income taxpayers and taxpayers age 60 or older to prepare and file their returns. For the VITA/TCE site nearest you, contact your local IRS office. For more information, see Preparing and filing your tax return under How To Get Tax Help, later. AARP Foundation Tax-Aide. This program offers free tax preparation and has thousands of locations in neighborhood libraries, malls, banks, community centers, and senior centers annually during the filing season. Go to AARP.org/TaxAide or call 888-AARP-NOW (888-227-7669) for more information. Comments and suggestions. We welcome your comments about this publication and suggestions for future editions. You can send us comments through IRS.gov/ FormComments. Or, you can write to the Internal Revenue Publication 554 (2025) Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments and suggestions as we revise our tax forms, instructions, and publications. Don’t send tax questions, tax returns, or payments to the above address. Getting answers to your tax questions. If you have a tax question not answered by this publication or the How To Get Tax Help section at the end of this publication, go to the IRS Interactive Tax Assistant page at IRS.gov/ Help/ITA where you can find topics by using the search feature or viewing the categories listed. Getting tax forms, instructions, and publications. Go to IRS.gov/Forms to download current and prior-year forms, instructions, and publications. Ordering tax forms, instructions, and publications. Go to IRS.gov/OrderForms to order current forms, instructions, and publications; call 800-829-3676 to order prior-year forms and instructions. The IRS will process your order for forms and publications as soon as possible. Don’t resubmit requests you’ve already sent us. You can get forms and publications faster online. Table I. 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? How do I report benefits I received from the Social Security Administration or the Railroad Retirement Board? Are these benefits taxable? Must I report the sale of my home? If I had a gain, is any part of it taxable? See chapter 2. See Social Security and Equivalent Railroad Retirement Benefits in chapter 2. 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 (IRA) 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 How To Get Tax Help. Publication 554 (2025) 3 1. 2025 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 TIP 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 2025, go to IRS.gov/ITA and use the Interactive Tax Assistant (ITA). 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. 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. 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 considered yours. States with community property laws include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. A registered domestic partner in Nevada, Washington, or California must generally report half the combined community income of the individual and their domestic partner. For more information about community property, see Pub. 555. For more information on what to include in gross income, 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 Table 1-1. 2025 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. AND at the end of 2025 you were...* THEN file a return if your gross income** was at least... single under 65 $15,750 65 or older $17,750 under 65 $23,625 65 or older $25,625 under 65 (both spouses) $31,500 65 or older (one spouse) $33,100 65 or older (both spouses) $34,700 . IF your filing status is... head of household married filing jointly*** married filing separately any age $5 qualifying surviving spouse under 65 $31,500 65 or older $33,100 If you were born before January 2, 1961, you are considered to be age 65 or older at the end of 2025. (If your spouse died in 2025 or if you are preparing a return for someone who died in 2025, 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 (Form 1040). “Gross income from a business” means, for example, the amount on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9. However, in figuring gross income, don’t reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), 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 2025, 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 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 2025 (or on the date your spouse died) and your gross income was at least $5, you must file a return regardless of your age. * 4 Chapter 1 2025 Filing Requirements Publication 554 (2025) income-producing 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. 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, an 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 personal representative. Form 56, Notice Concerning Fiduciary 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 enter “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 enter in the signature area “Filing as surviving spouse.” For more information, see Pub. 559. 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 surviving spouse, 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 deceased spouse for their final return is married filing separately. The level of income that requires you to file an income 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 2024 to single in 2025 because of the death of your spouse, and your gross income is $25,000 for both years, you must file a return for 2025 even though you didn’t have to file a return for 2024. ! Publication 554 (2025) Chapter 2 2. Taxable and Nontaxable Income Generally, income is taxable unless it is specifically exempt (not taxed) by law. Your taxable income may include compensation for services, interest, dividends, rents, royalties, 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 partially or fully exempt from tax. Provisions that are of special interest to older taxpayers are discussed in this chapter. Compensation for Services Generally, you must include in gross income everything you receive in payment for personal services. In addition to wages, salaries, commissions, tips, bonuses, and fees, this includes other forms of compensation such as certain fringe benefits and stock options. You don’t need to receive the compensation in cash for it to be taxable. Payments you receive in the form of goods or services must generally 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 reimbursements for out-of-pocket expenses under any of the following 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 income all unemployment compensation you or your spouse (if married filing jointly) received. More information. See Pub. 525 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 arrangements (IRAs), employee pensions or annuities, and disability pensions or annuities. A traditional IRA is any IRA that isn’t a Roth or SIMPLE IRA. A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions and tax-free Taxable and Nontaxable Income 5 distributions. A SIMPLE IRA is a tax-favored retirement plan that certain small employers (including self-employed individuals) can set up for the benefit of their employees. More detailed information can be found in Pub. 590-A, Pub. 590-B, and Pub. 575. 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 tradi- TIP tional IRA, you must file Form 8606, Nondeducti- ble IRAs. If you don’t file Form 8606 with your return, 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 satisfactory 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 591/2, or amounts you receive when you cash in retirement bonds before you are age 591/2. You must include early distributions of taxable amounts in your gross income. These taxable amounts are also subject to an additional 10% tax unless the distribution qualifies for an exception. For purposes of the additional 10% tax, an IRA is a qualified retirement plan. For more information about this tax, see Tax on Early Distributions under Pensions and Annuities, later. Pensions and Annuities Generally, if you didn’t pay any part of the cost of your employee pension or annuity, and your employer didn’t withhold 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 annuity payment from income as a recovery of your cost (investment in the contract). This tax-free part of the payment 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 Officers, later. You figure the tax-free part of the payment using one of the following methods. • Simplified Method. You must generally 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 nonqualified plan. • General Rule. You must use this method if your annuity is paid under a nonqualified plan. You generally can’t use this method if your annuity is paid under a qualified plan. TIP Contact your employer or plan administrator to find out if your pension or annuity is paid under a qualified or nonqualified plan. After age 591/2. After you reach age 591/2, you can receive distributions from your traditional IRA without having to pay the 10% additional tax. You determine which method to use when you first begin receiving your annuity, and you continue using it each year that you recover part of your cost. Required Distributions 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 net cost (figured without any reduction for a refund feature). Any unrecovered cost at your (or the last annuitant’s) death is allowed as an “other itemized deduction” on the final return of the decedent. If you contributed to your pension or annuity and your annuity starting date is before 1987, you can continue to 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. General required minimum distribution rule. If you are the owner of a traditional IRA, you must generally receive the entire balance 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 73 (72 for those individuals who reach age 72 before January 1, 2023). See When Must You Withdraw Assets? (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 an excise tax for that year on the amount not distributed as required. For more information about this tax, see Tax on Excess Accumulation under Pensions and Annuities, later. See also Excess Accumulations (Insufficient Distributions) in Pub. 590-B. 6 Chapter 2 Cost. Before you can figure how much, if any, of your pension or annuity benefits are taxable, you must determine your cost in the plan (your investment in the contract). Your total cost in the plan includes everything that you paid. It also includes amounts your employer contributed that were taxable to you when paid. However, see Foreign employment contributions, later. Taxable and Nontaxable Income Publication 554 (2025) 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. have chosen to use the Simplified Method if your annuity is payable for your life (or the lives of you and your survivor annuitant) and you met both of the conditions listed above. Annuity starting date. The annuity starting date is the later of the first day of the first period for which you received a payment from the plan or the date on which the plan’s obligations became fixed. Guaranteed payments. Your annuity contract provides guaranteed payments if a minimum number of payments 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 minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. The amount of your contributions to the plan may TIP 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 retirement plan that weren’t includible in your gross income may be considered part of your cost. For details, see Foreign 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 qualified retirement plan or to a traditional IRA.) See Withholding 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 Periodic Pension or Annuity Payments. Simplified Method. Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing 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 following conditions. 1. You receive your pension or annuity payments from a qualified plan. 2. On your annuity starting date, at least one of the following 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 Publication 554 (2025) Chapter 2 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 purchased commercial annuity, or a nonqualified employee plan; or • A qualified plan if you are age 75 or older on your annuity 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 nontaxable investment, 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 Simplified Method. Complete information on the General Rule, including the actuarial tables you need, is contained in Pub. 939. How to use the Simplified Method. Complete the Simplified Method Worksheet in the Instructions for Form 1040 or the Instructions for Form 1040-NR, or in Pub. 575 to figure your taxable annuity for 2025. 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 determine the total number of expected monthly payments for your annuity. How you do this depends on whether the annuity 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. Taxable and Nontaxable Income 7 You don’t need to complete line 3 of the work- TIP 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 payments. Enter on line 3 the number shown for your age on your annuity starting date. This number will differ depending on whether your annuity starting date is before November 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, combine your age and the age of the youngest survivor annuitant. 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 payments depends on an event other than the primary annuitant’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 worksheet and enter on line 3 the number shown for the primary 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 November 18, 1996. Fixed-period annuities. If your annuity doesn’t depend 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 you didn’t recover an amount in a prior year, you may be able to amend your returns for the affected years. TIP Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity in later years. Example. Kris Smith, age 65, began receiving retirement benefits in 2025, under a joint and survivor annuity. Kris’ annuity starting date is January 1, 2025. Kris is married to Pat, age 65. The benefits are to be paid over the joint lives of Kris and Pat. Kris had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. Kris is to receive a retirement benefit of $1,200 a month, and Pat is to receive a monthly survivor benefit of $600 upon Kris’ death. 8 Chapter 2 Kris must use the Simplified Method to figure the taxable annuity because the payments are from a qualified plan and Kris is under age 75. You can find a blank version of this worksheet in Pub. 575. 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 included 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 income. 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 percentage the retiree used to your initial payment called for in the contract. The resulting tax-free amount will then remain 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 retiree at the annuity starting date. See Simplified Method, earlier. How to report. If you file Form 1040, 1040-SR, or 1040-NR, report your total annuity on line 5a, and the taxable part on line 5b. If your pension or annuity is fully taxable, enter it on line 5b. Don’t make an entry on line 5a. Example. You are a Form 1040 or 1040-SR filer and you received monthly payments totaling $1,200 (12 months x $100) during 2025 from a pension plan that was completely financed 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 Officers). The entire $1,200 is taxable. You include $1,200 only on Form 1040 or 1040-SR, line 5b. 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 5a of Form 1040, 1040-SR, or 1040-NR. Report the total of the taxable parts on line 5b of Form 1040, 1040-SR, or 1040-NR. Form 1099-R. You should receive a Form 1099-R for your pension or annuity. Form 1099-R shows your pension or annuity for the year and any income tax withheld. You should receive a Form W-2, Wage and Tax Statement, if you receive distributions from certain nonqualified plans. You must attach Forms 1099-R or Forms W-2 to your 2025 tax return if federal income tax was CAUTION withheld. Generally, you should be sent these forms by February 2, 2026. ! Nonperiodic Distributions If you receive a nonperiodic distribution from your retirement plan, you may be able to exclude all or part of it from Taxable and Nontaxable Income Publication 554 (2025) your income as a recovery of your cost. Nonperiodic distributions 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. General exceptions to tax. There are a number of exceptions to the early distribution tax. Some general exceptions include, but are not limited to, distributions: The taxable part of a nonperiodic distribution may be subject to an additional 10% tax. See Tax on CAUTION Early Distributions, later. • Made from a retirement plan in connection with feder- ! Lump-sum distributions. For information on special tax treatment for lump-sum distributions from a qualified employee plan or qualified employee annuity paid to individuals born before January 2, 1936, see the 2024 edition of Pub. 554 on IRS.gov. For individuals born on or after January 2, 1936, see Lump-Sum Distributions in Pub. 575. 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 capital 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. • Made from a retirement plan to an individual who has been certified by a physician as having a terminal illness; ally declared disasters; • Made as part of a series of substantially equal peri- odic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service); • Made because you are totally and permanently disabled; • Made on or after the death of the plan participant or contract holder; • Made because you separated from service in or after the year you reach age 55 (age 50 for qualified safety employees and private sector firefighters or 25 years of service under the plan, whichever is earlier); • Made to domestic abuse victims who meet certain criteria; or • Made from a retirement plan for certain emergency personal expenses. Tax on Early Distributions Most distributions you receive from your qualified retirement plan and nonqualified annuity contracts before you reach age 591/2 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 Revenue Code section 401(k)), • A qualified employee annuity plan, • A tax-sheltered annuity plan (section 403(b) plan), • An eligible state or local government section 457 de- ferred compensation plan (to the extent that any distribution 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 CAUTION SIMPLE IRA before you reach age 591/2. See Pub. 560. ! Reporting tax. If you owe the tax on early distributions, you must generally attach Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to your 2025 income tax return. If you don’t have to file a 2025 income tax return, you may file Form 5329 by itself. See the Instructions for Form 5329. In addition, you don’t have to attach Form 5329 to your income tax return if distribution code 1 (early distribution, 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), or 25% (0.25) if applicable, and enter the result on Schedule 2 (Form 1040), line 8. See the instructions for Schedule 2 (Form 1040), line 8, 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 beneficiaries 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% owners applies, this is generally April 1 of the year that follows the later of: • The calendar year in which you reach age 73, or • The calendar year in which you retire from employment with the employer maintaining the plan. Publication 554 (2025) Chapter 2 Taxable and Nontaxable Income 9 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 age 73, 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 (section 403(b) plan) (for benefits accruing after 1986), or • An IRA. An excess accumulation is the undistributed re- TIP mainder of the required minimum distribution that was left in your qualified retirement plan. 5% owners. If you are a 5% owner, see Pub. 575 for more information on distribution dates. Amount of tax. If you don’t receive the required minimum distribution, you may be subject to an additional tax. See Pub. 590-B and the Instructions for Form 5329 for more information. Form 5329. You must file a Form 5329 if you owe a tax because you didn’t receive a minimum required distribution 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 enforcement officer, firefighter, chaplain, or member of a rescue squad or ambulance crew who is retired because of disability or because you reached normal retirement age), you can elect to exclude from income distributions made from your eligible retirement plan that are used to pay the premiums for coverage by an accident or health plan or a long-term care insurance contract. The premiums can be for coverage for you, your spouse, or your dependent(s). The distribution must be from the plan maintained by the employer from which you retired as a public safety officer. The distribution can be made directly from the plan to the provider of the accident or health plan or long-term care insurance contract, or the distribution can be made to you to pay to the provider of the accident or health plan or long-term care insurance contract. You can exclude from income the smaller of the amount of the premiums paid or $3,000. You can make this election only 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, 10 Chapter 2 • Section 403(b) annuity, or • Section 457(b) plan. You can exclude from income only the smaller of the amount of the premiums paid or $3,000. This CAUTION is true if the distribution was made directly from the plan to the provider of the accident or health plan or long-term care insurance contract or if the distribution was made to you and you paid the provider of the accident or health plan or long-term care insurance contract. If you received a distribution from your eligible retirement plan, and you used part of that distribution to pay premiums for an accident or health plan or long-term care insurance contract, you can still exclude from income only the smaller of the amount of the premiums paid or $3,000. The rest of the distribution is taxable to you and should be reported as follows. ! If you make this election, reduce the otherwise taxable amount of your pension or annuity by the amount excluded. The amount shown in box 2a of Form 1099-R doesn't reflect the exclusion. Report your total distributions on Form 1040, 1040-SR, or 1040-NR, line 5a. Report the taxable amount on Form 1040, 1040-SR, or 1040-NR, line 5b. Also, check box 2 on line 5c. If you are retired on disability and reporting your disability pension on Form 1040, 1040-SR, or 1040-NR, line 1h, include only the taxable amount on that line and enter “PSO” and the amount excluded on the line next to line 1h. 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 treated for tax purposes like social security benefits. (See Social 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 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. VDBs and supplemental annuity benefits are non-contributory pensions and are fully taxable. More information. For more information about railroad retirement benefits, see Pub. 575. Taxable and Nontaxable Income Publication 554 (2025) Military Retirement Pay Are Any of Your Benefits Taxable? Military retirement pay based on age or length of service is taxable and must be included in income as a pension on Form 1040, 1040-SR, or 1040-NR, lines 5a and 5b. However, 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 taxable. For more information, including information about veterans’ benefits and insurance, see Pub. 525. 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. Social Security and Equivalent Railroad Retirement Benefits This discussion explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. Social security benefits include monthly retirement, survivor, and disability benefits. They don’t include supplemental security income (SSI) payments, which aren’t taxable. Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. They are commonly called the social security equivalent benefit (SSEB) portion of tier 1 benefits. If you received these benefits during 2025, you should have received a Form SSA-1099 or Form RRB-1099 (Form SSA-1042S or Form RRB-1042S if you are a nonresident alien) showing the amount of the benefits. Social Security Information Obtaining social security information. Social security beneficiaries may quickly and easily obtain various information 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 Form SSA-1099 or SSA-1042S for the tax season. For more information and to set up an account, go to SSA.gov/myaccount. Publication 554 (2025) Chapter 2 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-A. 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 2025, 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 benefits, 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 2025 was TIP your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally aren’t taxable and you probably don’t have to file a return. 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 qualifying surviving spouse; • $25,000 if you are married filing separately and lived apart from your spouse for all of 2025; • $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 2025. Repayment of Benefits Any repayment of benefits you made during 2025 must be subtracted from the gross benefits you received in 2025. It doesn’t matter whether the repayment was for a benefit you received in 2025 or in an earlier year. If you repaid more than the gross benefits you received in 2025, see Repayments More Than Gross Benefits, later. Taxable and Nontaxable Income 11 Worksheet 2-A. A Quick Way To Check if Your Benefits May Be Taxable A. Keep for Your Records 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 2025, for 2025 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 surviving spouse, or married filing separately and you lived apart from your spouse for all of 2025, enter $25,000; or • Married filing separately and you lived with your spouse at any time during 2025, 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. 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 benefits for 2025 (box 3 minus box 4). Use the amount in box 5 to figure whether any of your benefits are taxable. your benefits can be taxable if either of the following situations applies to you. Tax Withholding and Estimated Tax • You are married filing separately and lived with your 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 Request. If you are a nonresident alien, 85% of your benefits are taxable. However, this income is exempt under some tax treaties. How Much Is Taxable? If part of your benefits are taxable, how much is taxable depends on the total amount of your benefits and other income. Generally, the higher that total amount, the greater the taxable part of your benefits. Maximum taxable part. The taxable part of your benefits usually can’t be more than 50%. However, up to 85% of Chapter 2 income is more than $34,000 ($44,000 if you are married filing jointly). spouse at any time during 2025. If you don’t choose to have income tax withheld, you may have to request additional withholding from other income, or pay estimated tax during the year. For details, see Pub. 505, or the instructions for Form 1040-ES, Estimated Tax for Individuals. 12 • The total of one-half of your benefits and all your other Which worksheet to use. A worksheet to figure your taxable benefits is in the Instructions for Form 1040. However, you will need to use a different worksheet(s) if any of the following situations applies to you. 1. You contributed to a traditional IRA and you or your spouse was covered by a retirement plan at work. In this situation, you must use the special worksheets in Pub. 590-A to figure both your IRA deduction and your taxable benefits. 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, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989). • Employer-provided adoption benefits (Form 8839, Qualified Adoption Expenses). Taxable and Nontaxable Income Publication 554 (2025) • Foreign earned income or housing (Form 2555, Foreign Earned Income). • Income earned in American Samoa (Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa) or Puerto Rico by bona fide residents. In these situations, you must use Worksheet 1 in Pub. 915 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, 1040-SR, or 1040-NR. Reporting on Form 1040 or 1040-SR. Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on line 6a and the taxable part on line 6b. If you are married filing separately and you lived apart from your spouse for all of 2025, also check the box on line 6d. Reporting on Form 1040-NR. 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 Schedule NEC (Form 1040-NR), line 8. Benefits not taxable. Report your net benefits (the amount in box 5 of your Form SSA-1099 or Form RRB-1099) on Form 1040 or 1040-SR, line 6a. Enter -0on Form 1040 or 1040-SR, line 6b. If you are married filing separately and you lived apart from your spouse for all of 2025, also check the box on line 6d. Lump-Sum Election You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2025 in your 2025 income, even if the payment includes benefits for an earlier year. This type of lump-sum benefit payment shouldn’t TIP be confused with the lump-sum death benefit that both the SSA and Railroad Retirement Board (RRB) pay to many of their beneficiaries. No part of the lump-sum death benefit is subject to tax. For more information about the lump-sum death benefit, go to the SSA website at SSA.gov, and search using the keyword “death benefit.” Generally, you use your 2025 income to figure the taxable part of the total benefits received in 2025. 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. Publication 554 (2025) Chapter 2 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 received. 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 SSA office or your local U.S. RRB 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 may be able to take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. The deduction must be more than $3,000 and you have to follow some special instructions. See Pub. 915 for those instructions. Sickness and Injury Benefits Generally, you must report as income any amount you receive 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 reported 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 Benefits in Pub. 525. Cost paid by you. If you pay the entire cost of an accident 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 income. 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 Form 1040, 1040-SR, or 1040-NR, line 1h, until you reach minimum retirement age. Minimum Taxable and Nontaxable Income 13 retirement age is generally the age at which you can first receive a pension or annuity if you aren’t disabled. If you were age 65 or older by the end of 2025 or TIP 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 information on this credit, see the Instructions for Schedule R (Form 1040). Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Report the payments on Form 1040, 1040-SR, or 1040-NR, lines 5a and 5b. 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 terrorist attacks or military action directed against the United States (or its allies), whether outside or within the United States. For more information, see Terrorist attacks in Pub. 525. 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. 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 payment. 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) are generally 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 occupational sickness or injury are fully exempt from tax if they are paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act. The exemption also applies to your survivors. The exemption, however, doesn’t apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. 14 Chapter 2 If part of your workers’ compensation reduces your social security or equivalent railroad retireCAUTION ment 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 Retirement 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). Payments received under this Act for personal injury or sickness, 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 income on Form 1040, 1040-SR, or 1040-NR, line 1a. Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. If part of the payments you receive under FECA reduces your social security or equivalent railroad CAUTION 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 Retirement 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 insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include the amount of employer-paid premiums in your income. • Compensatory damages you receive for physical in- jury or physical sickness, whether paid in a lump sum or in periodic payments. • 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 permanent disfigurement, or for such loss or disfigurement 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 benefits. Taxable and Nontaxable Income Publication 554 (2025) Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person generally aren’t taxable unless the policy was turned over to you for a price or was acquired in a reportable policy sale. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract issued on or before December 31, 1984. However, interest income received as a result of life insurance proceeds may be taxable. Proceeds not received in installments. If death benefits 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 insured 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 excluded part in your income as interest. Installments for life. If, as the beneficiary under an insurance 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 company by your life expectancy. If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee. Surviving spouse. If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, 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 insurance 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 proceeds and the taxable part. Report these amounts on Form 1040, 1040-SR, or 1040-NR, lines 5a and 5b. Endowment Contract Proceeds An endowment contract is a policy that pays you a specified amount of money on a certain date unless you die Publication 554 (2025) Chapter 2 before 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 proceeds are more than the cost of the policy. To determine your cost, subtract from the total premiums (or other consideration) paid for the contract any amount that you previously 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 installments 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 installments 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 are generally excluded from income if the insured is terminally or chronically ill. However, see Exception, 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. Accelerated death benefits paid on a per diem or other periodic 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 provider, the amount received is also excluded from income. Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment 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 can reasonably 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 previous 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, toileting, 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 themselves from threats to health and safety due to severe cognitive impairment. Taxable and Nontaxable Income 15 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. 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. 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 including 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. Maximum Amount of Exclusion You can generally 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 requirements listed in the discussion of the special rules for joint returns, later, under Married Persons. Reduced exclusion. Even if you don’t meet the requirements 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 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. 16 Ownership and Use Tests Chapter 2 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. 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 exclusion. 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 exchange of property held for productive use in a trade or business or for investment in which no gain or loss is recognized. 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 periods 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 information. 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) Taxable and Nontaxable Income Publication 554 (2025) on the sale of your main home if you are married and file a joint return and meet the requirements for joint returns, discussed 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 2025. • 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 their 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 income. 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 depreciation you were entitled to take on your property when you sell it. See Pub. 523 for more information. Publication 554 (2025) Chapter 2 Reporting the Sale Don’t report the 2025 sale of your main home on your tax return unless: • You received Form 1099-S, Proceeds From Real Estate Transactions; • 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 was also used for business CAUTION or to produce rental income, isn’t deductible. ! If any of the above apply, report the sale in Part I or Part II of Form 8949, Sales and Other Dispositions of Capital Assets, as a short-term or long-term transaction, depending on how long you owned the home. If you used your home for business or to produce rental income, you may have to use Form 4797, Sales of Business Property, 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 becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because 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 home mortgage interest. See Pub. 936 for more information. Other Items The following items are generally excluded from taxable income. You shouldn’t report them on your return, unless otherwise indicated as taxable or includible in income. Gifts and inheritances. In most cases, property you receive 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 distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from property, that income is taxable to you. Taxable and Nontaxable Income 17 Veterans’ benefits. Don’t include in your income any veterans’ benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). See Pub. 525. Public assistance benefits. Other items that are generally excluded from taxable income also include the following public assistance benefits. Social security benefits. The SSA provides benefits such as old-age benefits, benefits to disabled workers, and benefits to spouses and dependents. These benefits may be subject to federal income tax depending on your filing status and other income. See Social Security and Equivalent Railroad Retirement Benefits, earlier, and Pub. 915 for more information. 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 fraudulently. 3. 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. Mortgage assistance payments. Payments made under section 235 of the National Housing Act for mortgage assistance aren’t included in the homeowner’s income. Interest paid for the homeowner under the mortgage assistance program can’t be deducted. Payments to reduce cost of winter energy use. Payments made by a state to qualified people on the basis 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 aren’t taxable. If you prepare and serve free meals for the program, include in your income as wages the cash pay you receive, even if you are also eligible for food benefits. Reemployment Trade Adjustment Assistance (RTAA). Payments you receive from a state agency under RTAA must be included in your income. The state must send you Form 1099-G, Certain Government Payments, to advise you of the amount you should include in income. The amount should be reported on Schedule 1 (Form 1040), line 8z. Persons with disabilities. If you have a disability, include in income compensation you receive for services you perform unless the compensation is otherwise excluded. 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 payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help individuals with an intellectual disability do their work. Medicare. Medicare benefits received under title XVIII of the Social Security Act aren’t includible in the gross income of the individuals for whom they are paid. This includes basic (Part A (Hospital Insurance Benefits for the Aged)) and supplementary (Part B (Supplementary Medical Insurance Benefits for the Aged)). 18 Chapter 3 Adjustments to Income You may be able to subtract amounts from your total income (Form 1040 or 1040-SR, line 9) or total effectively connected income (Form 1040-NR, line 9) to get your adjusted gross income (Form 1040, 1040-SR, or 1040-NR, line 11a). Some adjustments to income follow. • Contributions to your IRA (Schedule 1 (Form 1040), line 20), explained later. • Some health insurance costs (Schedule 1 (Form 1040), line 17) if you were self-employed and had a net profit for the year, or if you received wages in 2025 from an S corporation in which you were a more-than-2% shareholder. • Payments to your self-employed SEP, SIMPLE, or qualified plan (Schedule 1 (Form 1040), line 16). For more information, including limits on how much you can deduct, see Pub. 560. • Penalties paid on early withdrawal of savings (Schedule 1 (Form 1040), line 18). Form 1099-INT, Interest Income, or Form 1099-OID, Original Issue Discount, will show the amount of any penalty you were charged. • Alimony payments (Schedule 1 (Form 1040), line 19a). Certain conditions may apply for your alimony payment to be deductible from income. For more information, see Pub. 504. There are other items you can claim as adjustments to income. 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 Adjustments to Income Publication 554 (2025) Plan Distributions. For more detailed information, see Pub. 590-A and Pub. 590-B. Contributions. An IRA is a personal savings plan that offers you tax advantages to set aside money for your retirement. Two advantages of a traditional IRA are: • You may be able to deduct some or all of your contributions 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 CAUTION tax-exempt interest. Don’t report this interest on your tax return as tax-exempt interest. ! 4. Deductions Most taxpayers have a choice of taking a standard deduction 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. General limit. The most that can be contributed for 2025 to your traditional IRA is the smaller of the following amounts. Taxpayers age 65 or older may also be eligible for the enhanced deduction for seniors. Eligible taxpayers can claim the enhanced deduction for seniors whether they claim the standard deduction or itemize deductions. See Enhanced Deduction for Seniors, later. • Your taxable compensation for the year. • $7,000 ($8,000 if you were age 50 or older by the end Standard Deduction Contributions to Kay Bailey Hutchison Spousal IRAs. In the case of a married couple filing a joint return for 2025, up to $7,000 ($8,000 for each spouse age 50 or older by the end of 2025) can be contributed to IRAs on behalf of each spouse, even if one spouse has little or no compensation. The standard deduction amount depends on your filing status, whether you are age 65 or older or blind, and whether another taxpayer can claim you as a dependent. Generally, the standard deduction amounts are adjusted each year for inflation. In most cases, you can use Worksheet 4-1 to figure your standard deduction amount. 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. Persons not eligible for the standard deduction. Your standard deduction is zero and you should itemize any deductions you have if: of 2025). 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 retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. Your deduction may be reduced or eliminated, depending on your filing status and the amount of your income. For more information, see Limit if Covered by Employer Plan in Pub. 590-A. Nondeductible contribution. The difference between your total permitted contributions and your IRA deduction, 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. • 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. If you make this choice, you can take the standard deduction. See Pub. 519 and Nonresident aliens and dual-status aliens in the Form 1040 instructions for more information, including information on making the election to treat a nonresident or dual-status alien spouse as a U.S. resident for the entire tax year. Decedent’s final return. A decedent’s final tax return should reflect the standard deduction that the decedent was entitled to claim at the time of their death. If the decedent wasn’t age 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 Publication 554 (2025) Chapter 4 Deductions 19 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 2025 if you were born before January 2, 1961. Death before age 65. If you are preparing a return for someone who died in 2025, consider the taxpayer to be age 65 or older at the end of 2025 only if they were age 65 or older at the time of death. A taxpayer is considered age 65 on the day before their birthday. Example. Your spouse was born on February 14, 1960, and died on February 13, 2025. Your spouse is considered age 65 at the time of death. However, if your spouse died on February 12, 2025, your spouse isn’t considered age 65 at the time of death and isn’t age 65 or older at the end of 2025. Higher standard deduction for blindness. If you are blind on the last day of the year and you don’t itemize deductions, 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 standard deduction for blindness if you otherwise qualify. Spouse age 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 your spouse had no gross income and can’t be claimed as a dependent by another taxpayer. ! You can’t claim the higher standard deduction for an individual other than yourself and your spouse. CAUTION are both over age 65, they enter $3,200 ($1,600 × 2) on line 5. They enter $34,700 ($31,500 + $3,200) on line 6, so their standard deduction is $34,700. Standard Deduction for Dependents The standard deduction for an individual who can be claimed as a dependent on another person’s tax return is generally limited to the greater of: • $1,350, or • The individual’s earned income for the year plus $450 (but not more than the regular standard deduction amount). However, the standard deduction may be higher if the individual is age 65 or older or blind. If you (or your spouse if filing jointly) can be claimed as a dependent 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 discussion under Standard Deduction, earlier, to decide if it would be to your advantage to itemize deductions. Medical and dental expenses, some taxes, certain interest expenses, charitable contributions, certain casualty and theft losses, and certain other 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 a loan secured by your home and that you used to buy, build, or improve your home; • Paid real estate or personal property taxes; • Paid state and local income taxes or general sales taxes; • Had large uninsured casualty or theft losses due to a federally declared disaster; Example. This example illustrates how to determine your standard deduction using Worksheet 4-1. Jean and Terry are filing a joint return for 2025. 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 $31,500 on line 1. They check the “No” box on line 2, so they also enter $31,500 on line 4. Because they See the Instructions for Schedule A (Form 1040) for more information. 20 Deductions Chapter 4 • Made large contributions to qualified charities (see Pub. 526); or • Have total itemized deductions that are more than the standard deduction that applies to you. Publication 554 (2025) Worksheet 4-1. 2025 Standard Deduction Worksheet Keep for Your Records Caution: If you are married filing separately and your spouse itemizes deductions, if you file a tax return for a short year because of a change in annual accounting period, or if you are a dual-status alien, don’t complete this worksheet. If you were born before January 2, 1961, and/or you were blind at the end of 2025, 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, 1961 Blind b. Your spouse c. Total boxes checked Born before January 2, 1961 1. Enter the amount shown below for your filing status. • Single or married filing separately—$15,750 • Married filing jointly or qualifying surviving spouse—$31,500 • Head of household—$23,625 Blind . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 $900? Yes. Add $450 to your earned income. Enter the total. No. Enter $1,350. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. 4. Enter the smaller of line 1 or line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. 5. If born before January 2, 1961, or blind, multiply the number in box c by $1,600 ($2,000 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 2025** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 or 1040-SR, line 1z, and Schedule 1 (Form 1040), lines 3, 6, 8r, 8t, and 8u minus the amount, if any, on Schedule 1 (Form 1040), line 15. ** 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. 547 for more information. 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 selected items, which are presented in alphabetical order. A more extensive list of items and further details can be found in Pub. 502. You can deduct only the amount of your medical and dental expenses that is more than 7.5% of CAUTION your AGI. ! What to include. Generally, you can include only the medical and dental expenses you paid this year, regardless of when the services were provided. If you pay medical expenses by check, the day you mail or deliver the check is generally the date of payment. If you use a pay-by-phone or online account to pay your medical expenses, 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 Publication 554 (2025) Chapter 4 to your credit card in the year the charge is made. It doesn’t matter when you actually pay the amount charged. 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(s). Only reasonable costs to accommodate a home to your disabled condition (or that of your spouse or your dependent(s) who lives with you) are considered medical care. Additional costs for personal motives, such as for architectural or aesthetic reasons, aren’t medical expenses. Pub. 502 contains additional information and examples, including 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 information about deductible operating and upkeep expenses related to such capital expense items, and for information about improvements, for medical reasons, to property rented by a person with disabilities. Deductions 21 Table 4-1. Medical and Dental Expenses Checklist You can 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 • Costs of buying and maintaining guide dogs or other service 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) You can’t include: • Medicare Part B and 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 tax, and state employment tax for worker providing medical care (see Pub. 502) • Special items (artificial limbs, dentures, 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) Household Help You can’t include in medical expenses the cost of household 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 information, see Nursing Services, later. Also, certain maintenance 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 certain amounts of 22 Chapter 4 • Bottled water • Contributions to Archer MSAs (see Pub. 969) • 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; and —Trip for general health improvement • Flexible spending account reimbursements for medical expenses (if contributions were on a pre-tax 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 premiums paid for qualified long-term care insurance contracts. Qualified long-term care services. Qualified long-term care services are necessary diagnostic, preventive, therapeutic, 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 licensed 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. The individual is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. 2. The individual requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Deductions Publication 554 (2025) Maintenance and personal care services. Maintenance or personal care services are care that has as its primary purpose the providing of a chronically ill individual with needed assistance with their disabilities (including protection from threats to health and safety due to severe cognitive impairment). Qualified long-term care insurance contracts. A qualified long-term care insurance contract is an insurance 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 periodic 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—$480. b. Age 41 to 50—$900. 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 lodging 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 included as a medical expense for lodging. (Meals aren’t included.) 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 reason 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). c. Age 51 to 60—$1,800. d. Age 61 to 70—$4,810. e. Age 71 or over—$6,020. 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. 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 requirements 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. Publication 554 (2025) • The lodging isn’t lavish or extravagant under the cir- Chapter 4 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 medical 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 security (or if you are a government employee who paid Medicare 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 government employee who paid Medicare tax), you can enroll voluntarily in Medicare Part A. In this situation, you can include 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 received from the SSA to find out your premium. Social security beneficiaries may quickly and easily obtain various information from the SSA’s website with a my Deductions 23 Social Security account, including getting a replacement Form SSA-1099 or SSA-1042S. For more information, see Obtaining social security information, earlier. Medicare Part D. Medicare Part D is a voluntary prescription drug insurance program for persons with Medicare Part A or Part B. You can include as a medical expense 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 dependent(s) 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). Employment taxes. You can include as a medical expense social security tax, FUTA tax, 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 include as a medical expense only the amount of employment taxes paid for medical services as explained earlier under Nursing Services. For information on employment tax responsibilities of household employers, see Pub. 926. Transportation 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 individual. You can also include amounts you pay for insulin. Except for insulin, you can’t include in medical expenses amounts you pay for a drug that isn’t prescribed. Imported medicines and drugs. If you import medicines 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 services 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 personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. See Maintenance and personal care services under Qualified long-term care services, earlier. Additionally, certain expenses for household services or for the care of a qualifying individual incurred to allow you to work may qualify for the child and dependent care credit. See Child and Dependent Care Credit, later, and Pub. 503. You can also 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 24 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. Chapter 4 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, insurance, general repair, or maintenance expenses. If you don’t want to use your actual expenses for 2025, you can use the standard medical mileage rate of 21 cents a mile. You can also 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 can also 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 treatment required by a patient who is traveling to get medical care and is unable to travel alone. Don’t include transportation expenses if, for purely personal reasons, you choose to travel to another CAUTION city for an operation or other medical care prescribed by your doctor. ! Enhanced Deduction for Seniors Taxpayers who are age 65 or older may be eligible for the enhanced deduction for seniors. This deduction is in addition to the higher standard deduction for taxpayers age 65 or older discussed under Higher standard deduction for age (65 or older), earlier. The maximum amount of the deduction is $6,000 ($12,000 if married filing jointly and both spouses are eligible). The deduction will be limited if your Deductions Publication 554 (2025) modified adjusted gross income is more than $75,000 ($150,000 if married filing jointly). Qualified individuals can claim the enhanced de- TIP duction for seniors whether they claim the standard deduction or itemize deductions. The special rules that apply to U.S. nationals; residents of Canada, Mexico, and South Korea; and CAUTION residents of India who were students or business apprentices don't apply to the enhanced deduction for seniors. See Pub. 519 for more information. ! To be eligible to claim the enhanced deduction for seniors: • You (and/or your spouse if filing a joint return) must have been born before January 2, 1961; • You must have a valid SSN. If you are married filing jointly, the spouse who is claiming the enhanced deduction for seniors must have a valid SSN; and • If you are married you must file a joint return with your spouse. Valid SSN. You and/or your spouse must have a valid SSN to take this deduction. A valid SSN for purposes of the enhanced deduction for seniors is one that is valid for employment and that is issued by the SSA before the due date of your 2025 return (including extensions). For more information, see the Instructions for Form 1040. earned income credit. You may be able to reduce your federal income tax by claiming one or more of these credits. You may also 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 the Instructions for Schedule R (Form 1040). You can take the credit only if you file Form 1040 or 1040-SR. You can’t take the credit if you file CAUTION Form 1040-NR. ! 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. 5. Credits This chapter briefly discusses the credit for the elderly or the disabled, the child and dependent care credit, and the Publication 554 (2025) Chapter 5 Credits 25 Figure 5-A. Are You a Qualified Individual? START HERE Did you live with your spouse at any time 1 during the tax year? Yes Are you filing a joint return with your spouse? Yes No Yes No Were you married at the end of the tax year? No Are you a U.S. citizen or resident alien? 2 Yes No Were you 65 or older at the end of the tax year? You aren’t a qualified individual and can’t take the credit for the elderly or the disabled. Yes No No You are a qualified 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. Are you retired on permanent and total disability? Yes Yes Did you reach mandatory retirement age before the tax year? 3 No No 1 Did you receive taxable disability benefits during the tax year? Yes However, you may be able to claim this credit even if you lived with your spouse during the first 6 months of the tax year, as long as you qualify to file as head of household. You qualify to file as head of household if you are considered unmarried and meet certain other conditions. See Pub. 501 for more information. 2 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 under Qualified Individual. If you and your spouse choose to treat you as a U.S. resident alien, answer “Yes” to this question. 3 Mandatory retirement age is the age set by your employer at which you would have been required to retire, had you not become disabled. 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 2025. 2. You were under age 65 at the end of 2025 and all three of the following statements are true. a. You retired on permanent and total disability (explained later). b. You received taxable disability income for 2025. c. On January 1, 2025, you had not reached mandatory retirement age (defined later under Disability income). Age 65. You are considered to be age 65 on the TIP day before your 65th birthday. As a result, if you were born on January 1, 1961, you are considered to be age 65 at the end of 2025. U.S. citizen or resident alien. You must be a U.S. citizen 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. Exceptions. If you are a nonresident alien, you may be able to take the credit if your spouse is a U.S. citizen or 26 Chapter 5 resident at the end of the tax year, you file a joint return, and you and your spouse elect to treat you as a U.S. resident for the entire year. This choice remains in effect in subsequent years until terminated. You and your spouse can also choose to file as U.S. residents for the entire year if both of you are U.S. citizens or residents at the end of the year and either (or both) of you were a nonresident at the beginning of the year (the dual-status spouse(s)). You can only make this choice for 1 year, and it does not apply to any future years. For information on these choices, see the Instructions for Form 1040 and chapter 1 of Pub. 519. 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Afaca0cad501c7be2. Public record. Not legal advice.