If you were age 50 or older at the end of 2002, your employer may have allowed an additional deferral of up to $1,000 ($500 for section 401(k)(11) and 408(p) SIMPLE plans). This additional deferral amount is not subject to the overall limit on elective deferrals.

A higher limit may apply to participants in section 457(b) deferred compensation plans for the 3 years before retirement age. Contact your plan administrator for more information.

You may not deduct the amount deferred. It is not included as income in box 1 of your W-2 form.

*This includes a Roth, SEP, or SIMPLE IRA.

Missing or Incorrect Form W-2. Your employer is required to provide or send Form W-2 to you no later than January 31, 2003. If you do not receive it by early February, ask your employer for it. Even if you do not get a Form W-2, you must still report your earnings on line 8. If you lose your Form W-2 or it is incorrect, ask your employer for a new one.

Line 9a - Taxable interest.   Report on line 9a all of your taxable interest income from assets effectively connected with a U.S. trade or business.

If you received interest not effectively connected with a U.S. trade or business, report it on page 4 of Form 1040NR, unless it is tax exempt under a treaty and the withholding agent did not withhold tax on the payment. See Pub. 901 for a quick reference guide to the provisions of U.S. tax treaties. In addition, interest from a U.S. bank, savings and loan association, credit union, or similar institution, and from certain deposits with U.S. insurance companies, is tax exempt to a nonresident alien if it is not effectively connected with a U.S. trade or business.

Interest credited in 2002 on deposits that you could not withdraw because of the bankruptcy or insolvency of the financial institution may not have to be included in your 2002 income. For details, see Pub. 550.

Line 9b - Tax-exempt interest.   Certain types of interest income from investments in state and municipal bonds and similar instruments are not taxed by the United States. If you received such tax-exempt interest income, report the amount on line 9b. Include any exempt-interest dividends from a mutual fund or other regulated investment company. Do not include interest earned on your IRA or Coverdell education savings account. Also do not include interest from a U.S. bank, savings and loan association, credit union, or similar institution (or from certain deposits with U.S. insurance companies) that is exempt from tax under a tax treaty or under section 871(i) because the interest is not effectively connected with a U.S. trade or business.

Line 10 - Ordinary dividends.   Enter your total ordinary dividends from assets effectively connected with a U.S. trade or business. Each payer should send you a Form 1099-DIV.

Capital Gain Distributions. If you received any capital gain distributions, see the instructions for line 14 on page 10.

Nontaxable Distributions. Some distributions are nontaxable because they are a return of your cost (or other basis). They will not be taxed until you recover your cost (or other basis). You must reduce your cost (or other basis) by these distributions. After you get back all of your cost (or other basis), you must report these distributions as capital gains on Schedule D (Form 1040). For details, see Pub. 550.

Dividends on insurance policies are a partial return of the premiums you paid. Do not report them as dividends. Include them in income only if they exceed the total of all net premiums you paid for the contract.

Line 11 - Taxable refunds, credits, or offsets of state and local income taxes.   If you received a refund, credit, or offset of state or local income taxes in 2002, you may receive a Form 1099-G. If you chose to apply part or all of the refund to your 2002 estimated state or local income tax, the amount applied is treated as received in 2002.

For details on how to figure the amount you must report as income, see Recoveries in Pub. 525.

Line 12 - Scholarship and fellowship grants.   If you received a scholarship or fellowship, part or all of it may be taxable.

If you were a degree candidate, the amounts you used for expenses other than tuition and course-related expenses (fees, books, supplies, and equipment) are generally taxable. For example, amounts used for room, board, and travel are generally taxable.

If you were not a degree candidate, the full amount of the scholarship or fellowship is generally taxable. Also, amounts received in the form of a scholarship or fellowship that are payment for teaching, research, or other services are generally taxable as wages even if the services were required to get the grant.

If the grant was reported on Form(s) 1042-S, you must generally include the amount shown in box 2 of Form(s) 1042-S on line 12. However, if any or all of that amount is exempt by treaty, do not include the treaty-exempt amount on line 12. Instead, include the treaty-exempt amount on line 22 and complete item M on page 5 of Form 1040NR.

Attach any Form(s) 1042-S you received from the college or institution. If you did not receive a 1042-S form, attach a statement from the college or institution (on their letterhead) showing the details of the grant.

For more information about scholarships and fellowships in general, see Pub. 520.

Example 1. You are a citizen of a country that has not negotiated a tax treaty with the United States. You are a candidate for a degree at ABC University (located in the United States). You are receiving a full scholarship from ABC University. The total amounts you received from ABC University during 2002 are as follows:

Tuition and fees	$25,000
Books, supplies, and equipment	1,000
Room and board	9,000
	$35,000

Note:   Box 2 shows only $9,000 because withholding agents (such as ABC University) are not required to report section 117 amounts (tuition, fees, books, supplies, and equipment) on Form 1042-S.

When completing Form 1040NR:

• Enter on line 12 the $9,000 shown in box 2 of Form 1042-S.
• Enter $0 on line 32. Because section 117 amounts (tuition, fees, books, supplies, and equipment) were not included in box 2 of your Form 1042-S (and are not included on line 12 of Form 1040NR), you cannot exclude any of the section 117 amounts on line 32.
• Include on line 58 the $1,260 shown in box 7 of Form 1042-S.

Example 2. The facts are the same as in Example 1 except that you are a citizen of a country that has negotiated a tax treaty with the United States and you were a resident of that country immediately before leaving for the United States to attend ABC University. Also, assume that, under the terms of the tax treaty, all of your scholarship income is exempt from tax because ABC University is a nonprofit educational organization.

Note:   Many tax treaties do not permit an exemption from tax on scholarship or fellowship grant income unless the income is from sources outside the United States. If you are a resident of a treaty country, you must know the terms of the tax treaty between the United States and the treaty country to claim treaty benefits on Form 1040NR. See the instructions for item M on page 24 for details.

When completing Form 1040NR:

• Be sure you have entered your home country and permanent address in the space provided on page 1.
• Enter $0 on line 12. The $9,000 reported to you in box 2 of Form 1042-S is reported on line 22 (not line 12).
• Enter $9,000 on line 22.
• Enter $0 on line 32. Because none of the $9,000 reported to you in box 2 of Form 1042-S is included in your income, you cannot exclude it on line 32.
• Include on line 58 any withholding shown in box 7 of Form 1042-S.
• Provide all the required information in item M on page 5.

Line 13 - Business income or (loss).   If you operated a business or practiced your profession as a sole proprietor, report your effectively connected income and expenses on Schedule C or Schedule C-EZ (Form 1040).

Include any income you received as a dealer in stocks, securities, and commodities through your U.S. office. If you dealt in these items through an independent agent, such as a U.S. broker, custodian, or commissioned agent, your income may not be considered effectively connected with a U.S. business.

Line 14 - Capital gain or (loss).   If you had effectively connected capital gains or losses, including any effectively connected capital gain distributions from a mutual fund, you must complete and attach Schedule D (Form 1040). But see the Exception below. Enter the effectively connected gain or (loss) from Schedule D (Form 1040) on line 14.

Gains and losses from disposing of U.S. real property interests are reported on Schedule D (Form 1040) and included on line 14 of Form 1040NR. See Dispositions of U.S. Real Property Interests on page 5.

Exception.   You do not have to file Schedule D (Form 1040) if both of the following apply.

1. The only amounts you have to report on Schedule D (Form 1040) are effectively connected capital gain distributions. (These amounts should be shown in box 2a of Forms 1099-DIV or substitute statements.)
2. Those distributions do not include 28% rate gains, qualified 5-year gains, unrecaptured section 1250 gains, or section 1202 gains. (These amounts should be shown in boxes 2b through 2e of Forms 1099-DIV or substitute statements.)

If both of the above apply, enter your effectively connected capital gain distributions on line 14 and check the box on that line. Also, be sure you use the Capital Gain Tax Worksheet on page 16 to figure your tax. Your tax may be less if you use this worksheet.

Line 15 - Other gains or (losses).   If you sold or exchanged assets used in a U.S. trade or business, see the Instructions for Form 4797.

Lines 16a and 16b - IRA distributions.   You should receive a Form 1099-R showing the amount of any distribution from your individual retirement arrangement (IRA). Unless otherwise noted in the line 16a and 16b instructions, an IRA includes a traditional IRA, Roth IRA, simplified employee pension (SEP) IRA, and a savings incentive match plan for employees (SIMPLE) IRA. Except as provided below, leave line 16a blank and enter the total distribution on line 16b.

Exception 1.    Enter the total distribution on line 16a if you rolled over part or all of the distribution from one:

• IRA to another IRA of the same type (for example, from one traditional IRA to another traditional IRA), or
• SEP or SIMPLE IRA to a traditional IRA.

Also, put Rollover next to line 16b. If the total distribution was rolled over, enter zero on line 16b. If the total distribution was not rolled over, enter the part not rolled over on line 16b unless Exception 2 applies to the part not rolled over.

If you rolled over the distribution (a) in 2003 or (b) from an IRA into a qualified plan (other than an IRA), attach a statement explaining what you did.

Exception 2.    If any of the following apply, enter the total distribution on line 16a and use Form 8606 and its instructions to figure the amount to enter on line 16b.

• You received a distribution from an IRA (other than a Roth IRA) and you made nondeductible contributions to any of your traditional or SEP IRAs for 2002 or an earlier year. If you made nondeductible contributions to these IRAs for 2002, also see Pub. 590.
• You received a distribution from a Roth IRA.
• You converted part or all of a traditional, SEP, or SIMPLE IRA to a Roth IRA in 2002.
• You had a 2001 or 2002 IRA contribution returned to you, with the related earnings or less any loss, by the due date (including extensions) of your tax return for that year.
• You made excess contributions to your IRA for an earlier year and had them returned to you in 2002.
• You recharacterized part or all of a contribution to a Roth IRA as a traditional IRA contribution, or vice versa.

Note:   If you received more than one distribution, figure the taxable amount of each distribution and enter the total of the taxable amounts on line 16b. Enter the total amount of those distributions on line 16a.

You may have to pay an additional tax if (a) you received an early distribution from your IRA and the total was not rolled over or (b) you were born before July 2, 1931, and received less than the minimum required distribution from your traditional, SEP, and SIMPLE IRAs. See the instructions for line 54 on page 18 for details.

Lines 17a and 17b - Pensions and annuities.   Use lines 17a and 17b to report effectively connected pension and annuity payments you received. You should receive a Form 1099-R showing the amount you received. For details on rollovers and lump-sum distributions, see below. But if this income is not effectively connected with your U.S. trade or business, report it on line 80.

Do not include the following payments on lines 17a and 17b. Instead, report them on line 8.

• Disability pensions received before you reach the minimum retirement age set by your employer.
• Corrective distributions of excess salary deferrals or excess contributions to retirement plans.

If you received a Form 1099-R that shows Federal income tax withheld, attach it to Form 1040NR.

Some annuities are tax-exempt. See section 871(f).

Note:   If you perform services in the United States, your income is generally effectively connected with the conduct of a U.S. trade or business. (See section 864 and Regulations section 1.864-2 for details and exceptions.) When you receive a pension in a later year as a result of effectively connected services, the pension is also considered effectively connected with the conduct of a U.S. trade or business.

Fully Taxable Pensions and Annuities. If your pension or annuity is fully taxable, enter it on line 17b; do not make an entry on line 17a. Your payments are fully taxable if either of the following applies.

• You did not contribute to the cost (defined below) of your pension or annuity or
• You got your entire cost back tax free before 2002.

If you received a Form RRB-1099-R, see Pub. 575 for information on how to report your benefits.

Partially Taxable Pensions and Annuities. Enter the total pension or annuity payments you received in 2002 on line 17a. If your Form 1099-R does not show the taxable amount, you must use the General Rule explained in Pub. 939 to figure the taxable part to enter on line 17b. But if your annuity starting date (defined below) was after July 1, 1986, see below to find out if you must use the Simplified Method to figure the taxable part.

You can ask the IRS to figure the taxable part for you for a $90 fee. For details, see Pub. 939.

If your Form 1099-R shows a taxable amount, you may report that amount on line 17b. But you may be able to report a lower taxable amount by using the General Rule or the Simplified Method.

Annuity Starting Date. Your annuity starting date is the later of the first day of the first period for which you received a payment, or the date the plan's obligations became fixed.

Simplified Method. You must use the Simplified Method if (a) your annuity starting date (defined above) was after July 1, 1986, and you used this method last year to figure the taxable part or (b) your annuity starting date was after November 18, 1996, and all three of the following apply.

1. The payments are for (a) your life or (b) your life and that of your beneficiary.
2. The payments are from a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity.
3. On your annuity starting date, either you were under age 75 or the number of years of guaranteed payments was fewer than 5. See Pub. 575 for the definition of guaranteed payments.

If you must use the Simplified Method, complete the worksheet on page 12 to figure the taxable part of your pension or annuity. For more details on the Simplified Method, see Pub. 575.

Age (or Combined Ages) at Annuity Starting Date. If you are the retiree, use your age on the annuity starting date. If you are the survivor of a retiree, use the retiree's age on his or her annuity starting date. But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, use your combined ages on the annuity starting date.

If you are the beneficiary of an employee who died, see Pub. 575. If there is more than one beneficiary, see Pub. 575 to figure each beneficiary's taxable amount.

Cost. Your cost is generally your net investment in the plan as of the annuity starting date. It does not include pre-tax contributions. Your net investment should be shown in box 9b of Form 1099-R for the first year you received payments from the plan.

Rollovers. A rollover is a tax-free distribution of cash or other assets from one retirement plan that is contributed to another plan. Use lines 17a and 17b to report a rollover, including a direct rollover, from one qualified employer's plan to another or to an IRA or SEP.

Enter on line 17a the total distribution before income tax or other deductions were withheld. This amount should be shown in box 1 of Form 1099-R. From the total on line 17a, subtract any contributions (usually shown in box 5) that were taxable to you when made. From that result, subtract the amount that was rolled over. Enter the remaining amount, even if zero, on line 17b. Write Rollover next to line 17b.

Special rules apply to partial rollovers of property. For more details on rollovers, including distributions under qualified domestic relations orders, see Pub. 575.

Lump-Sum Distributions. If you received a lump-sum distribution from a profit-sharing or retirement plan, your Form 1099-R should have the Total distribution box in box 2b checked. You may owe an additional tax if you received an early distribution from a qualified retirement plan and the total amount was not rolled over. For details, see the instructions for line 54 on page 18.

Enter the total distribution on line 17a and the taxable part on line 17b.

You may be able to pay less tax on the distribution if you were born before January 2, 1936, you meet certain other conditions, and you choose to use Form 4972 to figure the tax on any part of the distribution. You may also be able to use Form 4972 if you are the beneficiary of a deceased employee who was born before January 2, 1936. For details, see Form 4972.

Line 20 - Unemployment compensation.   You should receive a Form 1099-G showing the total unemployment compensation paid to you in 2002.

If you received an overpayment of unemployment compensation in 2002 and you repaid any of it in 2002, subtract the amount you repaid from the total amount you received. Enter the result on line 20. Also, enter Repaid and the amount you repaid on the dotted line next to line 20. If, in 2002, you repaid unemployment compensation that you included in gross income in an earlier year, you may deduct the amount repaid on Schedule A (Form 1040NR), line 11. But if you repaid more than $3,000, see Repayments in Pub. 525 for details on how to report the repayment.

Line 21 - Other income.   Use this line to report any other income effectively connected with your U.S. business that is not reported elsewhere on your return or other schedules. List the type and amount of income. If necessary, show the required information on an attached statement. For more details, see Miscellaneous Income in Pub. 525.

Taxable distributions from a Coverdell education savings account (ESA). Distributions from a Coverdell ESA may be taxable if they are more than the qualified education expenses of the designated beneficiary in 2002. See Pub. 970. Include these taxable distributions on line 21.

You may have to pay an additional tax if you received a taxable distribution from a Coverdell ESA. See the Instructions for Form 5329.

Qualified tuition program earnings. You must generally include this type of income on line 21. However, you may be able to exclude part or all of the earnings from income if (a) the qualified tuition program was established and maintained by a state (or agency or instrumentality of the state) and (b) any part of the distribution was used to pay qualified higher education expenses. See Pub. 970.

You may have to pay an additional tax if you received qualified tuition program earnings that are included on line 21. See the Instructions for Form 5329.

Report other income on page 4 of Form 1040NR if not effectively connected with a U.S. trade or business.

Line 22.   Use line 22 to report your total effectively connected income that is exempt from tax by a tax treaty. Do not include this exempt income on line 23. Also, you must complete item M on page 5 of Form 1040NR.

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