Updated November 5, 2026. Quick answer: Worksheet B in Publication 571 turns your wages and certain deferrals for your most recent year of service into includible compensation: add lines 1 to 6, then subtract the cost of incidental life insurance and any pay earned while the employer was not eligible. Line 11 goes on line 1 of Worksheet 1, where it caps the annual additions limit.
What includible compensation is
The publication says “Includible compensation isn’t the same as income included on your tax return.” It is measured for one period: “Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf.” And only one employer counts: “When figuring includible compensation for your most recent year of service, don’t mix compensation or service of one employer with compensation or service of another employer.”
What the publication says is in: “Elective deferrals (employer’s contributions made on your behalf under a salary reduction agreement).” “Amounts contributed or deferred by your employer under a section 125 cafeteria plan.” What it says is out: “Your employer’s contributions to your 403(b) account.” “Compensation earned while your employer wasn’t an eligible employer.” “The cost of incidental life insurance.” The last item is the Worksheet A result.
Lines 1 to 7: what you add
| Line | What it asks |
|---|---|
| 1 | “Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service” |
| 2 | “Enter elective deferrals excluded from your gross income for your most recent year of service” |
| 3 | “Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service” |
| 4 | “Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government or of a tax-exempt organization) for your most recent year of service” |
| 5 | “Enter pre-tax contributions (employer’s contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service” |
| 6 | “Enter your foreign earned income exclusion for your most recent year of service” |
| 7 | “Add lines 1, 2, 3, 4, 5, and 6” |
Two footnotes are printed on the worksheet: “Use estimated amounts if figuring includible compensation before the end of the year.” “Elective deferrals made to a designated Roth account aren’t excluded from your gross income and shouldn’t be included on this line.” The wages themselves are the W-2 figure explained on the Form 1040 line 1a page.
Lines 8 to 11: what you subtract
| Line | What it asks |
|---|---|
| 8 | “Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service” |
| 9 | “Enter compensation that was both:” “Earned during your most recent year of service, and” “Earned while your employer wasn’t qualified to maintain a 403(b) plan” |
| 10 | “Add lines 8 and 9” |
| 11 | “Subtract line 10 from line 7. This is your includible compensation for your most recent year of service” |
Line 11 is what the annual additions limit is measured against. The publication states the limit as “The limit on annual additions is generally the lesser of:” “$70,000 for 2025 and $72,000 for 2026, or” “100% of your includible compensation for your most recent year of service.” The next step is Worksheet 1.
The IRS example: Max
The publication’s example is “Max has been periodically working full-time for a local hospital since September 2023.” Max works only part of 2026, so the most recent year of service is built from three periods: 6/12 of a year in 2026, 4/12 in 2025 and 4/12 in 2024. Only part of 2024 is needed, and the publication reasons “Because Max needs only 1/2 of the actual time worked, Max will use only 1/2 of income earned during that period to figure wages that will be used in figuring the includible compensation.” The wage result is “wages for Max’s most recent year of service are $66,000 ($42,000 + $16,000 + $8,000).” The deferrals on line 2 are “$4,475 ($2,000 + $1,650 + $825).” The $825 is half of the $1,650 deferred in 2024, matching the half of the 2024 wages used.
| Line | Entry | Value |
|---|---|---|
| 1 | Includible wages from the employer maintaining the 403(b) account (IRS Max example) | $66,000 |
| 2 | Elective deferrals excluded from gross income (IRS Max example) | $4,475 |
| 3 | Cafeteria plan amounts (IRS Max example) | $0 |
| 4 | 457 account amounts at your election (IRS Max example) | $0 |
| 5 | Pre-tax qualified transportation fringe contributions (IRS Max example) | $0 |
| 6 | Foreign earned income exclusion (IRS Max example) | $0 |
| 7 | Add lines 1 through 6 (computed) | $70,475 |
| 8 | Cost of incidental life insurance (IRS Max example) | $0 |
| 9 | Compensation earned while the employer was not qualified (IRS Max example) | $0 |
| 10 | Add lines 8 and 9 (computed) | $0 |
| 11 | Line 7 minus line 10 (computed) | $70,475 |
Line 7 is $70,475 and, with nothing on lines 8 to 10, line 11 is $70,475 (computed). The IRS prints the same total.
An example with invented numbers
Illustration, not an IRS example. All results are computed from these inputs. A hospital employee has $50,000 of includible wages, $5,000 of elective deferrals, $1,200 of cafeteria plan deferrals and $600 of pre-tax transportation fringe contributions for the most recent year of service. The annuity contract carries $28 of incidental life insurance cost.
| Line | Entry | Value |
|---|---|---|
| 1 | Includible wages from the employer maintaining the 403(b) account (invented) | $50,000 |
| 2 | Elective deferrals excluded from gross income (invented) | $5,000 |
| 3 | Cafeteria plan amounts (invented) | $1,200 |
| 4 | 457 account amounts at your election (invented) | $0 |
| 5 | Pre-tax qualified transportation fringe contributions (invented) | $600 |
| 6 | Foreign earned income exclusion (invented) | $0 |
| 7 | Add lines 1 through 6 (computed) | $56,800 |
| 8 | Cost of incidental life insurance (invented) | $28 |
| 9 | Compensation earned while the employer was not qualified (invented) | $0 |
| 10 | Add lines 8 and 9 (computed) | $28 |
| 11 | Line 7 minus line 10 (computed) | $56,772 |
Includible compensation is $56,772 (computed).
A second case, computed the same way, adds pay from a period when the employer was not eligible: $6,000 of pay earned while the employer was not qualified, $41,000 of wages, $3,000 of elective deferrals, $2,000 of 457 amounts at the employee’s election and $56 of incidental life insurance cost.
| Line | Entry | Value |
|---|---|---|
| 1 | Includible wages from the employer maintaining the 403(b) account (invented) | $41,000 |
| 2 | Elective deferrals excluded from gross income (invented) | $3,000 |
| 3 | Cafeteria plan amounts (invented) | $0 |
| 4 | 457 account amounts at your election (invented) | $2,000 |
| 5 | Pre-tax qualified transportation fringe contributions (invented) | $0 |
| 6 | Foreign earned income exclusion (invented) | $0 |
| 7 | Add lines 1 through 6 (computed) | $46,000 |
| 8 | Cost of incidental life insurance (invented) | $56 |
| 9 | Compensation earned while the employer was not qualified (invented) | $6,000 |
| 10 | Add lines 8 and 9 (computed) | $6,056 |
| 11 | Line 7 minus line 10 (computed) | $39,944 |
Includible compensation is $39,944 (computed): lines 8 and 9 together take $6,056 off the $46,000 on line 7.
Edition
This page reads Publication 571 (Rev. January 2026), Tax-Sheltered Annuity Plans (403(b) Plans), the file irs.gov served on 2026-11-05. Worksheet titles, line numbers and dollar amounts belong to that edition, so check the label printed on the worksheet in your own copy before you follow a line reference. Chapter 3 carries Max’s example and Table 3-4, the filled-in worksheet.
Common mistakes
- Counting your employer’s contributions to the 403(b) account as includible compensation. The publication lists them as excluded.
- Including Roth deferrals on line 2. The footnote says they aren’t excluded from gross income and shouldn’t be entered there.
- Mixing pay from two employers. The publication says not to mix compensation or service of one employer with another.
- Skipping line 8 for an annuity contract with life insurance. Worksheet A produces that number.
Related: Publication 571, the 403(b) contribution limit page, and catch-up contributions and the 415(c) limit.
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Answer againSources
- Publication 571 (Rev. January 2026), Tax-Sheltered Annuity Plans (403(b) Plans): https://www.irs.gov/pub/irs-pdf/p571.pdf
- IRS, About Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans): https://www.irs.gov/forms-pubs/about-publication-571
Read from the IRS documents linked above on November 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.