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2012 Income Tax Form 1040

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2012 Income Tax Form 1040

2012 income tax form 1040 Publication 80 - Main Content Table of Contents Introduction 1. 2012 income tax form 1040 Employer Identification Number (EIN) 2. 2012 income tax form 1040 Who Are Employees?Tests. 2012 income tax form 1040 Business Owned and Operated by Spouses Farm Crew Leaders 3. 2012 income tax form 1040 Employee's Social Security Number (SSN)Registering for SSNVS. 2012 income tax form 1040 4. 2012 income tax form 1040 Wages and Other CompensationFringe Benefits 5. 2012 income tax form 1040 TipsOrdering rule. 2012 income tax form 1040 6. 2012 income tax form 1040 Social Security and Medicare Taxes for FarmworkersThe $150 Test or the $2,500 Test 7. 2012 income tax form 1040 How To Figure Social Security and Medicare TaxesHousehold and agricultural employers. 2012 income tax form 1040 8. 2012 income tax form 1040 Depositing TaxesPayment with Return When To Deposit How To Deposit Deposit Penalties 9. 2012 income tax form 1040 Employer's ReturnsReporting Adjustments to Form 941-SS, 944-SS, 944, or 943 Current Period Adjustments Prior Period Adjustments 10. 2012 income tax form 1040 Wage and Tax StatementsWaiver. 2012 income tax form 1040 11. 2012 income tax form 1040 Federal Unemployment (FUTA) Tax—U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands Employers Only How To Get Tax Help Introduction This publication is for employers whose principal place of business is in the U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands, or who have employees who are subject to income tax withholding for any of these jurisdictions. 2012 income tax form 1040 Employers and employees in these areas are generally subject to social security and Medicare taxes under the Federal Insurance Contributions Act (FICA). 2012 income tax form 1040 See section 6 and section 7 for more information. 2012 income tax form 1040 This publication summarizes employer responsibilities to collect, pay, and report these taxes. 2012 income tax form 1040 Whenever the term “United States” is used in this publication, it includes U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. 2012 income tax form 1040 This publication also provides employers in the U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands with a summary of their responsibilities in connection with the tax under the Federal Unemployment Tax Act, known as FUTA tax. 2012 income tax form 1040 See section 11 for more information. 2012 income tax form 1040 Except as shown in the table in section 12, social security, Medicare, and FUTA taxes apply to every employer who pays taxable wages to employees or who has employees who report tips. 2012 income tax form 1040 This publication does not include information relating to the self-employment tax (for social security and Medicare of self-employed persons). 2012 income tax form 1040 See Publication 570, Tax Guide for Individuals With Income From U. 2012 income tax form 1040 S. 2012 income tax form 1040 Possessions, if you need this information. 2012 income tax form 1040 This publication also does not include information relating to income tax withholding. 2012 income tax form 1040 In U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands, contact your local tax department for information about income tax withholding. 2012 income tax form 1040 See Publication 15 (Circular E), for information on U. 2012 income tax form 1040 S. 2012 income tax form 1040 federal income tax withholding. 2012 income tax form 1040 Comments and suggestions. 2012 income tax form 1040   We welcome your comments about this publication and your suggestions for future editions. 2012 income tax form 1040   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2012 income tax form 1040 NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2012 income tax form 1040 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2012 income tax form 1040    You can also send us comments from www. 2012 income tax form 1040 irs. 2012 income tax form 1040 gov/formspubs. 2012 income tax form 1040 Click on More Information and then click on Comment on Tax Forms and Publications. 2012 income tax form 1040   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. 2012 income tax form 1040 1. 2012 income tax form 1040 Employer Identification Number (EIN) An employer identification number (EIN) is a nine-digit number that the IRS issues. 2012 income tax form 1040 Its format is 00-0000000. 2012 income tax form 1040 It is used to identify the tax accounts of employers and certain other organizations and entities that have no employees. 2012 income tax form 1040 Use your EIN on all of the items that you send to the IRS and SSA for your business. 2012 income tax form 1040 If you do not have an EIN, you may apply for one online. 2012 income tax form 1040 Go to IRS. 2012 income tax form 1040 gov and click on the Apply for an EIN Online link under Tools. 2012 income tax form 1040 You may also apply for an EIN by calling 1-800-829-4933, (U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands only) or 267-941-1099 (toll call), or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. 2012 income tax form 1040 Do not use a social security number (SSN) in place of an EIN. 2012 income tax form 1040 If you do not have an EIN by the time a return is due, file a paper return and enter “Applied For” and the date that you applied for it in the space shown for the number. 2012 income tax form 1040 If you took over another employer's business, do not use that employer's EIN. 2012 income tax form 1040 You should have only one EIN. 2012 income tax form 1040 If you have more than one, write to the IRS office where you file your returns using the “without a payment” address in the Instructions for Form 941-SS, Instructions for Form 944, or Instructions for Form 943. 2012 income tax form 1040 Or call the IRS Business & Specialty Tax Line at 1-800-829-4933 (U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands only) or 267-941-1000 (toll call). 2012 income tax form 1040 Persons who are deaf, hard of hearing, or have a speech disability (TDD/TTY users) in the U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands may call 1-800-829-4059. 2012 income tax form 1040 The IRS will tell you which EIN to use. 2012 income tax form 1040 For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN, or Publication 583, Starting a Business and Keeping Records. 2012 income tax form 1040 2. 2012 income tax form 1040 Who Are Employees? Generally, employees are defined either under common law or under special statutes for certain situations. 2012 income tax form 1040 See Publication 15-A, Employer's Supplemental Tax Guide, for details on statutory employees and nonemployees. 2012 income tax form 1040 Employee status under common law. 2012 income tax form 1040   Generally, a worker who performs services for you is your employee if you can control what will be done and how it will be done. 2012 income tax form 1040 This is so even when you give the employee freedom of action. 2012 income tax form 1040 What matters is that you have the right to control the details of how the services are performed. 2012 income tax form 1040 See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. 2012 income tax form 1040    Generally, people in business for themselves are not employees. 2012 income tax form 1040 For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. 2012 income tax form 1040 However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. 2012 income tax form 1040   If an employer-employee relationship exists, it does not matter what it is called. 2012 income tax form 1040 The employee may be called an agent or independent contractor. 2012 income tax form 1040 It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. 2012 income tax form 1040 Statutory employees. 2012 income tax form 1040   There are also some special definitions of employees for social security, Medicare, and FUTA taxes. 2012 income tax form 1040   While the following persons may not be common law employees, they are considered employees for social security and Medicare purposes if the conditions under Tests , discussed later, are met. 2012 income tax form 1040 a. 2012 income tax form 1040   An agent (or commission) driver who delivers food or beverages (other than milk) or picks up and delivers laundry or dry cleaning for someone else. 2012 income tax form 1040 b. 2012 income tax form 1040   A full-time life insurance salesperson who sells primarily for one company. 2012 income tax form 1040 c. 2012 income tax form 1040   A homeworker who works by the guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. 2012 income tax form 1040 d. 2012 income tax form 1040   A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. 2012 income tax form 1040 The orders must be for merchandise for resale or supplies for use in the customer's business. 2012 income tax form 1040 The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. 2012 income tax form 1040 Tests. 2012 income tax form 1040   Withhold social security and Medicare taxes from statutory employees' wages if all three of the following tests apply. 2012 income tax form 1040 The service contract states or implies that almost all of the services are to be performed personally by them. 2012 income tax form 1040 They have little or no investment in the equipment and property used to perform the services (other than an investment in transportation facilities). 2012 income tax form 1040 The services are performed on a continuing basis for the same payer. 2012 income tax form 1040 Persons in a or d, earlier, are also employees for FUTA tax purposes if tests 1 through 3 are met (U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands only). 2012 income tax form 1040   Publication 15-A gives examples of the employer-employee relationship. 2012 income tax form 1040 Statutory nonemployees. 2012 income tax form 1040   Certain direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. 2012 income tax form 1040 They are generally treated as self-employed for employment tax purposes. 2012 income tax form 1040 See Publication 15-A for details. 2012 income tax form 1040 H-2A agricultural workers. 2012 income tax form 1040   On Form W-2, do not check box 13 (Statutory employee) as H-2A workers are not statutory employees. 2012 income tax form 1040 Treating employees as nonemployees. 2012 income tax form 1040   If you incorrectly treated an employee as a nonemployee and did not withhold social security and Medicare taxes, you will be liable for the taxes. 2012 income tax form 1040 See Treating employees as nonemployees in section 2 of Publication 15 (Circular E), for details on Internal Revenue Code section 3509, which may apply. 2012 income tax form 1040 IRS help. 2012 income tax form 1040   If you want the IRS to determine if a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. 2012 income tax form 1040 Voluntary Classification Settlement Program (VCSP). 2012 income tax form 1040   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. 2012 income tax form 1040 To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). 2012 income tax form 1040 For more information, visit IRS. 2012 income tax form 1040 gov and enter “VCSP” in the search box. 2012 income tax form 1040 Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. 2012 income tax form 1040 See Publication 541, Partnerships, for more details. 2012 income tax form 1040 The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. 2012 income tax form 1040 Exception—Qualified Joint Venture. 2012 income tax form 1040   If you and your spouse materially participate as the only members of a jointly owned and operated business, and you file a joint Form 1040, U. 2012 income tax form 1040 S. 2012 income tax form 1040 Individual Income Tax Return, or joint Form 1040-SS, U. 2012 income tax form 1040 S. 2012 income tax form 1040 Self-Employment Tax Return—U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, or Puerto Rico, you can make a joint election to be taxed as a qualified joint venture instead of a partnership. 2012 income tax form 1040 See the Instructions for Schedule C (Form 1040) or the Instructions for Form 1040-SS. 2012 income tax form 1040 Spouses electing qualified joint venture status are treated as sole proprietors for federal tax purposes. 2012 income tax form 1040 Either of the sole proprietor spouses may report and pay the employment taxes due on wages paid to the employees, using the EIN of that spouse’s sole proprietorship. 2012 income tax form 1040 For more information on qualified joint ventures, visit IRS. 2012 income tax form 1040 gov and enter “qualified joint venture” in the search box. 2012 income tax form 1040 Farm Crew Leaders You are an employer of farmworkers if you are a crew leader. 2012 income tax form 1040 A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. 2012 income tax form 1040 If there is no written agreement between you and the farm operator stating that you are his or her employee, and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader. 2012 income tax form 1040 3. 2012 income tax form 1040 Employee's Social Security Number (SSN) An employee's social security number (SSN) consists of nine digits separated as follows: 000-00-0000. 2012 income tax form 1040 You must get each employee's name and SSN and enter them on Form W-2AS, W-2CM, W-2GU, or W-2VI. 2012 income tax form 1040 If you do not report the employee's correct name and SSN, you may owe a penalty unless you have reasonable cause. 2012 income tax form 1040 See Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. 2012 income tax form 1040 Employee's social security card. 2012 income tax form 1040   You should ask the employee to show you his or her social security card. 2012 income tax form 1040 The employee may show the card if it is available. 2012 income tax form 1040 Do not accept a social security card that says “Not valid for employment. 2012 income tax form 1040 ” A social security number issued with this legend does not permit employment. 2012 income tax form 1040 You may, but you are not required to, photocopy the social security card if the employee provides it. 2012 income tax form 1040 If an employee does not have a social security card or needs a new one, the employee should apply for one on Form SS-5 and submit the necessary documentation. 2012 income tax form 1040 The employee must complete and sign Form SS-5; it cannot be filed by the employer. 2012 income tax form 1040 You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. 2012 income tax form 1040 If your employee has applied for an SSN but has not received the card before you must file your Form W-2 reports, and you are filing your reports on paper, enter “Applied For” in box d. 2012 income tax form 1040 Enter all zeroes in the SSN field if filing electronically. 2012 income tax form 1040 When the employee receives the SSN, file Copy A of Form W-2c with SSA to show the employee's SSN. 2012 income tax form 1040 Correctly record the employee's name and SSN. 2012 income tax form 1040   Record the name and number of each employee as they appear on his or her social security card. 2012 income tax form 1040 If the name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. 2012 income tax form 1040 Continue to use the old name until the employee shows you the replacement social security card with the corrected name. 2012 income tax form 1040   If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported on the most recently filed Form W-2AS, W-2CM, W-2GU, or W-2VI. 2012 income tax form 1040 It is not necessary to correct other years if the previous name and SSN were used for years before the most recent Form W-2. 2012 income tax form 1040 Where to get and file social security number application forms. 2012 income tax form 1040    U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands—U. 2012 income tax form 1040 S. 2012 income tax form 1040 Social Security Administration, 8000 Nisky Center, First Floor, Suite 2, St. 2012 income tax form 1040 Thomas, VI 00802. 2012 income tax form 1040  Guam—U. 2012 income tax form 1040 S. 2012 income tax form 1040 Social Security Administration, 655 Harmon Loop Road, Suite 300, Dededo, GU 96929. 2012 income tax form 1040  American Samoa—U. 2012 income tax form 1040 S. 2012 income tax form 1040 Social Security Administration, Pago Plaza, Suite 117, Pago Pago, AS 96799. 2012 income tax form 1040  Commonwealth of the Northern Mariana Islands—U. 2012 income tax form 1040 S. 2012 income tax form 1040 Social Security Administration, MH Building, Suite 201, Saipan, MP 96950. 2012 income tax form 1040 Verification of social security numbers. 2012 income tax form 1040   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. 2012 income tax form 1040 Visit www. 2012 income tax form 1040 socialsecurity. 2012 income tax form 1040 gov/employer/ssnv. 2012 income tax form 1040 htm for more information. 2012 income tax form 1040 Registering for SSNVS. 2012 income tax form 1040   You must register online and receive authorization from your employer to use SSNVS. 2012 income tax form 1040 To register, visit SSA's website at www. 2012 income tax form 1040 ssa. 2012 income tax form 1040 gov/employer and click on the Business Services Online link. 2012 income tax form 1040 Follow the registration instructions to obtain a user identification (ID) and password. 2012 income tax form 1040 You will need to provide the following information about yourself and your company. 2012 income tax form 1040 Name. 2012 income tax form 1040 SSN. 2012 income tax form 1040 Date of birth. 2012 income tax form 1040 Type of employer. 2012 income tax form 1040 EIN. 2012 income tax form 1040 Company name, address, and telephone number. 2012 income tax form 1040 Email address. 2012 income tax form 1040   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. 2012 income tax form 1040 You must enter the activation code online to use SSNVS. 2012 income tax form 1040 4. 2012 income tax form 1040 Wages and Other Compensation Generally, all wages are subject to social security and Medicare tax (and FUTA tax for U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands employers). 2012 income tax form 1040 However, wages subject to social security tax and FUTA tax are limited by a wage base amount that you pay to each employee for the year. 2012 income tax form 1040 The wage base for social security tax is $117,000 for 2014. 2012 income tax form 1040 After you pay $117,000 to an employee in 2014, including tips, do not withhold social security tax on any amount that you later pay to the employee for the year. 2012 income tax form 1040 The wage base for FUTA tax is $7,000 for 2014. 2012 income tax form 1040 All wages are subject to Medicare tax. 2012 income tax form 1040 The wages may be in cash or in other forms, such as an automobile for personal use. 2012 income tax form 1040 Wages include salaries, vacation allowances, bonuses, commissions, and fringe benefits. 2012 income tax form 1040 It does not matter how payments are measured or paid. 2012 income tax form 1040 See the table in section 12 for exceptions to social security, Medicare, and FUTA taxes on wages. 2012 income tax form 1040 See section 5 and section 6 for a discussion of how the rules apply to tips and farmworkers. 2012 income tax form 1040 Social security and Medicare taxes apply to most payments of sick pay, including payments by third parties such as insurance companies. 2012 income tax form 1040 Special rules apply to the reporting of third-party sick pay. 2012 income tax form 1040 For details, see Publication 15-A. 2012 income tax form 1040 Determine the value of noncash pay (such as goods, lodging, and meals) by its fair market value. 2012 income tax form 1040 However, see Fringe Benefits , later in this section. 2012 income tax form 1040 Except for farmworkers and household employees, this kind of pay may be subject to social security, Medicare, and FUTA taxes. 2012 income tax form 1040 Back pay, including retroactive wage increases (but not amounts paid as liquidated damages), is taxed as ordinary wages in the year paid. 2012 income tax form 1040 For information on reporting back pay to the Social Security Administration, see Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration. 2012 income tax form 1040 Travel and business expenses. 2012 income tax form 1040   Payments to your employee for travel and other necessary expenses of your business generally are included in taxable wages if (a) your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, or (b) you advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount that he or she does not substantiate. 2012 income tax form 1040 Sick pay. 2012 income tax form 1040   In general, sick pay is any amount that you pay, under a plan that you take part in, to an employee because of sickness or injury. 2012 income tax form 1040 These amounts are sometimes paid by a third party, such as an insurance company. 2012 income tax form 1040 In either case, these payments are subject to social security and Medicare taxes (and FUTA tax for U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands employers). 2012 income tax form 1040 Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. 2012 income tax form 1040 Publication 15-A explains the employment tax rules that apply to sick pay, disability benefits, and similar payments to employees. 2012 income tax form 1040 Fringe Benefits Generally, fringe benefits are includible in the gross income of an employee and are subject to employment taxes. 2012 income tax form 1040 Examples of fringe benefits include the use of an automobile, aircraft flights that you provide, free or discounted commercial airline flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. 2012 income tax form 1040 In general, the amount included in the employee's income is the excess of the fair market value of the benefit over the sum of any amount paid for it by the employee and any amount excluded by law. 2012 income tax form 1040 For more information, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. 2012 income tax form 1040 When fringe benefits are treated as paid. 2012 income tax form 1040   You can choose to treat certain noncash fringe benefits (including personal use of an automobile provided by you) as paid by the pay period, quarter, or on any other basis that you choose, but they must be treated as paid at least annually. 2012 income tax form 1040 You do not have to make a formal choice of payment dates or notify the IRS. 2012 income tax form 1040 You do not have to use the same basis for all employees. 2012 income tax form 1040 You may change methods as often as you like, as long as all benefits provided in a calendar year are treated as paid no later than December 31 of the calendar year. 2012 income tax form 1040 However, see Special accounting rule for fringe benefits provided during November and December , later in this section. 2012 income tax form 1040   You can treat the value of a single taxable noncash fringe benefit as paid on one or more dates in the same calendar year, even if the employee gets the entire benefit at one time. 2012 income tax form 1040 However, once you elect the payment dates, you must report the taxes on your return in the same tax period in which you treated them as paid. 2012 income tax form 1040 This election does not apply to a fringe benefit where real property or investment personal property is transferred. 2012 income tax form 1040 Withholding social security and Medicare taxes on fringe benefits. 2012 income tax form 1040   You add the value of fringe benefits to regular wages for a payroll period and figure social security and Medicare taxes on the total. 2012 income tax form 1040   If you withhold less than the required amount of social security and Medicare taxes from the employee in a calendar year but report and pay the proper amount, you may recover the taxes from the employee. 2012 income tax form 1040 Depositing taxes on fringe benefits. 2012 income tax form 1040   Once you choose payment dates for taxable noncash fringe benefits, you must deposit taxes in the same deposit period that you treat the fringe benefits as paid. 2012 income tax form 1040 You may make a reasonable estimate of the value of the fringe benefits. 2012 income tax form 1040 In general, the value of taxable noncash fringe benefits provided in a calendar year must be determined by January 31 of the following year. 2012 income tax form 1040   You may claim a refund of overpayments or elect to have any overpayment applied to the next employment tax return. 2012 income tax form 1040 If deposits are underpaid, see Deposit Penalties in section 8. 2012 income tax form 1040 Valuation of vehicles provided to employees. 2012 income tax form 1040    If you provide a vehicle to your employees, you may either determine the actual value of the benefit for the entire calendar year, taking into account the business use of the vehicle, or consider the entire use for the calendar year as personal and include 100% of the value of the vehicle in the employee's income. 2012 income tax form 1040 For reporting information to employees, see the box 14 instructions in the General Instructions for Forms W-2 and W-3. 2012 income tax form 1040 Special accounting rule for fringe benefits provided during November and December. 2012 income tax form 1040   You may choose to treat the value of taxable noncash fringe benefits provided during November and December as paid in the next year. 2012 income tax form 1040 However, this applies only to those benefits that you actually provided during November and December, not to those you merely treated as paid during those months. 2012 income tax form 1040   If you use this rule, you must notify each affected employee between the time of the employee's last paycheck of the calendar year and at or near the time that you give the employee Form W-2AS, W-2CM, W-2GU, or W-2VI. 2012 income tax form 1040 If you use the special accounting rule, your employee must also use it for the same period that you use it. 2012 income tax form 1040 You cannot use this rule for a fringe benefit of real property or tangible or intangible real property of a kind normally held for investment that is transferred to your employee. 2012 income tax form 1040 5. 2012 income tax form 1040 Tips Tips that your employee receives from customers are generally subject to social security and Medicare withholding. 2012 income tax form 1040 Your employee must report cash tips to you by the 10th of the month after the month that the tips are received. 2012 income tax form 1040 The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. 2012 income tax form 1040 Both directly and indirectly tipped employees must report tips to you. 2012 income tax form 1040 The report should not include tips that the employee paid out to other employees. 2012 income tax form 1040 No report is required for months when tips are less than $20. 2012 income tax form 1040 Your employees report tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. 2012 income tax form 1040 They may also use Form 4070A, Employee's Daily Record of Tips, to keep a record of their tips. 2012 income tax form 1040 Both forms are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer, available at IRS. 2012 income tax form 1040 gov. 2012 income tax form 1040 The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period that the report covers, and The total tips received during the month or period. 2012 income tax form 1040 You are permitted to establish a system for electronic tip reporting by employees. 2012 income tax form 1040 See Regulations section 31. 2012 income tax form 1040 6053-1(d). 2012 income tax form 1040 Collecting taxes on tips. 2012 income tax form 1040   You must collect the employee social security and Medicare taxes on the employee's tips. 2012 income tax form 1040 You can also collect these taxes from the employee's wages or from other funds that he or she makes available. 2012 income tax form 1040 Stop collecting the employee social security tax when his or her total wages and tips for 2014 reach $117,000. 2012 income tax form 1040 Collect the employee Medicare tax for the whole year on all wages and tips. 2012 income tax form 1040   You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the wage base limit. 2012 income tax form 1040 You are responsible for the employer Medicare tax for the whole year on all wages and tips. 2012 income tax form 1040 File Form 941-SS (or Form 944) to report withholding and employer taxes on tips. 2012 income tax form 1040 The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. 2012 income tax form 1040 Ordering rule. 2012 income tax form 1040   If, by the 10th of the month after the month you received an employee's report on tips, you do not have enough employee funds available to deduct the employee social security and Medicare tax on tips, you no longer have to collect it and are not liable for it. 2012 income tax form 1040 Reporting tips. 2012 income tax form 1040   Report tips and any collected and uncollected social security in boxes 1, 5, 7, and 12 on Forms W-2AS, W-2CM, W-2GU, or W-2VI and on Form 941-SS, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). 2012 income tax form 1040 Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. 2012 income tax form 1040 Report an adjustment on Form 941-SS, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. 2012 income tax form 1040 The table in section 12 shows how tips are treated for FUTA tax purposes. 2012 income tax form 1040   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. 2012 income tax form 1040 See Revenue Ruling 2012-18, 2012-26 I. 2012 income tax form 1040 R. 2012 income tax form 1040 B. 2012 income tax form 1040 1032, available at www. 2012 income tax form 1040 irs. 2012 income tax form 1040 gov/irb/2012-26_IRB/ar07. 2012 income tax form 1040 html. 2012 income tax form 1040 6. 2012 income tax form 1040 Social Security and Medicare Taxes for Farmworkers The tests described below apply only to services that are defined as agricultural labor (farmwork). 2012 income tax form 1040 In general, you are an employer of farmworkers if your employees: Raise or harvest agricultural or horticultural products on your farm (including the raising and feeding of livestock); Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and equipment; Provide services relating to salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor); Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity); or Do work for you related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. 2012 income tax form 1040 For this purpose, the term “farm” includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, as well as plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards. 2012 income tax form 1040 Farmwork does not include reselling activities that do not involve any substantial activity of raising agricultural or horticultural commodities, such as a retail store or a greenhouse used primarily for display or storage. 2012 income tax form 1040 A “share farmer” working for you is not your employee. 2012 income tax form 1040 However, the share farmer may be subject to self-employment tax. 2012 income tax form 1040 In general, share farming is an arrangement in which certain commodity products are shared between the farmer and the owner (or tenant) of the land. 2012 income tax form 1040 For details, see Regulations section 31. 2012 income tax form 1040 3121(b)(16)-1. 2012 income tax form 1040 The $150 Test or the $2,500 Test All cash wages that you pay to any employee for farmwork are subject to social security and Medicare taxes if either of the following two tests is met. 2012 income tax form 1040 You pay cash wages to the employee of $150 or more in a year (count all cash wages paid on a time, piecework, or other basis) for farmwork. 2012 income tax form 1040 The $150 test applies separately to each farmworker that you employ. 2012 income tax form 1040 If you employ a family of workers, each member is treated separately. 2012 income tax form 1040 Do not count wages paid by other employers. 2012 income tax form 1040 The total that you pay for farmwork (cash and noncash) to all of your employees is $2,500 or more during the year. 2012 income tax form 1040 Exceptions. 2012 income tax form 1040   The $150 and $2,500 tests do not apply to wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker: Is employed in agriculture as a hand-harvest laborer, Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment, Commutes daily from his or her home to the farm, and Had been employed in agriculture less than 13 weeks in the preceding calendar year. 2012 income tax form 1040   Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes. 2012 income tax form 1040 7. 2012 income tax form 1040 How To Figure Social Security and Medicare Taxes The tax rate for social security is 6. 2012 income tax form 1040 2% (amount withheld) each for the employer and employee (12. 2012 income tax form 1040 4% total). 2012 income tax form 1040 The social security wage base limit is $117,000. 2012 income tax form 1040 The tax rate for Medicare is 1. 2012 income tax form 1040 45% (amount withheld) each for the employee and employer (2. 2012 income tax form 1040 9% total). 2012 income tax form 1040 There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. 2012 income tax form 1040 Multiply each wage payment by these percentages to figure the tax to withhold from employees. 2012 income tax form 1040 Employers report both the employee and employer shares on Forms 941-SS, 944, or Form 943 (farm employment). 2012 income tax form 1040 See section 5 for information on tips. 2012 income tax form 1040 Additional Medicare Tax withholding. 2012 income tax form 1040   In addition to withholding Medicare tax at 1. 2012 income tax form 1040 45%, you must withhold a 0. 2012 income tax form 1040 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 2012 income tax form 1040 You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. 2012 income tax form 1040 Additional Medicare Tax is only imposed on the employee. 2012 income tax form 1040 There is no employer share of Additional Medicare Tax. 2012 income tax form 1040 All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. 2012 income tax form 1040   For more information on what wages are subject to Medicare tax, see the chart Special Rules for Various Types of Employment and Payments in section 12. 2012 income tax form 1040 For more information on Additional Medicare Tax, visit IRS. 2012 income tax form 1040 gov and enter “Additional Medicare Tax” in the search box. 2012 income tax form 1040 Deducting the tax. 2012 income tax form 1040   Deduct the employee tax from each wage payment. 2012 income tax form 1040 If you are not sure that the wages that you pay to a farmworker during the year will be taxable, you may either deduct the tax when you make the payments or wait until the $2,500 test or the $150 test explained in section 6 has been met. 2012 income tax form 1040 Employee's portion of taxes paid by employer. 2012 income tax form 1040   If you pay your employee's social security and Medicare taxes without deducting them from the employee's pay, you must include the amount of the payments in the employee's wages for social security and Medicare taxes. 2012 income tax form 1040 This increase in the employee's wage payment for your payment of the employee's social security and Medicare taxes is also subject to employee social security and Medicare taxes. 2012 income tax form 1040 This again increases the amount of the additional taxes that you must pay. 2012 income tax form 1040 Household and agricultural employers. 2012 income tax form 1040   This discussion does not apply to household and agricultural employers. 2012 income tax form 1040 If you pay a household or agricultural employee's social security and Medicare taxes, these payments must be included in the employee's wages. 2012 income tax form 1040 However, this wage increase due to the tax payments is not subject to social security or Medicare taxes as discussed in this section. 2012 income tax form 1040 See Publication 15-A for details. 2012 income tax form 1040 Sick pay payments. 2012 income tax form 1040   Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. 2012 income tax form 1040 For details on third-party payers of sick pay, see Publication 15-A. 2012 income tax form 1040 8. 2012 income tax form 1040 Depositing Taxes You must deposit social security and Medicare taxes if your tax liability (Form 941-SS, line 10; Form 944, line 7; or Form 943, line 11) is $2,500 or more for the tax return period. 2012 income tax form 1040 You must make the deposit by electronic funds transfer. 2012 income tax form 1040 For more information about electronic funds transfers, see How To Deposit , later in this section. 2012 income tax form 1040 Payment with Return $2,500 rule. 2012 income tax form 1040   Instead of making deposits during the current quarter, you can pay your total Form 941-SS tax liability when you timely file Form 941-SS if: Your total Form 941-SS tax liability for either the current quarter or the preceding quarter is less than $2,500 and You do not incur a $100,000 next-day deposit obligation during the current quarter. 2012 income tax form 1040   If you are not sure your total liability for the current quarter will be less than $2,500, (and your liability for the preceding quarter was not less than $2,500), make deposits using the semiweekly or monthly rules so you won't be subject to failure to deposit penalties. 2012 income tax form 1040 Employers who have been notified to file Form 944 can pay their tax liability due for the fourth quarter with Form 944, if their fourth quarter tax liability is less than $2,500. 2012 income tax form 1040 Employers must have deposited any tax liability due for the first, second, and third quarters, according to the deposit rules, in order to avoid failure-to-deposit penalties for deposits due during those quarters. 2012 income tax form 1040 Only monthly schedule depositors are allowed to make an Accuracy of Deposits Rule payment with the return. 2012 income tax form 1040 Semiweekly schedule depositors must timely deposit the amount. 2012 income tax form 1040 See Accuracy of Deposits Rule and How To Deposit, later in this section. 2012 income tax form 1040 When To Deposit Under the rules discussed below, the only difference between farm and nonfarm workers' employment tax deposit rules is the lookback period. 2012 income tax form 1040 Therefore, farm and nonfarm workers are discussed together except where noted. 2012 income tax form 1040 Depending on your total taxes reported during a lookback period (discussed later), you are either a monthly schedule depositor or a semiweekly schedule depositor. 2012 income tax form 1040 The terms “monthly schedule depositor” and “semiweekly schedule depositor” do not refer to how often you pay your employees or how often you are required to make deposits. 2012 income tax form 1040 The terms identify which set of rules that you must follow when a tax liability arises (for example, when you have a payday). 2012 income tax form 1040 You will need to determine your deposit schedule for a calendar year based on the total employment taxes reported on Forms 941-SS, line 10; Form 944, line 7; or Form 943, line 9, for your lookback period (defined below). 2012 income tax form 1040 If you filed both Forms 941-SS and 941 during the lookback period, combine the tax liabilities for these returns for purposes of determining your deposit schedule. 2012 income tax form 1040 Determine your deposit schedule for Form 943 separately from Forms 941-SS and 941. 2012 income tax form 1040 Lookback period for employers of nonfarm workers. 2012 income tax form 1040   The lookback period for Form 941-SS (or Form 941) consists of four quarters beginning July 1 of the second preceding year and ending June 30 of the prior year. 2012 income tax form 1040 These four quarters are your lookback period even if you did not report any taxes for any of the quarters. 2012 income tax form 1040 For 2014, the lookback period is July 1, 2012, through June 30, 2013. 2012 income tax form 1040    Table 1. 2012 income tax form 1040 Lookback Period for Calendar Year 2014 Lookback Period July 1, 2012 Oct. 2012 income tax form 1040 1, 2012 Jan. 2012 income tax form 1040 1, 2013 Apr. 2012 income tax form 1040 1, 2013 through through through through Sep. 2012 income tax form 1040 30, 2012 Dec. 2012 income tax form 1040 31, 2012 Mar. 2012 income tax form 1040 31, 2013 June 30, 2013    The lookback period for Form 944 is the second calendar year preceding the current calendar year. 2012 income tax form 1040 For example, the lookback period for calendar year 2014 is calendar year 2012. 2012 income tax form 1040 In addition, for employers who filed Form 944 for 2012 or for 2013 and will file Form 941-SS (or Form 941) for 2014, the lookback period for 2014 is the second calendar year preceding the current calendar year, that is, 2012. 2012 income tax form 1040 Lookback period for employers of farmworkers. 2012 income tax form 1040   The lookback period for Form 943 is the second calendar year preceding the current calendar year. 2012 income tax form 1040 The lookback period for calendar year 2014 is calendar year 2012. 2012 income tax form 1040 Adjustments to lookback period taxes. 2012 income tax form 1040   To determine your taxes for the lookback period, use only the tax that you reported on the original returns (Forms 941-SS, 943, or 944). 2012 income tax form 1040 Do not include any adjustments shown on Form 941-X, 943-X, or 944-X. 2012 income tax form 1040 Example. 2012 income tax form 1040   An employer originally reported total taxes of $45,000 for the lookback period. 2012 income tax form 1040 The employer discovered during January 2014 that the tax reported during the lookback period was understated by $10,000 and corrected this error by filing Form 941-X. 2012 income tax form 1040 The employer is a monthly schedule depositor for 2014 because the lookback period tax liabilities are based on the amounts originally reported, and they were $50,000 or less. 2012 income tax form 1040 Deposit Period The term “deposit period” refers to the period during which tax liabilities are accumulated for each required deposit due date. 2012 income tax form 1040 For monthly schedule depositors, the deposit period is a calendar month. 2012 income tax form 1040 The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday. 2012 income tax form 1040 Monthly Deposit Schedule If your total tax reported for the lookback period is $50,000 or less, you are a monthly schedule depositor for the current year. 2012 income tax form 1040 You must deposit taxes on wage payments made during a calendar month by the 15th day of the following month. 2012 income tax form 1040 New employers. 2012 income tax form 1040   Your tax liability for any quarter in the lookback period before the date you started or acquired your business is considered to be zero. 2012 income tax form 1040 Therefore, you are a monthly schedule depositor for the first calendar year of your business (but see the $100,000 Next-Day Deposit Rule , later in this section). 2012 income tax form 1040 Semiweekly Deposit Schedule If your total tax reported for the lookback period is more than $50,000, you are a semiweekly schedule depositor for the current year. 2012 income tax form 1040 If you are a semiweekly schedule depositor, you must deposit on Wednesday and/or Friday, depending on what day of the week that you make wage payments, as follows. 2012 income tax form 1040 Deposit taxes on wage payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. 2012 income tax form 1040 Deposit taxes on wage payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. 2012 income tax form 1040 Semiweekly depositors are generally not required to deposit twice a week if their payments were in the same semiweekly period unless the $100,000 Next-Day Deposit Rule , discussed later in this section, applies. 2012 income tax form 1040 For example, if you made a payment on both Wednesday and Friday and incurred taxes of $10,000 for each pay date, deposit the $20,000 on the following Wednesday. 2012 income tax form 1040 If you made no additional payments on Saturday through Tuesday, no deposit is due on Friday. 2012 income tax form 1040 Semiweekly deposit period spanning two quarters. 2012 income tax form 1040   If you have more than one pay date during a semiweekly period and the pay dates fall in different calendar quarters, you will need to make separate deposits for the separate liabilities. 2012 income tax form 1040 Example. 2012 income tax form 1040   If you have a pay date on Monday, March 31, 2014 (first quarter), and another pay date on Tuesday, April 1, 2014 (second quarter), two separate deposits will be required even though the pay dates fall within the same semiweekly period. 2012 income tax form 1040 Both deposits will be due on Friday, April 4, 2014 (3 business days from the end of the semiweekly deposit period). 2012 income tax form 1040 Examples of Monthly and Semiweekly Schedules Employers of nonfarm workers. 2012 income tax form 1040   Rose Co. 2012 income tax form 1040 reported Form 941-SS taxes as follows: 2013 Lookback Period 3rd Quarter 2011 $12,000 4th Quarter 2011 12,000 1st Quarter 2012 12,000 2nd Quarter 2012 12,000   $48,000 2014 Lookback Period 3rd Quarter 2012 $12,000 4th Quarter 2012 12,000 1st Quarter 2013 12,000 2nd Quarter 2013 15,000   $51,000 Rose Co. 2012 income tax form 1040 is a monthly schedule depositor for 2013 because its taxes for the four quarters in its lookback period ($48,000 for the 3rd quarter of 2011 through the 2nd quarter of 2012) were not more than $50,000. 2012 income tax form 1040 However, for 2014, Rose Co. 2012 income tax form 1040 is a semiweekly schedule depositor because the total taxes for the four quarters in its lookback period ($51,000 for the 3rd quarter of 2012 through the 2nd quarter of 2013) exceeded $50,000. 2012 income tax form 1040 Employers of farmworkers. 2012 income tax form 1040   Red Co. 2012 income tax form 1040 reported taxes on its 2012 Form 943, line 9, of $48,000. 2012 income tax form 1040 On its 2013 Form 943, line 11, it reported taxes of $60,000. 2012 income tax form 1040   Red Co. 2012 income tax form 1040 is a monthly schedule depositor for 2014 because its taxes for its lookback period ($48,000 for calendar year 2012) were not more than $50,000. 2012 income tax form 1040 However, for 2015, Red Co. 2012 income tax form 1040 is a semiweekly schedule depositor because the total taxes for its lookback period ($60,000 for calendar year 2013) exceeded $50,000. 2012 income tax form 1040 New agricultural employers. 2012 income tax form 1040   New agricultural employers filing Form 943 are monthly schedule depositors for the first and second calendar years of their business because their taxes for the lookback period (2 years) are considered to be zero. 2012 income tax form 1040 However, see the $100,000 Next-Day Deposit Rule , later in this section. 2012 income tax form 1040 Deposits on Business Days Only If a deposit due date falls on a day that is not a business day, the deposit is considered timely if it is made by the close of the next business day. 2012 income tax form 1040 A business day is any day other than a Saturday, Sunday, or legal holiday. 2012 income tax form 1040 For example, if a deposit is required to be made on Friday, but Friday is a legal holiday, the deposit is considered timely if it is made by the following Monday (if Monday is a business day). 2012 income tax form 1040 Semiweekly schedule depositors have at least 3 business days to make a deposit. 2012 income tax form 1040 If any of the 3 weekdays after the end of a semiweekly period is a legal holiday, you will have an additional day for each day that is a legal holiday to make the required deposit. 2012 income tax form 1040 For example, if a semiweekly schedule depositor accumulated taxes for payments made on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday (this allows 3 business days to make the deposit). 2012 income tax form 1040 Legal holiday. 2012 income tax form 1040   The term “legal holiday” means any legal holiday in the District of Columbia. 2012 income tax form 1040 Legal holidays for 2014 are listed below. 2012 income tax form 1040 January 1—New Year's Day January 20—Birthday of Martin Luther King, Jr. 2012 income tax form 1040 February 17—Washington's Birthday April 16—District of Columbia Emancipation Day May 26—Memorial Day July 4—Independence Day September 1—Labor Day October 13—Columbus Day November 11—Veterans Day November 27—Thanksgiving Day December 25—Christmas Day Application of Monthly and Semiweekly Schedules The following examples illustrate the procedure for determining the deposit date under the two different deposit schedules. 2012 income tax form 1040 Monthly schedule example. 2012 income tax form 1040   Spruce Co. 2012 income tax form 1040 is a monthly schedule depositor with seasonal employees. 2012 income tax form 1040 It paid wages each Friday during August but did not pay any wages during September. 2012 income tax form 1040 Under the monthly deposit schedule, Spruce Co. 2012 income tax form 1040 must deposit the combined tax liabilities for the four August paydays by September 15. 2012 income tax form 1040 Spruce Co. 2012 income tax form 1040 does not have a deposit requirement for September (due by October 15) because no wages were paid and, therefore, it did not have a tax liability for September. 2012 income tax form 1040 Semiweekly schedule example. 2012 income tax form 1040   Green, Inc. 2012 income tax form 1040 is a semiweekly schedule depositor and pays wages once each month on the last Friday of the month. 2012 income tax form 1040 Although Green, Inc. 2012 income tax form 1040 , has a semiweekly deposit schedule, it will deposit just once a month because it pays wages only once a month. 2012 income tax form 1040 The deposit, however, will be made under the semiweekly deposit schedule as follows: Green, Inc. 2012 income tax form 1040 ’s tax liability for the April 25, 2014 (Friday), payday must be deposited by April 30, 2014 (Wednesday). 2012 income tax form 1040 Under the semiweekly deposit schedule, liabilities for wages paid on Wednesday through Friday must be deposited by the following Wednesday. 2012 income tax form 1040 $100,000 Next-Day Deposit Rule If you accumulate taxes of $100,000 or more on any day during a deposit period, you must deposit by the close of the next business day, whether you are a monthly or a semiweekly schedule depositor. 2012 income tax form 1040 For purposes of the $100,000 rule, do not continue accumulating taxes after the end of a deposit period. 2012 income tax form 1040 For example, if a semiweekly schedule depositor has accumulated taxes of $95,000 on Tuesday and $10,000 on Wednesday, the $100,000 next-day deposit rule does not apply because the $10,000 is accumulated in the next deposit period. 2012 income tax form 1040 Thus, $95,000 must be deposited by Friday and $10,000 must be deposited by the following Wednesday. 2012 income tax form 1040 However, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. 2012 income tax form 1040 For example, Fir Co. 2012 income tax form 1040 is a semiweekly schedule depositor. 2012 income tax form 1040 On Monday, Fir Co. 2012 income tax form 1040 accumulates taxes of $110,000 and must deposit on Tuesday, the next business day. 2012 income tax form 1040 On Tuesday, Fir Co. 2012 income tax form 1040 accumulates additional taxes of $30,000. 2012 income tax form 1040 Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. 2012 income tax form 1040 does not have to deposit the $30,000 until Friday (following the semiweekly deposit schedule). 2012 income tax form 1040 If you are a monthly schedule depositor and you accumulate a $100,000 tax liability on any day during a month, you become a semiweekly schedule depositor on the next day and remain so for the remainder of the calendar year and for the following calendar year. 2012 income tax form 1040 Example. 2012 income tax form 1040   Elm, Inc. 2012 income tax form 1040 started its business on May 1, 2014. 2012 income tax form 1040 On May 8, it paid wages for the first time and accumulated a tax liability of $40,000. 2012 income tax form 1040 On Friday, May 9, Elm, Inc. 2012 income tax form 1040 paid wages and accumulated a liability of $60,000, making its accumulated Form 941-SS tax liability total $100,000. 2012 income tax form 1040 Elm, Inc. 2012 income tax form 1040 must deposit $100,000 by Monday, May 12, the next business day. 2012 income tax form 1040 Because this was the first year of its business, the tax liability for its lookback period is considered to be zero, and it would be a monthly schedule depositor based on the lookback rules. 2012 income tax form 1040 However, because Elm, Inc. 2012 income tax form 1040 accumulated $100,000 on May 9, it became a semiweekly schedule depositor on May 10. 2012 income tax form 1040 It will be a semiweekly schedule depositor for the remainder of 2014 and for 2015. 2012 income tax form 1040 Accuracy of Deposits Rule You are required to deposit 100% of your tax liability on or before the deposit due date. 2012 income tax form 1040 However, penalties will not be applied for depositing less than 100% if both of the following conditions are met. 2012 income tax form 1040 Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited, and The deposit shortfall is paid or deposited by the shortfall makeup date as described below. 2012 income tax form 1040 Makeup date for deposit shortfall: Monthly schedule depositor. 2012 income tax form 1040 Deposit or pay the shortfall by the due date of your Form 941-SS, 944, or 943 for the period in which the shortfall occurred. 2012 income tax form 1040 You may pay the shortfall with your return even if the amount is $2,500 or more. 2012 income tax form 1040 Semiweekly schedule depositor. 2012 income tax form 1040 Deposit by the earlier of: The first Wednesday or Friday (whichever comes first) that comes on or after the 15th of the month following the month in which the shortfall occurred, or The return due date for the period in which the shortfall occurred. 2012 income tax form 1040 For example, if a semiweekly schedule depositor filing Form 941-SS has a deposit shortfall during July 2014, the shortfall makeup date is August 15, 2014 (Friday). 2012 income tax form 1040 However, if the shortfall occurred on the required April 2 (Wednesday), deposit date for a March 28 (Friday) pay date, the return due date for the March 28 pay date (April 30) would come before the May 16 (Friday) shortfall makeup date. 2012 income tax form 1040 In this case, the shortfall must be deposited by April 30, 2014. 2012 income tax form 1040 Employers of Both Farm and Nonfarm Workers If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers (Form 943 taxes) separately from employment taxes for the nonfarm workers (Form 941-SS or 944 taxes). 2012 income tax form 1040 Form 943 taxes and Form 941-SS (or Form 944) taxes are not combined for purposes of applying any of the deposit rules. 2012 income tax form 1040 If a deposit is due, deposit the Form 941-SS (or Form 944) taxes and Form 943 taxes separately, as discussed next. 2012 income tax form 1040 How To Deposit You must deposit employment taxes by electronic funds transfer. 2012 income tax form 1040 See Payment with Return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited. 2012 income tax form 1040 Electronic deposit requirement. 2012 income tax form 1040   You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). 2012 income tax form 1040 Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). 2012 income tax form 1040 If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. 2012 income tax form 1040   EFTPS is a free service provided by the Department of the Treasury. 2012 income tax form 1040 To get more information or to enroll in EFTPS, call 1-800-555-4477 (U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands only) or 303-967-5916 (toll call). 2012 income tax form 1040 You can also visit the EFTPS website at www. 2012 income tax form 1040 eftps. 2012 income tax form 1040 gov. 2012 income tax form 1040 Additional information about EFTPS is also available in Publication 966. 2012 income tax form 1040 When you receive your EIN. 2012 income tax form 1040   If you are a new employer that indicated a federal tax obligation when requesting an EIN, you will be pre-enrolled in EFTPS. 2012 income tax form 1040 You will receive information about Express Enrollment in your Employer Identification Number (EIN) Package and an additional mailing containing your EFTPS personal identification number (PIN) and instructions for activating your PIN. 2012 income tax form 1040 Follow the steps in your “How to Activate Your Enrollment” brochure to activate your enrollment and begin making your payroll tax deposits. 2012 income tax form 1040 If you outsource any of your payroll and related tax duties to a third party payer, such as a payroll service provider or reporting agent, be sure to tell them about your EFTPS enrollment. 2012 income tax form 1040 Deposit record. 2012 income tax form 1040   For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. 2012 income tax form 1040 The number can be used as a receipt or to trace the payment. 2012 income tax form 1040 Depositing on time. 2012 income tax form 1040   For deposits made by EFTPS to be on time, you must initiate the deposit by 8 p. 2012 income tax form 1040 m. 2012 income tax form 1040 Eastern time the day before the date the deposit is due. 2012 income tax form 1040 If you use a third party to make deposits on your behalf, they may have different cutoff times. 2012 income tax form 1040 Same-day payment option. 2012 income tax form 1040   If you fail to initiate a deposit transaction on EFTPS by 8 p. 2012 income tax form 1040 m. 2012 income tax form 1040 Eastern time the day before the date a deposit is due, you can still make your deposit on time by using the Federal Tax Application (FTA). 2012 income tax form 1040 To use the same-day payment method, you will need to make arrangements with your financial institution ahead of time. 2012 income tax form 1040 Please check with your financial institution regarding availability, deadlines, and costs. 2012 income tax form 1040 Your financial institution may charge you a fee for payments made this way. 2012 income tax form 1040 To learn more about the information you will need to provide your financial institution to make a same-day wire payment, please visit www. 2012 income tax form 1040 eftps. 2012 income tax form 1040 gov to download the Same-Day Payment Worksheet. 2012 income tax form 1040 How to claim credit for overpayments. 2012 income tax form 1040   If you deposited more than the right amount of taxes for a tax period, you can choose on Form 941-SS, 941, 944, or 943 for that tax period to have the overpayment refunded or applied as a credit to your next return. 2012 income tax form 1040 Do not ask EFTPS to request a refund from the IRS for you. 2012 income tax form 1040 Deposit Penalties Penalties may apply if you do not make required deposits on time or if you make deposits of less than the required amount. 2012 income tax form 1040 The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. 2012 income tax form 1040 The IRS may also waive penalties if you inadvertently fail to deposit in the first quarter that a deposit is due, or the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return. 2012 income tax form 1040 For amounts not properly or timely deposited, the penalty rates are as follows. 2012 income tax form 1040 2% - Deposits made 1 to 5 days late. 2012 income tax form 1040 5% - Deposits made 6 to 15 days late. 2012 income tax form 1040 10% - Deposits made 16 or more days late. 2012 income tax form 1040 Also applies to amounts paid within 10 days of the date of the first notice that the IRS sent asking for the tax due. 2012 income tax form 1040 10% - Amounts (that should have been deposited) paid directly to the IRS or paid with your tax return (but see Payment with Return , earlier in this section, for exceptions). 2012 income tax form 1040 15% - Amounts still unpaid more than 10 days after the date of the first notice that the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier. 2012 income tax form 1040 Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. 2012 income tax form 1040 Special rule for former Form 944 filers. 2012 income tax form 1040    If you filed Form 944 for the prior year and must file Forms 941-SS for the current year because your employment tax liability for the prior year exceeded the Form 944 eligibility requirement ($1,000 or less), the failure-to-deposit penalty will not apply to a late deposit of employment taxes for the first month of the current year if the taxes are deposited in full by March 15 of the current year. 2012 income tax form 1040 Order in which deposits are applied. 2012 income tax form 1040   Deposits generally are applied to the most recent tax liability within the return period (quarter or year). 2012 income tax form 1040 However, if you receive a failure-to-deposit penalty notice, you may designate how your payment is to be applied in order to minimize the amount of the penalty, if you do so within 90 days of the date of the notice. 2012 income tax form 1040 Follow the instructions on the penalty notice that you received. 2012 income tax form 1040 For more information on designating deposits, see Revenue Procedure 2001-58. 2012 income tax form 1040 You can find Revenue Procedure 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www. 2012 income tax form 1040 irs. 2012 income tax form 1040 gov/pub/irs-irbs/irb01-50. 2012 income tax form 1040 pdf. 2012 income tax form 1040 Example. 2012 income tax form 1040 Cedar, Inc. 2012 income tax form 1040 is required to make a deposit of $1,000 on July 15 and $1,500 on August 15. 2012 income tax form 1040 It does not make the deposit on July 15. 2012 income tax form 1040 On August 15, Cedar, Inc. 2012 income tax form 1040 deposits $2,000. 2012 income tax form 1040 Under the deposits rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the August 15 deposit and the remaining $500 is applied to the July deposit. 2012 income tax form 1040 Accordingly, $500 of the July 15 liability remains undeposited. 2012 income tax form 1040 The penalty on this underdeposit will apply as explained earlier. 2012 income tax form 1040 Trust fund recovery penalty. 2012 income tax form 1040   If federal income, social security, or Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. 2012 income tax form 1040 The penalty is the full amount of the unpaid trust fund tax. 2012 income tax form 1040 This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business. 2012 income tax form 1040   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. 2012 income tax form 1040   A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship, or any other person or entity that is responsible for collecting, accounting for, and paying over trust fund taxes. 2012 income tax form 1040 A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds. 2012 income tax form 1040    Willfully means voluntarily, consciously, and intentionally. 2012 income tax form 1040 A responsible person acts willfully if the person knows the required actions of collecting, accounting for or paying over trust fund taxes are not taking place, or recklessly disregards obvious and known risks to the government's right to receive trust fund taxes. 2012 income tax form 1040 “Averaged” failure-to-deposit penalty. 2012 income tax form 1040   The IRS may assess an “averaged” failure-to-deposit (FTD) penalty of 2% to 10% if you are a monthly schedule depositor and did not properly complete Form 941-SS, line 14, when your tax liability shown on Form 941-SS, line 10, was $2,500 or more. 2012 income tax form 1040 IRS may also assess this penalty of 2% to 10% if you are a semiweekly schedule depositor and your tax liability shown on Form 941-SS, line 10, was $2,500 or more and you did any of the following. 2012 income tax form 1040 Completed Form 941-SS, line 14, instead of Schedule B (Form 941). 2012 income tax form 1040 Failed to attach a properly completed Schedule B (Form 941). 2012 income tax form 1040 Completed Schedule B (Form 941) incorrectly, for example, by entering tax deposits instead of tax liabilities in the numbered spaces. 2012 income tax form 1040   The IRS figures the penalty by allocating your total tax liability shown on Form 941-SS, line 10, equally throughout the tax period. 2012 income tax form 1040 Your deposits and payments may not be counted as timely because IRS does not know the actual dates of your tax liabilities. 2012 income tax form 1040   You can avoid the penalty by reviewing your return before filing it. 2012 income tax form 1040 Follow these steps before filing your Form 941-SS. 2012 income tax form 1040 If you are a monthly schedule depositor, report your tax liabilities (not your deposits) in the monthly entry spaces on Form 941-SS, line 14. 2012 income tax form 1040 If you are a semiweekly schedule depositor, report your tax liabilities (not your deposits) on Schedule B (Form 941) in the lines that represent the dates you paid your employees. 2012 income tax form 1040 Verify that your total liability shown on Form 941-SS, line 14, or the bottom of Schedule B (Form 941) equals your tax liability shown on Form 941-SS,  line 10. 2012 income tax form 1040 Do not show negative amounts on Form 941-SS, line 14, or Schedule B (Form 941). 2012 income tax form 1040 For prior period errors, do not adjust your tax liabilities reported on your current Form 941-SS, line 14, or on Schedule B (Form 941). 2012 income tax form 1040 Instead, file an adjusted return (Form 941-X (if you are adjusting a previously filed Form 941-SS) or Form 944-X (if you are adjusting a previously filed Form 944-SS or 944)) if you are also adjusting your tax liability. 2012 income tax form 1040 If you are only adjusting your deposits in response to a failure-to-deposit penalty notice, see the Instructions for Schedule B (Form 941) (if you previously filed Form 941-SS) or the Instructions for Form 944-X (if you previously filed Form 944-SS or 944). 2012 income tax form 1040 If you filed Form 944 for 2013 and line 7 was $2,500 or more, you were required to complete Form 944, lines 13a–13m, or attach Form 945-A, Annual Record of Federal Tax Liability. 2012 income tax form 1040 If you failed to complete lines 13a–13m, or failed to attach Form 945-A, whichever was required, IRS may assess an “averaged” failure-to-deposit (FTD) penalty. 2012 income tax form 1040 9. 2012 income tax form 1040 Employer's Returns General instructions. 2012 income tax form 1040   File Forms 941-SS (or Form 944) for nonfarm workers and Form 943 for farmworkers. 2012 income tax form 1040 (U. 2012 income tax form 1040 S. 2012 income tax form 1040 Virgin Islands employers may be required to file Form 940 for the combined wages of nonfarm workers and farmworkers. 2012 income tax form 1040 ) Employers with employees subject to U. 2012 income tax form 1040 S. 2012 income tax form 1040 income tax withholding. 2012 income tax form 1040   If you have both employees who are subject to U. 2012 income tax form 1040 S. 2012 income tax form 1040 income tax withholding and employees who are not subject to U. 2012 income tax form 1040 S. 2012 income tax form 1040 income tax withholding, you must file only Form 941 (or Form 944) and include all your employees’ wages on that form. 2012 income tax form 1040 Nonfarm employers. 2012 income tax form 1040   File Form 941-SS for the calendar quarter in which you first pay wages for nonfarm workers and for each quarter thereafter unless you are a seasonal employer or file a final return. 2012 income tax form 1040 Due dates for each quarter of the calendar year are as follows. 2012 income tax form 1040 Quarter Due Jan. 2012 income tax form 1040 , Feb. 2012 income tax form 1040 , Mar. 2012 income tax form 1040 Apr. 2012 income tax form 1040 30 Apr. 2012 income tax form 1040 , May, June July 31 July, Aug. 2012 income tax form 1040 , Sept. 2012 income tax form 1040 Oct. 2012 income tax form 1040 31 Oct. 2012 income tax form 1040 , Nov. 2012 income tax form 1040 , Dec. 2012 income tax form 1040 Jan. 2012 income tax form 1040 31   However, if you deposited all taxes when due for the quarter, you have 10 additional days from the due dates to file the return. 2012 income tax form 1040 If the due date for filing your return falls on a Saturday, Sunday, or legal holiday, you may file on the next business day. 2012 income tax form 1040   If you closed your business or stopped paying wages and do not have to file returns in the future, check the box on line 15 of your final Form 941-SS and show the date final wages were paid. 2012 income tax form 1040 Form 944. 2012 income tax form 1040   If IRS notified you to file Form 944, file your 2013 Form 944 by January 31, 2014, or by February 10, 2014 (if you deposited all taxes when due). 2012 income tax form 1040 Household employers reporting social security and Medicare taxes. 2012 income tax form 1040   If you are a sole proprietor and file Forms 941-SS (or Form 944) for business employees, you may include taxes for household employees on your Forms 941-SS (or Form 944). 2012 income tax form 1040 Otherwise, report social security and Medicare taxes for household employees on Schedule H (Form 1040), Household Employment Taxes. 2012 income tax form 1040 See Publication 926, Household Employer's Tax Guide, for more information. 2012 income tax form 1040 Employers of farmworkers. 2012 income tax form 1040   Every employer of farmworkers must file a Form 943 for each calendar year beginning with the first year the employer pays $2,500 or more for farmwork or employs a farmworker who meets the $150 test described in section 6. 2012 income tax form 1040   File a Form 943 each year for all taxable wages paid for farmwork. 2012 income tax form 1040 You may report household workers in a private home on a farm operated for profit on Form 943. 2012 income tax form 1040 Do not report wages for farmworkers on Form 941-SS or 944. 2012 income tax form 1040   Send Form 943 to the IRS by January 31 of the following year. 2012 income tax form 1040 Send it with payment of any taxes due that you are not required to deposit. 2012 income tax form 1040 If you deposited all taxes when due, you have 10 additional days to file. 2012 income tax form 1040 Penalties. 2012 income tax form 1040   For each whole or part month that a return is not filed when required (disregarding any extensions of the filing deadline), there is a failure-to-file penalty of 5% of the unpaid tax due with that return. 2012 income tax form 1040 The maximum penalty is generally 25% of the tax due. 2012 income tax form 1040 Also, for each whole or part month that the tax is paid late (disregarding any extensions of the payment deadline), there is a failure-to-pay penalty of 0. 2012 income tax form 1040 5% per month of the amount of tax. 2012 income tax form 1040 For individual filers only, the failure-to-pay penalty is reduced from 0. 2012 income tax form 1040 5% per month to 0. 2012 income tax form 1040 25% per month if an installment agreement is in effect. 2012 income tax form 1040 You must have filed your return on or before the due date of the return to qualify for the reduced penalty. 2012 income tax form 1040 The maximum amount of the failure-to-pay penalty is also 25% of the tax due. 2012 income tax form 1040 If both penalties apply in any month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty. 2012 income tax form 1040 The penalties will not be charged if you have a reasonable cause for failing to file or pay. 2012 income tax form 1040 If you receive a penalty notice, you can provide an explanation of why you believe reasonable cause exists. 2012 income tax form 1040 Reporting Adjustments to Form 941-SS, 944-SS, 944, or 943 Current Period Adjustments Make current period adjustments for fractions of cents, sick pay, tips, and group-term life insurance on your Form 941-SS, 944, or 943. 2012 income tax form 1040 See the Instructions for Form 941-SS, Instructions for Form 944, or Instructions for Form 943 for information on how to report these adjustments. 2012 income tax form 1040 Prior Period Adjustments Forms for prior period adjustments. 2012 income tax form 1040   Use Form 941-X or Form 944-X to make a correction after you discover an error on a previously filed Form 941 or Form 944. 2012 income tax form 1040 There are also Forms 943-X, 945-X, and CT-1X to report corrections on the corresponding returns. 2012 income tax form 1040 Form 941-X and Form 944-X also replace Form 843, Claim for Refund and Request for Abatement, for employers to request a refund or abatement of overreported employment taxes. 2012 income tax form 1040 Continue to use Form 843 when requesting a refund or abatement of assessed interest or penalties. 2012 income tax form 1040 See Revenue Ruling 2009-39, 2009-52 I. 2012 income tax form 1040 R. 2012 income tax form 1040 B. 2012 income tax form 1040 951, for examples of how the interest-free adjustment and claim for refund rules apply in 10 different situations. 2012 income tax form 1040 You can find Revenue Ruling 2009-39, at www. 2012 income tax form 1040 irs. 2012 income tax form 1040 gov/irb/2009-52_IRB/ar14. 2012 income tax form 1040 html. 2012 income tax form 1040 Background. 2012 income tax form 1040   Treasury Decision 9405 changed the process for making interest-free adjustments to employment taxes reported on Forms 941-SS, 943, 944-SS, and 944, and for filing a claim for refund of employment taxes. 2012 income tax form 1040 Treasury Decision 9405, 2008-32 I. 2012 income tax form 1040 R. 2012 income tax form 1040 B. 2012 income tax form 1040 293, is available at www. 2012 income tax form 1040 irs. 2012 income tax form 1040 gov/irb/2008-32_IRB/ar13. 2012 income tax form 1040 html. 2012 income tax form 1040 You will use the adjustment process if you underreported employment taxes and are making a payment, or if you overreported employment taxes and will be applying the credit to the Form 941-SS, 943, or 944 period during which you file Forms 941-X, 943-X, or 944-X, respectively. 2012 income tax form 1040 You will use the claim process if you overreported employment taxes and are requesting a refund or abatement of the overreported amount. 2012 income tax form 1040 We use the terms “correct” and “corrections” to include interest-free adjustments under sections 6205 and 6413, and claims for refund and abatement under sections 6402, 6414, and 6404 of the Internal Revenue Code. 2012 income tax form 1040 Correcting employment taxes. 2012 income tax form 1040   When you discover an error on a previously filed Form 941-SS, 943, 944-SS, or 944, you must: Correct that error using Form 941-X, Form 943-X, or Form 944-X, File a separate Form 941-X, Form 943-X, or Form 944-X for
 
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IRS Taxpayer Assistance Centers (TAC) are your source for personal tax help when you believe your tax issue cannot be handled online or by phone, and you want face-to-face tax assistance. Taxpayer Assistance Centers are closed for all Federal Holidays. Please be advised that you may be asked to provide valid photo identification and a Taxpayer Identification Number, such as a Social Security Number, to receive services.

Tax return preparation services are not available at TAC offices. You can take advantage of free tax preparation using Free File or Free File Fillable Forms or through a Volunteer Income Tax Assistance/Tax Counseling for the Elderly site in your community. For detailed information on services offered at each TAC location, click on the state below and then click on the Services Provided link for the TAC you plan to visit.

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Stakeholder Liaison (SL) Phone Numbers
Your local Stakeholder Liaison Office establishes relationships with organizations representing small business and self employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state.

Questions concerning charities and other non-profit organizations should contact our Tax Exempt and Government Entities Customer Account Services.

Page Last Reviewed or Updated: 19-Mar-2014

The 2012 Income Tax Form 1040

2012 income tax form 1040 4. 2012 income tax form 1040   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. 2012 income tax form 1040 Line of business. 2012 income tax form 1040 Examples. 2012 income tax form 1040 Improvement of business conditions. 2012 income tax form 1040 Exception for local legislation. 2012 income tax form 1040 De minimis exception. 2012 income tax form 1040 Grass roots lobbying. 2012 income tax form 1040 501(c)(7) - Social and Recreation ClubsLimited membership. 2012 income tax form 1040 Support. 2012 income tax form 1040 Facilities open to public. 2012 income tax form 1040 Gross receipts from nonmembership sources. 2012 income tax form 1040 Gross receipts. 2012 income tax form 1040 Nontraditional activities. 2012 income tax form 1040 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. 2012 income tax form 1040 Losses and expenses. 2012 income tax form 1040 Distributions of proceeds. 2012 income tax form 1040 The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. 2012 income tax form 1040 Perpetual care organization. 2012 income tax form 1040 Care of individual plots. 2012 income tax form 1040 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. 2012 income tax form 1040 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. 2012 income tax form 1040 Waiver of payment of income. 2012 income tax form 1040 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). 2012 income tax form 1040 Section 501(c)(3) organizations are covered in chapter 3 of this publication. 2012 income tax form 1040 The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. 2012 income tax form 1040 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). 2012 income tax form 1040 The discussion that follows describes the information you must provide when applying. 2012 income tax form 1040 For application procedures, see chapter 1. 2012 income tax form 1040 To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. 2012 income tax form 1040 In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. 2012 income tax form 1040 If the organization provides an excess benefit to certain persons, an excise tax may be imposed. 2012 income tax form 1040 See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. 2012 income tax form 1040 Examples. 2012 income tax form 1040   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. 2012 income tax form 1040 Nonprofit operation. 2012 income tax form 1040   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. 2012 income tax form 1040 However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. 2012 income tax form 1040 Social welfare. 2012 income tax form 1040   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). 2012 income tax form 1040   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. 2012 income tax form 1040 It therefore does not qualify as a section 501(c)(4) organization. 2012 income tax form 1040 Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. 2012 income tax form 1040 However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. 2012 income tax form 1040 Political activity. 2012 income tax form 1040   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. 2012 income tax form 1040 However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. 2012 income tax form 1040 See the discussion in chapter 2 under Political Organization Income Tax Return . 2012 income tax form 1040 Social or recreational activity. 2012 income tax form 1040   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). 2012 income tax form 1040 Retirement benefit program. 2012 income tax form 1040   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. 2012 income tax form 1040 It may qualify under another paragraph of section 501(c) depending on all the facts. 2012 income tax form 1040   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). 2012 income tax form 1040 Tax treatment of donations. 2012 income tax form 1040   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. 2012 income tax form 1040 Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. 2012 income tax form 1040 They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. 2012 income tax form 1040 However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. 2012 income tax form 1040 for more information. 2012 income tax form 1040 For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. 2012 income tax form 1040 gov. 2012 income tax form 1040 Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. 2012 income tax form 1040 Volunteer fire companies. 2012 income tax form 1040   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. 2012 income tax form 1040   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). 2012 income tax form 1040 In this event, your organization should file Form 1023. 2012 income tax form 1040 Homeowners' associations. 2012 income tax form 1040   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. 2012 income tax form 1040 The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. 2012 income tax form 1040 Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. 2012 income tax form 1040 Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. 2012 income tax form 1040   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. 2012 income tax form 1040 It also must show that it does not engage in exterior maintenance of private homes. 2012 income tax form 1040   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. 2012 income tax form 1040 Other organizations. 2012 income tax form 1040   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. 2012 income tax form 1040 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. 2012 income tax form 1040 You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. 2012 income tax form 1040 In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. 2012 income tax form 1040 Submit any additional information that may be required, as described in this section. 2012 income tax form 1040 Tax treatment of donations. 2012 income tax form 1040   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. 2012 income tax form 1040 However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. 2012 income tax form 1040 For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. 2012 income tax form 1040 Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. 2012 income tax form 1040 To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. 2012 income tax form 1040 In addition, no net earnings of the organization can inure to the benefit of any member. 2012 income tax form 1040 Composition of membership. 2012 income tax form 1040   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. 2012 income tax form 1040 You must show in your application that your organization has the purposes described in the preceding paragraph. 2012 income tax form 1040 These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. 2012 income tax form 1040 Benefits to members. 2012 income tax form 1040   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. 2012 income tax form 1040 However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. 2012 income tax form 1040   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. 2012 income tax form 1040 gov. 2012 income tax form 1040 Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. 2012 income tax form 1040 For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. 2012 income tax form 1040 The term harvesting, in this case, includes fishing and related pursuits. 2012 income tax form 1040 Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. 2012 income tax form 1040 When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. 2012 income tax form 1040 The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. 2012 income tax form 1040 The following list contains some examples of activities that show an agricultural or horticultural purpose. 2012 income tax form 1040 Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. 2012 income tax form 1040 Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. 2012 income tax form 1040 Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. 2012 income tax form 1040 Guarding the purity of a specific breed of livestock. 2012 income tax form 1040 Encouraging improvements in the production of fish on privately owned fish farms. 2012 income tax form 1040 Negotiating with processors for the price to be paid to members for their crops. 2012 income tax form 1040 For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. 2012 income tax form 1040 gov. 2012 income tax form 1040 501(c)(6) - Business Leagues, etc. 2012 income tax form 1040 If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. 2012 income tax form 1040 For a discussion of the procedure to follow, see chapter 1. 2012 income tax form 1040 Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). 2012 income tax form 1040 In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. 2012 income tax form 1040 It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. 2012 income tax form 1040 A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. 2012 income tax form 1040 Trade associations and professional associations are considered business leagues. 2012 income tax form 1040 Chamber of commerce. 2012 income tax form 1040   A chamber of commerce usually is composed of the merchants and traders of a city. 2012 income tax form 1040 Board of trade. 2012 income tax form 1040   A board of trade often consists of persons engaged in similar lines of business. 2012 income tax form 1040 For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. 2012 income tax form 1040   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. 2012 income tax form 1040 Real estate board. 2012 income tax form 1040   A real estate board consists of members interested in improving the business conditions in the real estate field. 2012 income tax form 1040 It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. 2012 income tax form 1040 Professional football leagues. 2012 income tax form 1040   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). 2012 income tax form 1040 They are exempt whether or not they administer a pension fund for football players. 2012 income tax form 1040 General purpose. 2012 income tax form 1040   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. 2012 income tax form 1040 It must be shown that the conditions of a particular trade or the interests of the community will be advanced. 2012 income tax form 1040 Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. 2012 income tax form 1040 Line of business. 2012 income tax form 1040   This term generally refers either to an entire industry or to all components of an industry within a geographic area. 2012 income tax form 1040 It does not include a group composed of businesses that market a particular brand within an industry. 2012 income tax form 1040 Common business interest. 2012 income tax form 1040   A common business interest of all members of the organization must be established by the application documents. 2012 income tax form 1040 Examples. 2012 income tax form 1040   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). 2012 income tax form 1040 Improvement of business conditions. 2012 income tax form 1040   Generally, this must be shown to be the purpose of the organization. 2012 income tax form 1040 This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. 2012 income tax form 1040 Stock or commodity exchange. 2012 income tax form 1040   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). 2012 income tax form 1040 Legislative activity. 2012 income tax form 1040   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. 2012 income tax form 1040 Deduction not allowed for dues used for political or legislative activities. 2012 income tax form 1040   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. 2012 income tax form 1040 Influencing legislation. 2012 income tax form 1040 Participating or intervening in a political campaign for, or against, any candidate for public office. 2012 income tax form 1040 Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). 2012 income tax form 1040 Communicating directly with certain executive branch officials to try to influence their official actions or positions. 2012 income tax form 1040 See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. 2012 income tax form 1040 Exception for local legislation. 2012 income tax form 1040   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. 2012 income tax form 1040 Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. 2012 income tax form 1040 De minimis exception. 2012 income tax form 1040   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. 2012 income tax form 1040 Grass roots lobbying. 2012 income tax form 1040   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. 2012 income tax form 1040 Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. 2012 income tax form 1040 Tax treatment of donations. 2012 income tax form 1040   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. 2012 income tax form 1040 They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. 2012 income tax form 1040   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. 2012 income tax form 1040 gov. 2012 income tax form 1040 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. 2012 income tax form 1040 In applying for recognition of exemption, you should submit the information described in this section. 2012 income tax form 1040 Also see chapter 1 for the procedures to follow. 2012 income tax form 1040 Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. 2012 income tax form 1040 Discrimination prohibited. 2012 income tax form 1040   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. 2012 income tax form 1040   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. 2012 income tax form 1040 Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. 2012 income tax form 1040 Private benefit prohibited. 2012 income tax form 1040   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. 2012 income tax form 1040 For purposes of this requirement, it is not necessary that net earnings be actually distributed. 2012 income tax form 1040 Even undistributed earnings can benefit members. 2012 income tax form 1040 Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. 2012 income tax form 1040 However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. 2012 income tax form 1040 Purposes. 2012 income tax form 1040   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. 2012 income tax form 1040 You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. 2012 income tax form 1040   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. 2012 income tax form 1040 A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. 2012 income tax form 1040   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. 2012 income tax form 1040 For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. 2012 income tax form 1040 Limited membership. 2012 income tax form 1040   The membership in a social club must be limited. 2012 income tax form 1040 To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. 2012 income tax form 1040   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. 2012 income tax form 1040 Corporate members of a club are not the kind of members contemplated by the law. 2012 income tax form 1040 Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. 2012 income tax form 1040 See Gross receipts from nonmembership sources , later. 2012 income tax form 1040 Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. 2012 income tax form 1040   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. 2012 income tax form 1040 However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. 2012 income tax form 1040 Support. 2012 income tax form 1040   In general, your club should be supported solely by membership fees, dues, and assessments. 2012 income tax form 1040 However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. 2012 income tax form 1040 Business activities. 2012 income tax form 1040   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. 2012 income tax form 1040 However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. 2012 income tax form 1040 Facilities open to public. 2012 income tax form 1040   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. 2012 income tax form 1040 This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. 2012 income tax form 1040 Gross receipts from nonmembership sources. 2012 income tax form 1040   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. 2012 income tax form 1040 Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. 2012 income tax form 1040 Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. 2012 income tax form 1040 If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. 2012 income tax form 1040 Gross receipts. 2012 income tax form 1040   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. 2012 income tax form 1040 These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. 2012 income tax form 1040 Receipts do not include initiation fees and capital contributions. 2012 income tax form 1040 Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. 2012 income tax form 1040 Nontraditional activities. 2012 income tax form 1040   Activities conducted by a social club need to further its exempt purposes. 2012 income tax form 1040 Traditional business activities are those that further a social club's exempt purposes. 2012 income tax form 1040 Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. 2012 income tax form 1040 Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. 2012 income tax form 1040 Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. 2012 income tax form 1040 Fraternity foundations. 2012 income tax form 1040   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. 2012 income tax form 1040 Tax treatment of donations. 2012 income tax form 1040   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. 2012 income tax form 1040 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. 2012 income tax form 1040 The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. 2012 income tax form 1040 , purposes. 2012 income tax form 1040 The procedures to follow in applying for recognition of exemption are described in chapter 1. 2012 income tax form 1040 If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. 2012 income tax form 1040 If so, your organization need not apply for individual recognition of exemption. 2012 income tax form 1040 For more information, see Group Exemption Letter in chapter 1 of this publication. 2012 income tax form 1040 Tax treatment of donations. 2012 income tax form 1040   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. 2012 income tax form 1040 Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. 2012 income tax form 1040 The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. 2012 income tax form 1040 Lodge system. 2012 income tax form 1040   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. 2012 income tax form 1040 Payment of benefits. 2012 income tax form 1040   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. 2012 income tax form 1040 An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. 2012 income tax form 1040   The benefits must be limited to members and their dependents. 2012 income tax form 1040 If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. 2012 income tax form 1040 Whole-life insurance. 2012 income tax form 1040   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. 2012 income tax form 1040 Reinsurance pool. 2012 income tax form 1040   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. 2012 income tax form 1040 Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. 2012 income tax form 1040 The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. 2012 income tax form 1040 S. 2012 income tax form 1040 , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. 2012 income tax form 1040 The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. 2012 income tax form 1040 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. 2012 income tax form 1040 Both the application form to file and the information to provide are discussed later under the section that describes your employee association. 2012 income tax form 1040 Chapter 1 describes the procedures to follow in applying for exemption. 2012 income tax form 1040 Tax treatment of donations. 2012 income tax form 1040   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. 2012 income tax form 1040 Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. 2012 income tax form 1040 A local employees' association must apply for recognition of exemption by filing Form 1024. 2012 income tax form 1040 The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. 2012 income tax form 1040 A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. 2012 income tax form 1040 Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. 2012 income tax form 1040 Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. 2012 income tax form 1040 The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. 2012 income tax form 1040 To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. 2012 income tax form 1040 Note. 2012 income tax form 1040 Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. 2012 income tax form 1040 Notice requirement. 2012 income tax form 1040   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. 2012 income tax form 1040 The organization gives notice by filing Form 1024. 2012 income tax form 1040 If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. 2012 income tax form 1040 An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . 2012 income tax form 1040 Membership. 2012 income tax form 1040   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. 2012 income tax form 1040 This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. 2012 income tax form 1040   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. 2012 income tax form 1040 For example, the owner of a business whose employees are members of the association can be a member. 2012 income tax form 1040 An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. 2012 income tax form 1040 Employees. 2012 income tax form 1040   Employees include individuals who became entitled to membership because they are or were employees. 2012 income tax form 1040 For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. 2012 income tax form 1040   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. 2012 income tax form 1040 Conversely, membership is involuntary if the designation as a member is due to employee status. 2012 income tax form 1040 However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. 2012 income tax form 1040 An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. 2012 income tax form 1040 Payment of benefits. 2012 income tax form 1040   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. 2012 income tax form 1040 The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). 2012 income tax form 1040 Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. 2012 income tax form 1040 Nondiscrimination requirements. 2012 income tax form 1040   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. 2012 income tax form 1040 However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. 2012 income tax form 1040   A plan meets the nondiscrimination requirements only if both of the following statements are true. 2012 income tax form 1040 Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. 2012 income tax form 1040 The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. 2012 income tax form 1040 A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. 2012 income tax form 1040   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. 2012 income tax form 1040 This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. 2012 income tax form 1040   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. 2012 income tax form 1040 The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. 2012 income tax form 1040 For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). 2012 income tax form 1040 Excluded employees. 2012 income tax form 1040   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. 2012 income tax form 1040 These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. 2012 income tax form 1040 Highly compensated individual. 2012 income tax form 1040   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. 2012 income tax form 1040 Go to IRS. 2012 income tax form 1040 gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. 2012 income tax form 1040 However, the employer can choose not to have (3) apply. 2012 income tax form 1040 Aggregation rules. 2012 income tax form 1040   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. 2012 income tax form 1040 Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. 2012 income tax form 1040 Leased employees are treated as employees of the recipient. 2012 income tax form 1040 One employee. 2012 income tax form 1040   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). 2012 income tax form 1040 Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. 2012 income tax form 1040 The trust must be a valid, existing trust under local law and must be evidenced by an executed document. 2012 income tax form 1040 A conformed copy of the plan of which the trust is a part should be attached to the application. 2012 income tax form 1040 To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. 2012 income tax form 1040 Note. 2012 income tax form 1040 Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. 2012 income tax form 1040 Notice requirement. 2012 income tax form 1040   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. 2012 income tax form 1040 The organization gives notice by filing Form 1024. 2012 income tax form 1040 If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. 2012 income tax form 1040 An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . 2012 income tax form 1040 Types of payments. 2012 income tax form 1040   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. 2012 income tax form 1040 In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. 2012 income tax form 1040 Diversion of funds. 2012 income tax form 1040   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). 2012 income tax form 1040 Discrimination in benefits. 2012 income tax form 1040   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. 2012 income tax form 1040 However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. 2012 income tax form 1040 Prohibited transactions and exemption. 2012 income tax form 1040   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. 2012 income tax form 1040 It must file the claim on Form 1024. 2012 income tax form 1040 The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. 2012 income tax form 1040 An authorized principal officer of your organization must make this declaration under the penalties of perjury. 2012 income tax form 1040   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. 2012 income tax form 1040 However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. 2012 income tax form 1040 Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. 2012 income tax form 1040 For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. 2012 income tax form 1040 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. 2012 income tax form 1040 Benevolent life insurance associations of a purely local character and like organizations. 2012 income tax form 1040 Mutual ditch or irrigation companies and like organizations. 2012 income tax form 1040 Mutual or cooperative telephone companies and like organizations. 2012 income tax form 1040 A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. 2012 income tax form 1040 The information to be provided upon application by each of these organizations is described in this section. 2012 income tax form 1040 For information as to the procedures to follow in applying for exemption, see chapter 1. 2012 income tax form 1040 General requirements. 2012 income tax form 1040   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. 2012 income tax form 1040 They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. 2012 income tax form 1040 Mutual character. 2012 income tax form 1040   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. 2012 income tax form 1040 They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. 2012 income tax form 1040 To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. 2012 income tax form 1040   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. 2012 income tax form 1040 Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. 2012 income tax form 1040 The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. 2012 income tax form 1040 Membership. 2012 income tax form 1040   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. 2012 income tax form 1040 In a stock company, the stockholders are members. 2012 income tax form 1040 However, a mutual life insurance organization cannot have policyholders other than its members. 2012 income tax form 1040 Losses and expenses. 2012 income tax form 1040   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. 2012 income tax form 1040 Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. 2012 income tax form 1040 If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. 2012 income tax form 1040 Distributions of proceeds. 2012 income tax form 1040   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. 2012 income tax form 1040 Such distribution represents a refund in the costs of services rendered to the member. 2012 income tax form 1040 The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. 2012 income tax form 1040 Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. 2012 income tax form 1040 Mutual or cooperative telephone company. 2012 income tax form 1040   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. 2012 income tax form 1040 Mutual or cooperative electric company. 2012 income tax form 1040   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. 2012 income tax form 1040   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. 2012 income tax form 1040 Qualified pole rental. 2012 income tax form 1040   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. 2012 income tax form 1040   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). 2012 income tax form 1040 The 85% requirement is applied on the basis of an annual accounting period. 2012 income tax form 1040 Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. 2012 income tax form 1040 Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. 2012 income tax form 1040 Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. 2012 income tax form 1040 Example. 2012 income tax form 1040   The books of an organization reflect the following for the calendar year. 2012 income tax form 1040 Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. 2012 income tax form 1040   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. 2012 income tax form 1040   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. 2012 income tax form 1040   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. 2012 income tax form 1040 Tax treatment of donations. 2012 income tax form 1040   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. 2012 income tax form 1040 Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. 2012 income tax form 1040 If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. 2012 income tax form 1040 To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. 2012 income tax form 1040 If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. 2012 income tax form 1040 A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. 2012 income tax form 1040 A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. 2012 income tax form 1040 Organizations similar to local benevolent life insurance companies. 2012 income tax form 1040   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. 2012 income tax form 1040 However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. 2012 income tax form 1040 Burial and funeral benefit insurance organization. 2012 income tax form 1040   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. 2012 income tax form 1040 An organization that provides its benefits in the form of supplies and service is not a life insurance company. 2012 income tax form 1040 Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. 2012 income tax form 1040 Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. 2012 income tax form 1040 They can serve noncontiguous areas. 2012 income tax form 1040 Like organization. 2012 income tax form 1040   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. 2012 income tax form 1040 Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. 2012 income tax form 1040 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. 2012 income tax form 1040 For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. 2012 income tax form 1040 A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. 2012 income tax form 1040 A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. 2012 income tax form 1040 The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. 2012 income tax form 1040 If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. 2012 income tax form 1040 Operating a mortuary is not permitted. 2012 income tax form 1040 However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. 2012 income tax form 1040 How income can be used. 2012 income tax form 1040   You should show that your organization's earnings are or will be used only in one or more of the following ways. 2012 income tax form 1040 To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. 2012 income tax form 1040 To buy cemetery property. 2012 income tax form 1040 To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. 2012 income tax form 1040 No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. 2012 income tax form 1040 Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. 2012 income tax form 1040 Buying cemetery property. 2012 income tax form 1040   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. 2012 income tax form 1040 You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. 2012 income tax form 1040   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. 2012 income tax form 1040 Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not