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E file state taxes Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. E file state taxes Adjustment for premium. E file state taxes Adjustment for acquisition premium. E file state taxes Adjustment for market discount. E file state taxes Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. E file state taxes “Original issue discount” is defined first. E file state taxes The other terms are listed alphabetically. E file state taxes Original issue discount (OID). E file state taxes   OID is a form of interest. E file state taxes It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). E file state taxes Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. E file state taxes Accrual period. E file state taxes   An accrual period is an interval of time used to measure OID. E file state taxes The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. E file state taxes Acquisition premium. E file state taxes   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. E file state taxes A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. E file state taxes See Premium, later. E file state taxes Adjusted issue price. E file state taxes   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. E file state taxes In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. E file state taxes The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. E file state taxes Debt instrument. E file state taxes   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). E file state taxes It generally does not include an annuity contract. E file state taxes Issue price. E file state taxes   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. E file state taxes Market discount. E file state taxes   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. E file state taxes An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. E file state taxes The market discount is the difference between the issue price plus accrued OID and your adjusted basis. E file state taxes Premium. E file state taxes   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. E file state taxes The premium is the excess of the adjusted basis over the payable amounts. E file state taxes See Publication 550 for information on the tax treatment of bond premium. E file state taxes Qualified stated interest. E file state taxes   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. E file state taxes Stated redemption price at maturity. E file state taxes   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. E file state taxes Yield to maturity (YTM). E file state taxes   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. E file state taxes The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. E file state taxes If you do not have this information, consult your broker, tax advisor, or the issuer. E file state taxes Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. E file state taxes If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. E file state taxes The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. E file state taxes For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. E file state taxes The following discussions explain what information is contained in each section of the list. E file state taxes Section I. E file state taxes   This section contains publicly offered, long-term debt instruments. E file state taxes Section I-A: Corporate Debt Instruments Issued Before 1985. E file state taxes Section I-B: Corporate Debt Instruments Issued After 1984. E file state taxes Section I-C: Inflation-Indexed Debt Instruments. E file state taxes For each publicly offered debt instrument in Section I, the list contains the following information. E file state taxes The name of the issuer. E file state taxes The Committee on Uniform Security Identification Procedures (CUSIP) number. E file state taxes The issue date. E file state taxes The maturity date. E file state taxes The issue price expressed as a percent of principal or of stated redemption price at maturity. E file state taxes The annual stated or coupon interest rate. E file state taxes (This rate is shown as 0. E file state taxes 00 if no annual interest payments are provided. E file state taxes ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. E file state taxes The total OID accrued up to January 1 of a calendar year. E file state taxes (This information is not available for every instrument. E file state taxes ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. E file state taxes The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. E file state taxes Section II. E file state taxes   This section contains stripped coupons and principal components of U. E file state taxes S. E file state taxes Treasury and Government-Sponsored Enterprise debt instruments. E file state taxes These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. E file state taxes This section also includes debt instruments backed by U. E file state taxes S. E file state taxes Treasury securities that represent ownership interests in those securities. E file state taxes   The obligations listed in Section II are arranged by maturity date. E file state taxes The amounts listed are the total OID for a calendar year per $1,000 of redemption price. E file state taxes Section III. E file state taxes   This section contains short-term discount obligations. E file state taxes Section III-A: Short-Term U. E file state taxes S. E file state taxes Treasury Bills. E file state taxes Section III-B: Federal Home Loan Banks. E file state taxes Section III-C: Federal National Mortgage Association. E file state taxes Section III-D: Federal Farm Credit Banks. E file state taxes Section III-E: Federal Home Loan Mortgage Corporation. E file state taxes Section III-F: Federal Agricultural Mortgage Corporation. E file state taxes    Information that supplements Section III-A is available on the Internet at http://www. E file state taxes treasurydirect. E file state taxes gov/tdhome. E file state taxes htm. E file state taxes   The short-term obligations listed in this section are arranged by maturity date. E file state taxes For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. E file state taxes Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. E file state taxes Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. E file state taxes U. E file state taxes S. E file state taxes savings bonds. E file state taxes Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. E file state taxes Obligations issued by tax-exempt organizations. E file state taxes OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. E file state taxes Mortgage-backed securities and mortgage participation certificates. E file state taxes Long-term OID debt instruments issued before May 28, 1969. E file state taxes Short-term obligations, other than the obligations listed in Section III. E file state taxes Debt instruments issued at a discount by states or their political subdivisions. E file state taxes REMIC regular interests and CDOs. E file state taxes Commercial paper and banker's acceptances issued at a discount. E file state taxes Obligations issued at a discount by individuals. E file state taxes Foreign obligations not traded in the United States and obligations not issued in the United States. E file state taxes Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. E file state taxes In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. E file state taxes You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. E file state taxes See Backup Withholding, later. E file state taxes If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. E file state taxes File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). E file state taxes Electronic payee statements. E file state taxes   You can issue Form 1099-OID electronically with the consent of the recipient. E file state taxes More information. E file state taxes   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. E file state taxes Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. E file state taxes To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. E file state taxes If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. E file state taxes Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. E file state taxes If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. E file state taxes A special rule is used to determine the original issue price for information reporting on U. E file state taxes S. E file state taxes Treasury bills (T-bills) listed in Section III-A. E file state taxes Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. E file state taxes This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. E file state taxes A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. E file state taxes Example 1. E file state taxes There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. E file state taxes The price actually paid by the owner cannot be established by owner or middleman records. E file state taxes You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. E file state taxes The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. E file state taxes Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. E file state taxes For this purpose, you can rely on Section I of the OID list to determine the following information. E file state taxes Whether a debt instrument has OID. E file state taxes The OID to be reported on the Form 1099-OID. E file state taxes In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. E file state taxes You also can report OID on other long-term debt instruments. E file state taxes Form 1099-OID. E file state taxes   On Form 1099-OID for a calendar year show the following information. E file state taxes Box 1. E file state taxes The OID for the actual dates the owner held the debt instruments during a calendar year. E file state taxes To determine this amount, see Figuring OID, next. E file state taxes Box 2. E file state taxes The qualified stated interest paid or credited during the calendar year. E file state taxes Interest reported here is not reported on Form 1099-INT. E file state taxes The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. E file state taxes Box 3. E file state taxes Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. E file state taxes Do not reduce the amounts in boxes 1 and 2 by the forfeiture. E file state taxes Box 4. E file state taxes Any backup withholding for this debt instrument. E file state taxes Box 7. E file state taxes The CUSIP number, if any. E file state taxes If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. E file state taxes 50 2006). E file state taxes If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. E file state taxes Box 8. E file state taxes The OID on a U. E file state taxes S. E file state taxes Treasury obligation for the part of the year the owner held the debt instrument. E file state taxes Box 9. E file state taxes Investment expenses passed on to holders of a single-class REMIC. E file state taxes Boxes 10-12. E file state taxes Use to report any state income tax withheld for this debt instrument. E file state taxes Figuring OID. E file state taxes   You can determine the OID on a long-term debt instrument by using either of the following. E file state taxes Section I of the OID list. E file state taxes The income tax regulations. E file state taxes Using Section I. E file state taxes   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. E file state taxes Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. E file state taxes For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. E file state taxes   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. E file state taxes Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. E file state taxes Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. E file state taxes Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. E file state taxes Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. E file state taxes If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. E file state taxes Report the result on Form 1099-OID in box 1. E file state taxes Using the income tax regulations. E file state taxes   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. E file state taxes For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. E file state taxes (If you use Section I-B, the OID is figured using 6-month accrual periods. E file state taxes )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. E file state taxes Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. E file state taxes You must file an information return showing the reportable interest and OID, if any, on the CD. E file state taxes These rules apply whether or not you sold the CD to the owner. E file state taxes Report OID on a CD in the same way as OID on other debt instruments. E file state taxes See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. E file state taxes Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. E file state taxes However, do not report the interest if either of the following apply. E file state taxes You hold the bond as a nominee for the true owner. E file state taxes The payee is a foreign person. E file state taxes See Payments to foreign person under Backup Withholding, later. E file state taxes Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. E file state taxes The coupon may have been “stripped” (separated) from the bond and separately purchased. E file state taxes However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. E file state taxes Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. E file state taxes The backup withholding is deducted at the time a cash payment is made. E file state taxes See Pub. E file state taxes 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. E file state taxes Backup withholding generally applies in the following situations. E file state taxes The payee does not give you a taxpayer identification number (TIN). E file state taxes The IRS notifies you that the payee gave an incorrect TIN. E file state taxes The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. E file state taxes For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. E file state taxes However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. E file state taxes S. E file state taxes savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. E file state taxes Short-term obligations. E file state taxes   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. E file state taxes However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. E file state taxes   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. E file state taxes However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. E file state taxes If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. E file state taxes Long-term obligations. E file state taxes   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. E file state taxes The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. E file state taxes The amount to be withheld is limited to the cash paid. E file state taxes Registered long-term obligations with cash payments. E file state taxes   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. E file state taxes The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. E file state taxes If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. E file state taxes For any payment, the required withholding is limited to the cash paid. E file state taxes Payee not the original owner. E file state taxes   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). E file state taxes The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. E file state taxes Bearer long-term obligations with cash payments. E file state taxes   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. E file state taxes For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. E file state taxes For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. E file state taxes The required withholding at maturity is limited to the cash paid. E file state taxes Sales and redemptions. E file state taxes   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. E file state taxes Backup withholding applies in the following situations. E file state taxes The payee does not give you a TIN. E file state taxes The IRS notifies you that the payee gave an incorrect TIN. E file state taxes For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. E file state taxes Payments outside the United States to U. E file state taxes S. E file state taxes person. E file state taxes   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. E file state taxes S. E file state taxes person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. E file state taxes S. E file state taxes trade or business. E file state taxes Payments to foreign person. E file state taxes   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. E file state taxes U. E file state taxes S. E file state taxes -source amount. E file state taxes   Backup withholding and information reporting are not required for payments of U. E file state taxes S. E file state taxes -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. E file state taxes A U. E file state taxes S. E file state taxes resident is not a foreign person. E file state taxes For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. E file state taxes Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. E file state taxes S. E file state taxes person. E file state taxes   For information about the 28% withholding tax that may apply to payments of U. E file state taxes S. E file state taxes -source OID or interest to foreign persons, see Publication 515. E file state taxes Foreign-source amount. E file state taxes   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. E file state taxes However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. E file state taxes More information. E file state taxes   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. E file state taxes 6049-5. E file state taxes Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. E file state taxes It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. E file state taxes It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. E file state taxes However, the information provided does not cover every situation. E file state taxes More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. E file state taxes Including OID in income. E file state taxes   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. E file state taxes Exceptions. E file state taxes   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. E file state taxes U. E file state taxes S. E file state taxes savings bonds. E file state taxes Tax-exempt obligations. E file state taxes (However, see Tax-Exempt Bonds and Coupons, later. E file state taxes ) Obligations issued by individuals before March 2, 1984. E file state taxes Loans of $10,000 or less between individuals who are not in the business of lending money. E file state taxes (The dollar limit includes outstanding prior loans by the lender to the borrower. E file state taxes ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. E file state taxes   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. E file state taxes Publication 550 also discusses rules for holders of REMIC interests and CDOs. E file state taxes De minimis rule. E file state taxes   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. E file state taxes 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. E file state taxes Debt instruments with de minimis OID are not listed in this publication. E file state taxes There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. E file state taxes Also, the de minimis rules generally do not apply to tax-exempt obligations. E file state taxes Example 2. E file state taxes You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. E file state taxes One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. E file state taxes Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. E file state taxes Example 3. E file state taxes Assume the same facts as Example 2, except the debt instrument was issued at $950. E file state taxes You must report part of the $50 OID each year because it is more than $25. E file state taxes Choice to report all interest as OID. E file state taxes   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. E file state taxes See Constant yield method under Debt Instruments Issued After 1984, later, for more information. E file state taxes   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. E file state taxes For more information, see Regulations section 1. E file state taxes 1272-3. E file state taxes Purchase after date of original issue. E file state taxes   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. E file state taxes If so, the OID reported to you on Form 1099-OID may have to be adjusted. E file state taxes For more information, see Showing an OID adjustment under How To Report OID, later. E file state taxes The following rules generally do not apply to contingent payment debt instruments. E file state taxes Adjustment for premium. E file state taxes   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. E file state taxes Your adjustment is the total OID shown on your Form 1099-OID. E file state taxes Adjustment for acquisition premium. E file state taxes   If your debt instrument has acquisition premium, reduce the OID you report. E file state taxes Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. E file state taxes Adjustment for market discount. E file state taxes   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. E file state taxes Your adjustment is the accrued market discount for the year. E file state taxes See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. E file state taxes If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. E file state taxes The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. E file state taxes For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. E file state taxes 1275-7. E file state taxes Sale, exchange, or redemption. E file state taxes   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. E file state taxes If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. E file state taxes Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). E file state taxes   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. E file state taxes Your basis, generally, is your cost increased by the OID you have included in income each year you held it. E file state taxes In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. E file state taxes   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. E file state taxes Example 4. E file state taxes Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. E file state taxes 00 on November 1 of Year 1. E file state taxes The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. E file state taxes The debt instrument provides for semiannual payments of interest at 10%. E file state taxes Assume the debt instrument is a capital asset in Larry's hands. E file state taxes The debt instrument has $13,765. E file state taxes 00 of OID ($100,000 stated redemption price at maturity minus $86,235. E file state taxes 00 issue price). E file state taxes Larry sold the debt instrument for $90,000 on November 1 of Year 4. E file state taxes Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. E file state taxes 00 of OID in income and has increased his basis by that amount to $90,791. E file state taxes 00. E file state taxes Larry has realized a loss of $791. E file state taxes 00. E file state taxes All of Larry's loss is capital loss. E file state taxes Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. E file state taxes Form 1099-OID shows all OID income in box 1 except OID on a U. E file state taxes S. E file state taxes Treasury obligation, which is shown in box 8. E file state taxes It also shows, in box 2, any qualified stated interest you must include in income. E file state taxes (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. E file state taxes ) A copy of Form 1099-OID will be sent to the IRS. E file state taxes Do not attach your copy to your tax return. E file state taxes Keep it for your records. E file state taxes If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. E file state taxes A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. E file state taxes Form 1099-OID not received. E file state taxes   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. E file state taxes Refiguring OID. E file state taxes   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. E file state taxes You bought the debt instrument at a premium or at an acquisition premium. E file state taxes The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. E file state taxes S. E file state taxes Treasury securities). E file state taxes The debt instrument is a contingent payment or inflation-indexed debt instrument. E file state taxes See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. E file state taxes Refiguring interest. E file state taxes   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. E file state taxes Nominee. E file state taxes   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. E file state taxes ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. E file state taxes Show the owner of the debt instrument as the “recipient” and you as the “payer. E file state taxes ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. E file state taxes You must also give a copy of the Form 1099-OID to the actual owner. E file state taxes However, you are not required to file a nominee return to show amounts belonging to your spouse. E file state taxes See the Form 1099 instructions for more information. E file state taxes   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. E file state taxes How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. E file state taxes Form 1040 or Form 1040A required. E file state taxes   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. E file state taxes You received a Form 1099-OID as a nominee for the actual owner. E file state taxes Your total interest and OID income for the year was more than $1,500. E file state taxes Form 1040 required. E file state taxes   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. E file state taxes For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. E file state taxes Also, you must use Form 1040 if you were charged an early withdrawal penalty. E file state taxes Where to report. E file state taxes   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. E file state taxes Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. E file state taxes Also include any other OID and interest income for which you did not receive a Form 1099. E file state taxes Showing an OID adjustment. E file state taxes   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. E file state taxes   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. E file state taxes If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. E file state taxes Under your last entry on line 1, subtotal all interest and OID income listed on line 1. E file state taxes Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. E file state taxes Subtract that OID from the subtotal and enter the result on line 2. E file state taxes If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. E file state taxes Under your last entry on line 1, subtotal all interest and OID income listed on line 1. E file state taxes Below the subtotal, write “OID Adjustment” and show the additional OID. E file state taxes Add that OID to the subtotal and enter the result on line 2. E file state taxes Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. E file state taxes It also may depend on the type of the debt instrument. E file state taxes There are different rules for each of the following debt instruments. E file state taxes Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. E file state taxes Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. E file state taxes Debt instruments issued after July 1, 1982, and before 1985. E file state taxes Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). E file state taxes Contingent payment debt instruments issued after August 12, 1996. E file state taxes Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. E file state taxes Zero coupon bonds. E file state taxes   The rules for figuring OID on zero coupon bonds backed by U. E file state taxes S. E file state taxes Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. E file state taxes Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. E file state taxes The OID, which is taxed as ordinary income, generally equals the following amount. E file state taxes   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. E file state taxes If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. E file state taxes Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. E file state taxes For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. E file state taxes Your basis in the debt instrument is increased by the OID you include in income. E file state taxes Form 1099-OID. E file state taxes   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. E file state taxes However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. E file state taxes See Reduction for acquisition premium, later. E file state taxes If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. E file state taxes irs. E file state taxes gov/pub1212 by clicking the link under Recent Developments. E file state taxes Form 1099-OID not received. E file state taxes    The OID listed is for each $1,000 of redemption price. E file state taxes You must adjust the listed amount if your debt instrument has a different principal amount. E file state taxes For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. E file state taxes   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. E file state taxes (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. E file state taxes ) If you did not hold the debt instrument the entire year, figure your OID using the following method. E file state taxes Divide the OID shown by 12. E file state taxes Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. E file state taxes This is the OID to include in income unless you paid an acquisition premium. E file state taxes The reduction for acquisition premium is discussed next. E file state taxes Reduction for acquisition premium. E file state taxes   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. E file state taxes Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. E file state taxes This is the monthly OID. E file state taxes Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. E file state taxes (If the result is zero or less, stop here. E file state taxes You did not pay an acquisition premium. E file state taxes ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. E file state taxes Subtract the amount figured in (3) from the amount figured in (1). E file state taxes This is the OID to include in income for each month you hold the debt instrument during the year. E file state taxes Transfers during the month. E file state taxes   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. E file state taxes Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. E file state taxes Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. E file state taxes For information about showing the correct OID on your tax return, see How To Report OID, earlier. E file state taxes Form 1099-OID. E file state taxes   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. E file state taxes However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. E file state taxes See Constant yield method and the discussions on acquisition premium that follow, later. E file state taxes If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. E file state taxes irs. E file state taxes gov/pub1212 by clicking the link under Recent Developments. E file state taxes Form 1099-OID not received. E file state taxes    The OID listed is for each $1,000 of redemption price. E file state taxes You must adjust the listed amount if your debt instrument has a different principal amount. E file state taxes For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. E file state taxes   If you held the debt instrument the entire year, use the OID shown in Section I-A. E file state taxes (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. E file state taxes ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. E file state taxes Method 1. E file state taxes    Divide the total OID for a calendar year by 365 (366 for leap years). E file state taxes Multiply the result in (1) by the number of days you held the debt instrument during that particular year. E file state taxes  This computation is an approximation and may result in a slightly higher OID than Method 2. E file state taxes Method 2. E file state taxes    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. E file state taxes (See Accrual period under Constant yield method, next. E file state taxes ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. E file state taxes If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. E file state taxes Add the results of (2) and (3). E file state taxes This is the OID to include in income, unless you paid an acquisition premium. E file state taxes (The reduction for acquisition premium is discussed later. E file state taxes ) Constant yield method. E file state taxes   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. E file state taxes OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. E file state taxes   Figure the OID allocable to any accrual period as follows. E file state taxes Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. E file state taxes Subtract from the result in (1) any qualified stated interest allocable to the accrual period. E file state taxes Accrual period. E file state taxes   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. E file state taxes Your tax year will usually include parts of two accrual periods. E file state taxes Daily OID. E file state taxes   The OID for any accrual period is allocated equally to each day in the accrual period. E file state taxes You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. E file state taxes If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. E file state taxes Figuring daily OID. E file state taxes   The daily OID for the initial accrual period is figured using the following formula. E file state taxes   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. E file state taxes Reduction for acquisition premium on debt instruments purchased before July 19, 1984. E file state taxes   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. E file state taxes Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. E file state taxes Reduction for acquisition premium on debt instruments purchased after July 18, 1984. E file state taxes   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. E file state taxes However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. E file state taxes To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. E file state taxes The numerator is the acquisition premium. E file state taxes The denominator is the total OID remaining for the debt instrument after your purchase date. E file state taxes Section I-A is available at www. E file state taxes irs. E file state taxes gov/pub1212 and clicking the link under Recent Developments. E file state taxes Using Section I-A to figure accumulated OID. E file state taxes   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. E file state taxes The amount from the “Total OID to January 1, YYYY” column for your debt instrument. E file state taxes The OID from January 1 of a calendar year to the date of purchase, figured as follows. E file state taxes Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. E file state taxes Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. E file state taxes Add the amounts figured in (2a) and (2b). E file state taxes Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. E file state taxes You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. E file state taxes Your basis in the debt instrument is increased by the OID you include in income. E file state taxes For information about showing the correct OID on your tax return, see How To Report OID, earlier. E file state taxes Form 1099-OID. E file state taxes   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. E file state taxes However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. E file state taxes See Constant yield method and Reduction for acquisition premium, later. E file state taxes   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. E file state taxes See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. E file state taxes If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. E file state taxes irs. E file state taxes gov/pub1212 by clicking the link under Recent Developments. E file state taxes Form 1099-OID not received. E file state taxes   The OID listed is for each $1,000 of redemption price. E file state taxes You must adjust the listed amount if your debt instrument has a different principal amount. E file state taxes For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. E file state taxes   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. E file state taxes (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. E file state taxes ) If you did not hold the debt instrument the entire year, figure your OID as follows. E file state taxes Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. E file state taxes (See Accrual period under Constant yield method, later. E file state taxes ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. E file state taxes Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. E file state taxes Add the results of (2) and (3). E file state taxes This is the OID to include in income for that year, unless you paid an acquisition premium. E file state taxes (The reduction for acquisition premium is discussed later. E file state taxes ) Tax-exempt bond. E file state taxes   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. E file state taxes You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. E file state taxes In general, use the rules that follow to determine your OID. E file state taxes Constant yield method. E file state taxes   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. E file state taxes (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. E file state taxes ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. E file state taxes   Figure the OID allocable to any accrual period as follows. E file state taxes Multiply the adjusted issue price at the beginning of the accrual period by a fraction. E file state taxes The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. E file state taxes The yield must be stated appropriately taking into account the length of the particular accrual period. E file state taxes Subtract from the result in (1) any qualified stated interest allocable to the accrual period. E file state taxes Accrual period. E file state taxes   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. E file state taxes For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. E file state taxes Any short period is included as the first accrual period. E file state taxes   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. E file state taxes However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. E file state taxes Daily OID. E file state taxes   The OID for any accrual period is allocated equally to each day in the accrual period. E file state taxes Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. E file state taxes Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. E file state taxes If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. E file state taxes Figuring daily OID. E file state taxes   The daily OID for the initial accrual period is figured using the following formula. E file state taxes   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. E file state taxes Example 5. E file state taxes On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. E file state taxes 17. E file state taxes According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. E file state taxes The yield to maturity is 12%, compounded semiannually. E file state taxes The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. E file state taxes The accrual periods are the 6-month periods ending on each of these dates. E file state taxes The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). E file state taxes The daily OID for the first accrual period is figured as follows. E file state taxes   ($86,235. E file state taxes 17 x . E file state taxes 12/2) – $5,000     181 days     = $174. E file state taxes 11020 = $. E file state taxes 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. E file state taxes 17 + $174. E file state taxes 11), or $86,409. E file state taxes 28. E file state taxes The number of days for the second accrual period (July 1 through December 31) is 184 days. E file state taxes The daily OID for the second accrual period is figured as follows. E file state taxes   ($86,409. E file state taxes 28 x . E file state taxes 12/2) – $5,000     184 days     = $184. E file state taxes 55681 = $1. E file state taxes 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. E file state taxes 11 ($. E file state taxes 95665 × 182 days) plus $184. E file state taxes 56 ($1. E file state taxes 00303 × 184 days), or $358. E file state taxes 67. E file state taxes Add the OID to the $10,000 interest you report on your income tax return for Year 1. E file state taxes Example 6. E file state taxes Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. E file state taxes Also, the interest payment dates are October 31 and April 30 of each calendar year. E file state taxes The accrual periods are the 6-month periods ending on each of these dates. E file state taxes The number of days for the first accrual period (May 1 through October 31) is 184 days. E file state taxes The daily OID for the first accrual period is figured as follows. E file state taxes   ($86,235. E file state taxes 17 x . E file state taxes 12/2) – $5,000     184 days     = $174. E file state taxes 11020 = $. E file state taxes 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). E file state taxes The daily OID for the second accrual period is figured as follows. E file state taxes   ($86,409. E file state taxes 28 x . E file state taxes 12/2) – $5,000     181 days     = $184. E file state taxes 55681 = $1. E file state taxes 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. E file state taxes 31 of OID in income. E file state taxes This is $174. E file state taxes 11 ($. E file state taxes 94625 × 184 days) for the period May 1 through October 31 plus $62. E file state taxes 20 ($1. E file state taxes 01965 × 61 days) for the period November 1 through December 31. E file state taxes The OID is added to the $5,000 interest income paid on October 31 of Year 1. E file state taxes Your basis in the debt instrument is increased by the OID you include in income. E file state taxes On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. E file state taxes 48 ($86,235. E file state taxes 17 + $236. E file state taxes 31). E file state taxes Short first accrual period. E file state taxes   You may have to make adjustments if a debt instrument has a short first accrual period. E file state taxes For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. E file state taxes (The remaining accrual periods begin on May 1 and November 1. E file state taxes ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. E file state taxes You may use any reasonable compounding method in determining OID for a short period. E file state taxes Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). E file state taxes Consult your tax advisor for more information about making this computation. E file state taxes   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. E file state taxes Reduction for acquisition premium. E file state taxes   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. E file state taxes To figure the daily acquisition premium, multiply the daily OID by the following fraction. E file state taxes The numerator is the acquisition premium. E file state taxes The denominator is the total OID remaining for the debt instrument after your purchase date. E file state taxes Example 7. E file state taxes Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. E file state taxes The adjusted issue price on November 1 of Year 1 is $86,409. E file state taxes 28 ($86,235. E file state taxes 17 + $174. E file state taxes 11). E file state taxes In this case, you paid an acquisition premium of $590. E file state taxes 72 ($87,000 − $86,409. E file state taxes 28). E file state taxes The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. E file state taxes 1) Daily OID on date of purchase (2nd accrual period) $1. E file state taxes 01965*  2)  Acquisition premium $590. E file state taxes 72    3)  Total OID remaining after purchase date ($13,764. E file state taxes 83 − $174. E file state taxes 11) 13,590. E file state taxes 72   4) Line 2 ÷ line 3 . E file state taxes 04346  5)  Line 1 × line 4 . E file state taxes 04432  6)  Daily OID reduced for the acquisition premium. E file state taxes Line 1 − line 5 $0. E file state taxes 97533  * As shown in Example 6. E file state taxes The total OID to include in income for Year 1 is $59. E file state taxes 50 ($. E file state taxes 97533 × 61 days). E file state taxes Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. E file state taxes In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. E file state taxes If you hold a contingent payment bond, you must report OID as it accrues each year. E file state taxes Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. E file state taxes To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. E file state taxes Noncontingent bond method. E file state taxes    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. E file state taxes In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. E file state taxes When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. E file state taxes If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. E file state taxes If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. E file state taxes Form 1099-OID. E file state taxes   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. E file state taxes For example, the amount may not be correct if the contingent payment was different from the projected amount. E file state taxes If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. E file state taxes For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. E file state taxes Figuring OID. E file state taxes   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. E file state taxes The issuer must make these available to you. E file state taxes Comparable yield. E file state taxes   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. E file state taxes The comparable yield is determined as of the debt instrument's issue date. E file state taxes Projected payment schedule. E file state taxes   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. E file state taxes The projected payment schedule is created by the issuer as of the debt instrument's issue date. E file state taxes It is used to determine the issuer's and holder's interest accruals and adjustments. E file state taxes Steps for figuring OID. E file state taxes   Figure the OID on a contingent payment debt instrument in two steps. E file state taxes Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. E file state taxes Use the comparable yield as the yield to maturity. E file state taxes In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). E file state taxes Do not treat any amount payable as qualified stated interest. E file state taxes Adjust the OID in (1) to account for actual contingent payments. E file state taxes If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. E file state taxes If the contingent payment is less than the projected fixed amount, you have a negative adjustment. E file state taxes Net positive adjustment. E file state taxes   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. E file state taxes Treat a net positive adjustment as additional OID for the tax year. E file state taxes Net negative adjustment. E file state taxes   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. E file state taxes Use a net negative adjustment to offset OID on the debt instrument for the tax year. E file state taxes If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. E file state taxes However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. E file state taxes You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. E file state taxes Basis adjustments. E file state taxes   In general, increase your basis in a contingent payment debt instrument by the OID included in income. E file state taxes Your basis, however, is not affected by any negative or positive adjustments. E file state taxes Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. E file state taxes Treatment of gain or loss on sale or exchange. E file state taxes   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. E file state taxes If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. E file state taxes If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. E file state taxes See Regulations section 1. E file state taxes 1275-4 for exceptions to these rules. E file state taxes Premium, acquisition premium, and market discount. E file state taxes   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. E file state taxes See Regulations section 1. E file state taxes 1275-4 to determine how to account for these items. E file state taxes Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. E file state taxes An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d
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E file state taxes 13. E file state taxes   Employment Taxes Table of Contents What's New for 2013 What's New for 2014 Reminders Important Dates for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Farm Employment Family Employees Crew Leaders Social Security and Medicare TaxesReligious exemption. E file state taxes Wage limit. E file state taxes Federal Income Tax WithholdingNew Form W-4 for 2014. E file state taxes Required Notice to Employees About Earned Income Credit (EIC) Reporting and Paying Social Security, Medicare, and Withheld Federal Income TaxesElectronic deposit requirement. E file state taxes Federal Unemployment (FUTA) TaxReporting and Paying FUTA Tax What's New for 2013 Social security and Medicare tax for 2013. E file state taxes  The employee tax rate for social security is 6. E file state taxes 2%. E file state taxes Previously, the employee tax rate for social security was 4. E file state taxes 2%. E file state taxes The employer tax rate for social security remains unchanged at 6. E file state taxes 2%. E file state taxes The social security wage base limit is $113,700. E file state taxes The Medicare tax rate is 1. E file state taxes 45% each for the employee and employer, unchanged from 2012. E file state taxes There is no wage base limit for Medicare tax. E file state taxes Additional Medicare Tax. E file state taxes  In addition to withholding Medicare tax at 1. E file state taxes 45%, you must withhold a 0. E file state taxes 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. E file state taxes 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. E file state taxes Additional Medicare Tax is only imposed on the employee. E file state taxes There is no employer share of Additional Medicare Tax. E file state taxes All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 threshold. E file state taxes For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. E file state taxes For more information on Additional Medicare Tax, visit IRS. E file state taxes gov and enter “Additional Medicare Tax” in the search box. E file state taxes Leave-based donation programs to aid victims of Hurricane Sandy. E file state taxes  Under these programs, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made before January 1, 2014, to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy. E file state taxes The donated leave will not be included in the income or wages of the employee. E file state taxes The employer may deduct the cash payments as business expenses or charitable contributions. E file state taxes For more information, see Notice 2012-69, 2012-51 I. E file state taxes R. E file state taxes B. E file state taxes 712, available at www. E file state taxes irs. E file state taxes gov/irb/2012-51_IRB/ar09. E file state taxes html. E file state taxes Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans extended. E file state taxes  The work opportunity tax credit is now available for eligible unemployed veterans who begin work before January 1, 2014. E file state taxes Previously, the credit was available for unemployed veterans who began work on or after November 22, 2011, and before January 1, 2013. E file state taxes Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. E file state taxes For more information, visit IRS. E file state taxes gov and enter “work opportunity credit” in the search box. E file state taxes What's New for 2014 Social security and Medicare tax for 2014. E file state taxes  The employee and employer tax rates for social security and the maximum amount of wages subject to social security tax for 2014 will be discussed in Publication 51 (Circular A), Agricultural Employer's Tax Guide (For use in 2014). E file state taxes The Medicare tax rate for 2014 will also be discussed in Publication 51 (Circular A) (For use in 2014). E file state taxes There is no limit on the amount of wages subject to Medicare tax. E file state taxes Reminders Additional employment tax information for farmers. E file state taxes  See Publication 51 (Circular A) for more detailed guidance on employment taxes. E file state taxes For the latest information about employment tax developments impacting farmers, go to www. E file state taxes irs. E file state taxes gov/pub51. E file state taxes Correcting a previously filed Form 943. E file state taxes  If you discover an error on a previously filed Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, make the correction using Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund. E file state taxes Form 943-X is filed separately from Form 943. E file state taxes For more information on correcting Form 943, see the Instructions for Form 943-X. E file state taxes Federal tax deposits must be made by electronic funds transfer. E file state taxes  You must use electronic funds transfer to make all federal tax deposits. E file state taxes Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). E file state taxes 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. E file state taxes Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. E file state taxes EFTPS is a free service provided by the Department of Treasury. E file state taxes Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. E file state taxes For more information on making federal tax deposits, see section 7 of Publication 51 (Circular A). E file state taxes To get more information about EFTPS or to enroll in EFTPS, visit www. E file state taxes eftps. E file state taxes gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). E file state taxes Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. E file state taxes Important Dates for 2014 You should take the action indicated by the dates listed. E file state taxes See By February 15 and On February 16 for Form W-4, Employee's Withholding Allowance Certificate, information. E file state taxes Due dates for deposits of withheld federal income taxes, social security taxes, and Medicare taxes are not listed here. E file state taxes For these dates, see Publication 509, Tax Calendars (For use in 2014). E file state taxes Note. E file state taxes  If any date shown below for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. E file state taxes A statewide legal holiday delays a filing or furnishing due date only if the IRS office where you are required to file a return or furnish a form is located in that state. E file state taxes For any due date, you will meet the “file” or “furnish” date requirement if the envelope containing the tax return or form is properly addressed, contains sufficient postage, and is postmarked by the U. E file state taxes S. E file state taxes Postal Service by the due date, or sent by an IRS-designated delivery service by the due date. E file state taxes See Private delivery services in Publication 51 (Circular A). E file state taxes Federal tax deposits can only be made by electronic funds transfer and are governed by legal holidays in the District of Columbia. E file state taxes Statewide holidays no longer apply. E file state taxes For a list of legal holidays that delay the due date of a federal tax deposit, see section 7 of Publication 51 (Circular A). E file state taxes Fiscal year taxpayers. E file state taxes  The due dates listed below apply whether you use a calendar or a fiscal year. E file state taxes By January 31. E file state taxes   File Form 943 with the IRS. E file state taxes If you deposited all Form 943 taxes when due, you have 10 additional days to file. E file state taxes Furnish each employee with a completed Form W-2, Wage and Tax Statement. E file state taxes Furnish each recipient to whom you paid $600 or more in nonemployee compensation with a completed Form 1099 (for example, Form 1099-MISC). E file state taxes File Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, with the IRS. E file state taxes If you deposited all the FUTA tax when due, you have 10 additional days to file. E file state taxes File Form 945, Annual Return of Withheld Federal Income Tax, with the IRS to report any nonpayroll income tax withheld during 2013. E file state taxes If you deposited all Form 945 taxes when due, you have 10 additional days to file. E file state taxes By February 15. E file state taxes  Ask for a new Form W-4 or Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, from each employee who claimed exemption from federal income tax withholding last year. E file state taxes On February 16. E file state taxes  Any Form W-4 claiming exemption from withholding for the previous year has now expired. E file state taxes Begin withholding for any employee who previously claimed exemption from withholding but has not given you a new Form W-4 for the current year. E file state taxes If the employee does not give you a new Form W-4, withhold taxes based on the last valid Form W-4 you have for the employee that does not claim exemption from withholding or, if one does not exist, as if he or she is single with zero withholding allowances. E file state taxes If the employee furnishes a new Form W-4 claiming exemption from withholding after February 15, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. E file state taxes By February 28. E file state taxes   File paper Forms 1099 and 1096. E file state taxes File Copy A of all paper Forms 1099 with Form 1096, Annual Summary and Transmittal of U. E file state taxes S. E file state taxes Information Returns, with the IRS. E file state taxes For electronically filed returns, see By March 31 below. E file state taxes File paper Forms W-2 and W-3. E file state taxes File Copy A of all paper Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration (SSA). E file state taxes For electronically filed returns, see By March 31 below. E file state taxes By March 31. E file state taxes   File electronic Forms W-2 and 1099. E file state taxes File electronic Forms W-2 with the SSA and Forms 1099 with the IRS. E file state taxes For more information on reporting Form W-2 information to the SSA electronically, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. E file state taxes socialsecurity. E file state taxes gov/employer. E file state taxes For information on filing information returns electronically with the IRS, see Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically. E file state taxes By April 30, July 31, October 31, and January 31. E file state taxes   Deposit FUTA taxes. E file state taxes Deposit FUTA tax due if it is more than $500. E file state taxes Before December 1. E file state taxes  Remind employees to submit a new Form W-4 if their withholding allowances have changed or will change for the next year. E file state taxes Introduction You are generally required to withhold federal income tax from the wages of your employees. E file state taxes You may also be subject to social security and Medicare taxes under the Federal Insurance Contributions Act (FICA) and federal unemployment tax under the Federal Unemployment Tax Act (FUTA). E file state taxes You must also withhold Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. E file state taxes This chapter includes information about these taxes. E file state taxes You must also pay self-employment tax on your net earnings from farming. E file state taxes See chapter 12 for information on self-employment tax. E file state taxes Topics - This chapter discusses: Farm employment, Family employees, Crew leaders, Social security and Medicare taxes, Additional Medicare Tax withholding, Federal income tax withholding, Reporting and paying social security, Medicare, and withheld federal income taxes, and FUTA tax. E file state taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits 51 (Circular A), Agricultural Employer's Tax Guide 926 Household Employer's Tax Guide Form (and Instructions) W-2 Wage and Tax Statement W-4 Employee's Withholding Allowance Certificate W-9 Request for Taxpayer Identification Number and Certification 940 Employer's Annual Federal Unemployment (FUTA) Tax Return 943 Employer's Annual Federal Tax Return for Agricultural Employees 943-X Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund See chapter 16 for information about getting publications and forms. E file state taxes Farm Employment In general, you are an employer of farmworkers if your employees do any of the following types of work. E file state taxes Raising or harvesting agricultural or horticultural products on a farm, including raising and feeding of livestock. E file state taxes Operating, managing, conserving, improving, or maintaining your farm and its tools and equipment. E file state taxes Services performed in salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor). E file state taxes Handling, processing, or packaging any agricultural or horticultural commodity if you produced more than half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity). E file state taxes Work related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. E file state taxes For more information, see Publication 51 (Circular A). E file state taxes Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. E file state taxes This is so even when you give the employee freedom of action. E file state taxes What matters is that you have the right to control the details of how the services are performed. E file state taxes You are responsible for withholding and paying employment taxes for your employees. E file state taxes You are also required to file employment tax returns. E file state taxes These requirements do not apply to amounts that you pay to independent contractors. E file state taxes See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. E file state taxes If you employ a family of workers, each worker subject to your control (not just the head of the family) is an employee. E file state taxes Special rules apply to crew leaders. E file state taxes See Crew Leaders , later. E file state taxes Employer identification number (EIN). E file state taxes   If you have employees, you must have an EIN. E file state taxes If you do not have an EIN, you may apply for one online. E file state taxes Go to IRS. E file state taxes gov and click on the Apply for an EIN Online link under Tools. E file state taxes You may also apply for an EIN by calling 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). E file state taxes The hours of operation for both numbers are Monday–Friday form 7:00 a. E file state taxes m. E file state taxes –7:00 p. E file state taxes m. E file state taxes local time (Alaska and Hawaii follow Pacific time). E file state taxes You can also fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. E file state taxes Employee's social security number (SSN). E file state taxes   An employee who does not have an SSN should submit Form SS-5, Application for a Social Security Card, to the Social Security Administration (SSA). E file state taxes Form SS-5 is available from any SSA office or by calling 1-800-772-1213 (operates 24 hours per day). E file state taxes It is also available from the SSA's website at www. E file state taxes socialsecurity. E file state taxes gov. E file state taxes   The employee must furnish evidence of age, identity, and U. E file state taxes S. E file state taxes citizenship or lawful immigration status permitting employment with the Form SS-5. E file state taxes An employee who is age 18 or older must appear in person with this evidence at an SSA office. E file state taxes Form I-9. E file state taxes    You must verify that each new employee is legally eligible to work in the United States. E file state taxes This includes completing the Form I-9, Employment Eligibility Verification. E file state taxes Form I-9 is available from the U. E file state taxes S. E file state taxes Citizenship and Immigration Services (USCIS) offices or by calling the Bureau of Citizenship and Immigration Services Forms Request Line at 1-800-870-3676. E file state taxes Form I-9 is also available from the USCIS website at www. E file state taxes uscis. E file state taxes gov. E file state taxes You can also contact the USCIS at 1-800-375-5283 for more information. E file state taxes New hire reporting. E file state taxes   You are required to report any new employee to a designated state new hire registry. E file state taxes Many states accept a copy of Form W-4 with employer information added. E file state taxes Visit the Office of Child Support Enforcement website at www. E file state taxes acf. E file state taxes hhs. E file state taxes gov/programs/cse/newhire for more information. E file state taxes Family Employees Generally, the wages you pay to family members who are your employees are subject to employment taxes. E file state taxes However, certain exemptions may apply to wages paid to your child, spouse, or parent. E file state taxes Exemptions for your child. E file state taxes   Payments for the services of your child under age 18 who works for you in your trade or business (including a farm) are not subject to social security and Medicare taxes. E file state taxes However, see Nonexempt services of a child or spouse , later. E file state taxes Payments for the services of your child under age 21 employed by you in other than a trade or business, such as payments for household services in your home, are also not subject to social security or Medicare taxes. E file state taxes Payments for the services of your child under age 21 employed by you, whether or not in your trade or business, are not subject to FUTA tax. E file state taxes Although not subject to social security, Medicare, or FUTA tax, the child's wages still may be subject to federal income tax withholding. E file state taxes Exemptions for your spouse. E file state taxes   Payments for the services of your spouse who works for you in your trade or business are subject to federal income tax withholding and social security and Medicare taxes, but not FUTA tax. E file state taxes   Payments for the services of your spouse employed by you in other than a trade or business, such as payments for household services in your home, are not subject to social security, Medicare, or FUTA taxes. E file state taxes Nonexempt services of a child or spouse. E file state taxes   Payments for the services of your child or spouse are subject to federal income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for any of the following entities. E file state taxes A corporation, even if it is controlled by you. E file state taxes A partnership, even if you are a partner. E file state taxes This does not apply to wages paid to your child if each partner is a parent of the child. E file state taxes An estate or trust, even if it is the estate of a deceased parent. E file state taxes In these situations, the child or spouse is considered to work for the corporation, partnership, or estate, not you. E file state taxes Exemptions for your parent. E file state taxes   Payments for the services of your parent employed by you in your trade or business are subject to federal income tax withholding and social security and Medicare taxes. E file state taxes Social security and Medicare taxes do not apply to wages paid to your parent for services not in your trade or business, but they do apply to payments for household services in your home if both the following conditions are satisfied. E file state taxes You have a child living in your home who is under age 18 or has a physical or mental condition that requires care by an adult for at least 4 continuous weeks in a calendar quarter. E file state taxes You are a widow or widower; or divorced and not remarried; or have a spouse in the home who, because of a physical or mental condition, cannot care for your child for at least 4 continuous weeks in the quarter. E file state taxes   Wages you pay to your parent are not subject to FUTA tax, regardless of the type of services provided. E file state taxes Qualified joint venture. E file state taxes   If spouses elect to be treated as a qualified joint venture instead of a partnership, either spouse may report and pay the employment taxes due on the wages paid to employees using the EIN of that spouse's sole proprietorship. E file state taxes For more information about qualified joint ventures, see chapter 12. E file state taxes Crew Leaders If farmworkers are provided by a crew leader, the crew leader may be the employer of the workers. E file state taxes Social security and Medicare taxes. E file state taxes   For social security and Medicare tax purposes, the crew leader is the employer of the workers if both of the following requirements are met. E file state taxes The crew leader pays (either on his or her own behalf or on behalf of the farmer) the workers for their farm labor. E file state taxes The crew leader has not entered into a written agreement with the farmer under which the crew leader is designated as an employee of the farmer. E file state taxes Federal income tax withholding. E file state taxes   If the crew leader is the employer for social security and Medicare tax purposes, the crew leader is the employer for federal income tax withholding purposes. E file state taxes Federal unemployment (FUTA) tax. E file state taxes   For FUTA tax purposes, the crew leader is the employer of the workers if, in addition to the earlier requirements, either of the following requirements are met. E file state taxes The crew leader is registered under the Migrant and Seasonal Agricultural Worker Protection Act. E file state taxes Substantially all crew members operate or maintain mechanized equipment provided by the crew leader as part of the service to the farmer. E file state taxes   The farmer is the employer of workers furnished by a crew leader in all other situations. E file state taxes In addition, the farmer is the employer of workers furnished by a registered crew leader if the workers are the employees of the farmer under the common-law test. E file state taxes For example, some farmers employ individuals to recruit farmworkers exclusively for them. E file state taxes Although these individuals may be required to register under the Migrant and Seasonal Agricultural Worker Protection Act, the workers are employed directly by the farmer. E file state taxes The farmer is the employer in these cases. E file state taxes For information about common-law employees, see section 1 of Publication 15-A. E file state taxes For information about crew leaders, see the Department of Labor website at www. E file state taxes dol. E file state taxes gov/whd/regs/compliance/whdfs49. E file state taxes htm. E file state taxes Social Security and Medicare Taxes All cash wages you pay to an employee during the year for farmwork are subject to social security and Medicare taxes if you meet either of the following tests. E file state taxes You pay the employee $150 or more in cash wages (count all wages paid on a time, piecework, or other basis) during the year for farmwork (the $150 test). E file state taxes The $150 test applies separately to each farmworker that you employ. E file state taxes If you employ a family of workers, each member is treated separately. E file state taxes Do not count wages paid by other employers. E file state taxes You pay cash and noncash wages of $2,500 or more during the year to all your employees for farmwork (the $2,500 test). E file state taxes If the $2,500 test for the group is not met, the $150 test for an employee still applies. E file state taxes Exceptions. E file state taxes   Annual cash wages of less than $150 you pay to a seasonal farmworker are not subject to social security and Medicare taxes, even if you pay $2,500 or more to all your farmworkers. E file state taxes However, these wages count toward the $2,500 test for determining whether other farmworkers' wages are subject to social security and Medicare taxes. E file state taxes   A seasonal farmworker is a worker who: Works as a hand-harvest laborer, Is paid piece rates in an operation usually paid on this basis in the region of employment, Commutes daily from his or her permanent home to the farm, and Worked in agriculture less than 13 weeks in the preceding calendar year. E file state taxes   See Family Employees , earlier, for certain exemptions from social security and Medicare taxes that apply to your child, spouse, and parent. E file state taxes Religious exemption. E file state taxes   An exemption from social security and Medicare taxes is available to members of a recognized religious group or division opposed to public insurance. E file state taxes This exemption is available only if both the employee and the employer are members of the group or division. E file state taxes   For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. E file state taxes Cash wages. E file state taxes   Only cash wages paid to farmworkers are subject to social security and Medicare taxes. E file state taxes Cash wages include checks, money orders, and any kind of money or cash. E file state taxes   Only cash wages subject to social security and Medicare taxes are credited to your employees for social security benefit purposes. E file state taxes Payments not subject to these taxes, such as commodity wages, do not contribute to your employees' social security coverage. E file state taxes For information about social security benefits, contact the SSA at 1-800-772-1213 or online at www. E file state taxes socialsecurity. E file state taxes gov. E file state taxes Noncash wages. E file state taxes    Noncash wages include food, lodging, clothing, transportation passes, and other goods and services. E file state taxes Noncash wages paid to farmworkers, including commodity wages, are not subject to social security and Medicare taxes. E file state taxes However, they are subject to these taxes if the substance of the transaction is a cash payment. E file state taxes For information on lodging provided as a condition of employment, see Publication 15-B. E file state taxes   Report the value of noncash wages in box 1 of Form W-2 together with cash wages. E file state taxes Do not show noncash wages in box 3 or in box 5, (unless the substance of the transaction is a cash payment). E file state taxes Tax rates and social security wage limit. E file state taxes   For 2013, the employer and the employee will pay the following taxes. E file state taxes The employer and employee each pay 6. E file state taxes 2% of cash wages for social security tax (old-age, survivors, and disability insurance). E file state taxes The employer and employee each pay 1. E file state taxes 45% of cash wages for Medicare tax (hospital insurance). E file state taxes The employee pays 0. E file state taxes 9% of cash wages in excess of $200,000 for Additional Medicare Tax. E file state taxes Wage limit. E file state taxes   The limit on wages subject to the social security tax for 2013 is $113,700. E file state taxes There is no limit on wages subject to the Medicare tax. E file state taxes All covered wages are subject to the Medicare tax. E file state taxes Additionally, all wages in excess of $200,000 are subject to Additional Medicare Tax withholding. E file state taxes Paying employee's share. E file state taxes   If you would rather pay the employee's share of social security and Medicare taxes without deducting it from his or her wages, you may do so. E file state taxes It is additional income to the employee. E file state taxes You must include it in box 1 of the employee's Form W-2, but do not count it as social security and Medicare wages (boxes 3 and 5 on Form W-2) or as wages for federal unemployment (FUTA) tax purposes. E file state taxes Example. E file state taxes Jane operates a small family fruit farm. E file state taxes She employs day laborers in the picking season to enable her to timely get her crop to market. E file state taxes She does not deduct the employees' share of social security and Medicare taxes from their pay; instead, she pays it on their behalf. E file state taxes When her accountant, Susan, prepares the employees' Forms W-2, she adds each employee's share of social security and Medicare taxes paid by Jane to the employee's wage income (box 1 of Form W-2), but does not include it in box 3 (social security wages) or box 5 (Medicare wages and tips). E file state taxes For 2013, Jane paid Mary $1,000 during the year. E file state taxes Susan enters $1,076. E file state taxes 50 in box 1 of Mary's Form W-2 ($1,000 wages plus $76. E file state taxes 50 social security and Medicare taxes paid for Mary). E file state taxes She enters $1,000 in boxes 3 and 5 of Mary's Form W-2. E file state taxes Additional Medicare Tax. E file state taxes   In addition to withholding Medicare tax at 1. E file state taxes 45%, you must withhold a 0. E file state taxes 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. E file state taxes 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. E file state taxes Additional Medicare Tax is only imposed on the employee. E file state taxes There is no employer share of Additional Medicare Tax. E file state taxes All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 threshold. E file state taxes   For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E). E file state taxes For more information on Additional Medicare Tax, visit IRS. E file state taxes gov and enter “Additional Medicare Tax” in the search box. E file state taxes Federal Income Tax Withholding If the cash wages you pay to farmworkers are subject to social security and Medicare taxes, they are also subject to federal income tax withholding. E file state taxes Although noncash wages are subject to federal income tax, withhold income tax only if you and the employee agree to do so. E file state taxes The amount to withhold is figured on gross wages without taking out social security and Medicare taxes, union dues, insurance, etc. E file state taxes Form W-4. E file state taxes   Generally, the amount of federal income tax you withhold is based on the employee's marital status and withholding allowances claimed on the employee's Form W-4. E file state taxes In general, an employee can claim withholding allowances on Form W-4 equal to the number of exemptions the employee will be entitled to claim on his or her tax return. E file state taxes An employee may also be able to claim a special withholding allowance and allowances for estimated deductions and credits. E file state taxes   Do not withhold federal income tax from the wages of an employee who, by filing Form W-4, certifies that he or she had no federal income tax liability last year and anticipates no liability for the current year. E file state taxes   You should give each new employee a Form W-4 as soon as you hire the employee. E file state taxes For Spanish-speaking employees, you may use Formulario W-4(SP) which is the Spanish translation of Form W-4. E file state taxes Have the employee complete and return the form to you before the first payday. E file state taxes If the employee does not return the completed form, you must withhold federal income tax as if the employee is single and claims no withholding allowances. E file state taxes New Form W-4 for 2014. E file state taxes   You should make the 2014 Form W-4 available to your employees and encourage them to check their income tax withholding for 2014. E file state taxes Those employees who owed a large amount of tax or received a large refund for 2013 may want to submit a new Form W-4. E file state taxes You cannot accept substitute Forms W-4 developed by employees. E file state taxes How to figure withholding. E file state taxes   You can use one of several methods to determine the amount to withhold. E file state taxes The methods are described in Publication 51 (Circular A), which contains tables showing the correct amount of federal income tax you should withhold. E file state taxes Publication 51 (Circular A) also contains additional information about federal income tax withholding. E file state taxes Nonemployee compensation. E file state taxes   Generally, you do not have to withhold federal income tax on payments for services to individuals who are not your employees. E file state taxes However, you may be required to report these payments on Form 1099-MISC, Miscellaneous Income, and to withhold under the backup withholding rules. E file state taxes For more information, see the Instructions for Form 1099-MISC. E file state taxes Required Notice to Employees About Earned Income Credit (EIC) You must provide notification about EIC to each employee who worked for you at any time during the year and from whom you did not withhold any federal income tax. E file state taxes However, you do not have to notify employees who claim exemption from federal income tax withholding on Form W-4. E file state taxes You meet the notification requirement by giving each employee any of the following. E file state taxes Form W-2, which contains EIC notification on the back of Copy B. E file state taxes A substitute Form W-2 with the exact EIC wording shown on the back of copy B of Form W-2. E file state taxes Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC). E file state taxes Your own written statement with the exact wording of Notice 797. E file state taxes For more information, see Publication 51 (Circular A). E file state taxes Reporting and Paying Social Security, Medicare, and Withheld Federal Income Taxes You must withhold federal income, social security, and Medicare taxes required to be withheld from the salaries and wages of your employees. E file state taxes You are liable for the payment of these taxes to the federal government whether or not you collect them from your employees. E file state taxes If, for example, you withhold less than the correct tax from an employee's wages, you are still liable for the full amount. E file state taxes You must also pay the employer's share of social security and Medicare taxes. E file state taxes There is no employer share of Additional Medicare Tax. E file state taxes Form 943. E file state taxes   Report withheld federal income tax, social security tax, and Medicare tax on Form 943. E file state taxes Your 2013 Form 943 is due by January 31, 2014 (or February 10, 2014, if you made deposits on time in full payment of the taxes due for the year). E file state taxes Deposits. E file state taxes   Generally, you must deposit both the employer and employee shares of social security and Medicare taxes and federal income tax withheld during the year. E file state taxes However, you may make payments with Form 943 instead of depositing them if you accumulate less than a $2,500 tax liability (“Total taxes after adjustments” line on Form 943) during the year and you pay in full with a timely filed return. E file state taxes   For more information on deposit rules, see Publication 51 (Circular A). E file state taxes Electronic deposit requirement. E file state taxes   You must use electronic funds transfer to make all federal tax deposits. E file state taxes Generally, electronic funds transfers are made using EFTPS. E file state taxes 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. E file state taxes Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. E file state taxes EFTPS is a free service provided by the Department of Treasury. E file state taxes Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. E file state taxes   For more information on making federal tax deposits, see section 7 of Publication 51 (Circular A). E file state taxes To get more information about EFTPS or to enroll in EFTPS, visit www. E file state taxes eftps. E file state taxes gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). E file state taxes Additional information about EFTPS is also available in Publication 966. E file state taxes Form W-2. E file state taxes   By January 31, you must furnish each employee a Form W-2 showing total wages for the previous year and total federal income tax, social security tax, and Medicare tax withheld. E file state taxes However, if an employee stops working for you and requests the form earlier, you must give it to the employee within 30 days of the later of the following dates. E file state taxes The date the employee requests the form. E file state taxes The date you make your final payment of wages to the employee. E file state taxes Compensation paid to H-2A visa holders. E file state taxes   Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2. E file state taxes Compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes, and therefore should not be reported as wages subject to social security tax (line 2), Medicare tax (line 4), or Additional Medicare Tax (line 6) on Form 943, and should not be reported as social security wages (box 3) or Medicare wages (box 5) on Form W-2. E file state taxes   An employer is not required to withhold federal income tax from compensation it pays to an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. E file state taxes In this case, the worker must give the employer a completed Form W-4. E file state taxes Federal income tax withheld should be reported on Form 943, line 8, and in box 2 of Form W-2. E file state taxes   These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. E file state taxes For the rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. E file state taxes Trust fund recovery penalty. E file state taxes   If you are responsible for withholding, accounting for, depositing, or paying federal withholding taxes and willfully fail to do so, you can be held liable for a penalty equal to the withheld tax not paid. E file state taxes A responsible person can be an officer of a corporation, a partner, a sole proprietor, or an employee of any form of business. E file state taxes A trustee or agent with authority over the funds of the business can also be held responsible for the penalty. E file state taxes   Willfully means voluntarily, consciously, and intentionally. E file state taxes Paying other expenses of the business instead of the taxes due is acting willfully. E file state taxes Consequences of treating an employee as an independent contractor. E file state taxes   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker. E file state taxes See Publication 15-A for more information. E file state taxes Federal Unemployment (FUTA) Tax You must pay FUTA tax if you meet either of the following tests. E file state taxes You paid cash wages of $20,000 or more to farmworkers in any calendar quarter during the current or preceding calendar year. E file state taxes You employed 10 or more farmworkers for some part of at least 1 day during any 20 or more different calendar weeks during the current or preceding calendar year. E file state taxes These rules do not apply to exempt services of your spouse, your parents, or your children under age 21. E file state taxes See Family Employees , earlier. E file state taxes Alien farmworkers. E file state taxes   Wages paid to aliens admitted on a temporary basis to the United States to perform farmwork (also known as “H-2A visa workers”) are exempt from FUTA tax. E file state taxes However, include your employment of these workers and the wages you paid them to determine whether you meet either of the above tests. E file state taxes Commodity wages. E file state taxes   Payments in kind for farm labor are not cash wages. E file state taxes Do not count them to figure whether you are subject to FUTA tax or to figure how much tax you owe. E file state taxes Tax rate and credit. E file state taxes   The gross FUTA tax rate is 6. E file state taxes 0% of the first $7,000 cash wages you pay to each employee during the year. E file state taxes However, you are given a credit of up to 5. E file state taxes 4% of the first $7,000 cash wages you pay to each employee for the state unemployment tax you pay. E file state taxes If your state tax rate (experience rate) is less than 5. E file state taxes 4%, you may still be allowed the full 5. E file state taxes 4% credit. E file state taxes   If you do not pay the state tax, you cannot take the credit. E file state taxes If you are exempt from state unemployment tax for any reason, the full 6. E file state taxes 0% rate applies. E file state taxes See the Instructions for Form 940 for additional information. E file state taxes More information. E file state taxes   For more information on FUTA tax, see Publication 51 (Circular A). E file state taxes Reporting and Paying FUTA Tax The FUTA tax is imposed on you as the employer. E file state taxes It must not be collected or deducted from the wages of your employees. E file state taxes Form 940. E file state taxes   Report FUTA tax on Form 940. E file state taxes The 2013 Form 940 is due January 31, 2014 (or February 10, 2014, if you timely deposited the full amount of your 2013 FUTA tax). E file state taxes Deposits. E file state taxes   If at the end of any calendar quarter you owe, but have not yet deposited, more than $500 in FUTA tax for the year, you must make a deposit by the end of the following month. E file state taxes If the undeposited tax is $500 or less at the end of a quarter, you do not have to deposit it. E file state taxes You can add it to the tax for the next quarter. E file state taxes If the total undeposited tax is more than $500 at the end of the next quarter, a deposit will be required. E file state taxes If the total undeposited tax at the end of the 4th quarter is $500 or less, you can either make a deposit or pay it with your return by the January 31, 2014, due date. E file state taxes Electronic deposit requirement. E file state taxes   You must use electronic funds transfer to make all federal tax deposits. E file state taxes Generally, electronic funds transfers are made using EFTPS. E file state taxes 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. E file state taxes Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. E file state taxes EFTPS is a free service provided by the Department of Treasury. E file state taxes Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. E file state taxes   For more information on making federal tax deposits, see section 7 of Publication 51 (Circular A). E file state taxes To get more information about EFTPS or to enroll in EFTPS, visit www. E file state taxes eftps. E file state taxes gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). E file state taxes Additional information about EFTPS is also available in Publication 966. E file state taxes Prev  Up  Next   Home   More Online Publications