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Free h&r block 6. Free h&r block   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. Free h&r block Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. Free h&r block Also use basis to figure depreciation, amortization, depletion, and casualty losses. Free h&r block If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Free h&r block Only the basis allocated to the business or investment use of the property can be depreciated. Free h&r block Your original basis in property is adjusted (increased or decreased) by certain events. Free h&r block For example, if you make improvements to the property, increase your basis. Free h&r block If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. Free h&r block Keep accurate records of all items that affect the basis of your assets. Free h&r block For information on keeping records, see chapter 1. Free h&r block Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. Free h&r block Cost Basis The basis of property you buy is usually its cost. Free h&r block Cost is the amount you pay in cash, debt obligations, other property, or services. Free h&r block Your cost includes amounts you pay for sales tax, freight, installation, and testing. Free h&r block The basis of real estate and business assets will include other items, discussed later. Free h&r block Basis generally does not include interest payments. Free h&r block However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. Free h&r block You also may have to capitalize (add to basis) certain other costs related to buying or producing property. Free h&r block Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. Free h&r block Loans with low or no interest. Free h&r block   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus the amount considered to be unstated interest. Free h&r block You generally have unstated interest if your interest rate is less than the applicable federal rate. Free h&r block See the discussion of unstated interest in Publication 537, Installment Sales. Free h&r block Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Free h&r block If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Free h&r block Some of these expenses are discussed next. Free h&r block Lump sum purchase. Free h&r block   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. Free h&r block Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Free h&r block Figure the basis of each asset by multiplying the lump sum by a fraction. Free h&r block The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Free h&r block Fair market value (FMV). Free h&r block   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Free h&r block Sales of similar property on or about the same date may help in figuring the FMV of the property. Free h&r block If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. Free h&r block Real estate taxes. Free h&r block   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Free h&r block   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. Free h&r block Whether or not you reimburse the seller, do not include that amount in the basis of your property. Free h&r block Settlement costs. Free h&r block   Your basis includes the settlement fees and closing costs for buying the property. Free h&r block See Publication 551 for a detailed list of items you can and cannot include in basis. Free h&r block   Do not include fees and costs for getting a loan on the property. Free h&r block Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Free h&r block Points. Free h&r block   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. Free h&r block You may be able to deduct the points currently or over the term of the loan. Free h&r block For more information about deducting points, see Points in chapter 4 of Publication 535. Free h&r block Assumption of a mortgage. Free h&r block   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. Free h&r block Example. Free h&r block If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. Free h&r block Constructing assets. Free h&r block   If you build property or have assets built for you, your expenses for this construction are part of your basis. Free h&r block Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. Free h&r block   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. Free h&r block You must capitalize them (include them in the asset's basis). Free h&r block Employee wages paid for the construction work, reduced by any employment credits allowed. Free h&r block Depreciation on equipment you own while it is used in the construction. Free h&r block Operating and maintenance costs for equipment used in the construction. Free h&r block The cost of business supplies and materials used in the construction. Free h&r block    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. Free h&r block Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. Free h&r block To determine the basis of these assets or separate items, there must be an allocation of basis. Free h&r block Group of assets acquired. Free h&r block   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Free h&r block Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. Free h&r block You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. Free h&r block If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. Free h&r block Farming business acquired. Free h&r block   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. Free h&r block Generally, reduce the purchase price by any cash received. Free h&r block Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. Free h&r block See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. Free h&r block Transplanted embryo. Free h&r block   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. Free h&r block Allocate the rest of the purchase price to the basis of the calf. Free h&r block Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. Free h&r block Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. Free h&r block You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Free h&r block Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. Free h&r block However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. Free h&r block You produce property if you construct, build, install, manufacture, develop, improve, or create the property. Free h&r block You are not subject to the uniform capitalization rules if the property is produced for personal use. Free h&r block In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. Free h&r block Plants. Free h&r block   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. Free h&r block Animals. Free h&r block   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. Free h&r block The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. Free h&r block Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. Free h&r block For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. Free h&r block For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. Free h&r block Exceptions. Free h&r block   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. Free h&r block   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. Free h&r block See Accrual Method Required under Accounting Methods in chapter 2. Free h&r block   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. Free h&r block If you make this election, special rules apply. Free h&r block This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. Free h&r block This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. Free h&r block    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. Free h&r block See chapter 7, for additional information on depreciation. Free h&r block Example. Free h&r block You grow trees that have a preproductive period of more than 2 years. Free h&r block The trees produce an annual crop. Free h&r block You are an individual and the uniform capitalization rules apply to your farming business. Free h&r block You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. Free h&r block You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. Free h&r block Preproductive period of more than 2 years. Free h&r block   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Free h&r block Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Free h&r block Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. Free h&r block More information. Free h&r block   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. Free h&r block 263A-4. Free h&r block Table 6-1. Free h&r block Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. Free h&r block Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. Free h&r block The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. Free h&r block Increases to Basis Increase the basis of any property by all items properly added to a capital account. Free h&r block These include the cost of any improvements having a useful life of more than 1 year. Free h&r block The following costs increase the basis of property. Free h&r block The cost of extending utility service lines to property. Free h&r block Legal fees, such as the cost of defending and perfecting title. Free h&r block Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. Free h&r block Assessments for items such as paving roads and building ditches that increase the value of the property assessed. Free h&r block Do not deduct these expenses as taxes. Free h&r block However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. Free h&r block If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. Free h&r block See chapter 7. Free h&r block Deducting vs. Free h&r block capitalizing costs. Free h&r block   Do not add to your basis costs you can deduct as current expenses. Free h&r block For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. Free h&r block However, you can elect either to deduct or to capitalize certain other costs. Free h&r block See chapter 7 in Publication 535. Free h&r block Decreases to Basis The following are some items that reduce the basis of property. Free h&r block Section 179 deduction. Free h&r block Deductions previously allowed or allowable for amortization, depreciation, and depletion. Free h&r block Alternative motor vehicle credit. Free h&r block See Form 8910. Free h&r block Alternative fuel vehicle refueling property credit. Free h&r block See Form 8911. Free h&r block Residential energy efficient property credits. Free h&r block See Form 5695. Free h&r block Investment credit (part or all) taken. Free h&r block Casualty and theft losses and insurance reimbursements. Free h&r block Payments you receive for granting an easement. Free h&r block Exclusion from income of subsidies for energy conservation measures. Free h&r block Certain canceled debt excluded from income. Free h&r block Rebates from a manufacturer or seller. Free h&r block Patronage dividends received from a cooperative association as a result of a purchase of property. Free h&r block See Patronage Dividends in chapter 3. Free h&r block Gas-guzzler tax. Free h&r block See Form 6197. Free h&r block Some of these items are discussed next. Free h&r block For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. Free h&r block Depreciation and section 179 deduction. Free h&r block   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. Free h&r block For more information on these deductions, see chapter 7. Free h&r block Section 179 deduction. Free h&r block   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. Free h&r block Depreciation. Free h&r block   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. Free h&r block If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. Free h&r block If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. Free h&r block   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. Free h&r block   See chapter 7 for information on figuring the depreciation you should have claimed. Free h&r block   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. Free h&r block Casualty and theft losses. Free h&r block   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. Free h&r block Also, decrease it by any deductible loss not covered by insurance. Free h&r block See chapter 11 for information about figuring your casualty or theft loss. Free h&r block   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. Free h&r block To make this determination, compare the repaired property to the property before the casualty. Free h&r block Easements. Free h&r block   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. Free h&r block It reduces the basis of the affected part of the property. Free h&r block If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Free h&r block See Easements and rights-of-way in chapter 3. Free h&r block Exclusion from income of subsidies for energy conservation measures. Free h&r block   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Free h&r block Reduce the basis of the property by the excluded amount. Free h&r block Canceled debt excluded from income. Free h&r block   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. Free h&r block A debt includes any indebtedness for which you are liable or which attaches to property you hold. Free h&r block   You can exclude your canceled debt from income if the debt is any of the following. Free h&r block Debt canceled in a bankruptcy case or when you are insolvent. Free h&r block Qualified farm debt. Free h&r block Qualified real property business debt (provided you are not a C corporation). Free h&r block Qualified principal residence indebtedness. Free h&r block Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. Free h&r block If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. Free h&r block If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. Free h&r block   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. Free h&r block For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. Free h&r block For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. Free h&r block For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Free h&r block Basis Other Than Cost There are times when you cannot use cost as basis. Free h&r block In these situations, the fair market value or the adjusted basis of property may be used. Free h&r block Examples are discussed next. Free h&r block Property changed from personal to business or rental use. Free h&r block   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. Free h&r block An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. Free h&r block   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. Free h&r block   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. Free h&r block The basis for figuring a gain is your adjusted basis in the property when you sell the property. Free h&r block Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Free h&r block Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Free h&r block Property received for services. Free h&r block   If you receive property for services, include the property's FMV in income. Free h&r block The amount you include in income becomes your basis. Free h&r block If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Free h&r block Example. Free h&r block George Smith is an accountant and also operates a farming business. Free h&r block George agreed to do some accounting work for his neighbor in exchange for a dairy cow. Free h&r block The accounting work and the cow are each worth $1,500. Free h&r block George must include $1,500 in income for his accounting services. Free h&r block George's basis in the cow is $1,500. Free h&r block Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. Free h&r block A taxable gain or deductible loss also is known as a recognized gain or loss. Free h&r block A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. Free h&r block If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Free h&r block Example. Free h&r block You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. Free h&r block You must report a taxable gain of $4,000 for the land. Free h&r block The tractor has a basis of $6,000. Free h&r block Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. Free h&r block Similar or related property. Free h&r block   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. Free h&r block However, make the following adjustments. Free h&r block Decrease the basis by the following amounts. Free h&r block Any loss you recognize on the involuntary conversion. Free h&r block Any money you receive that you do not spend on similar property. Free h&r block Increase the basis by the following amounts. Free h&r block Any gain you recognize on the involuntary conversion. Free h&r block Any cost of acquiring the replacement property. Free h&r block Money or property not similar or related. Free h&r block   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. Free h&r block Allocating the basis. Free h&r block   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Free h&r block Basis for depreciation. Free h&r block   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Free h&r block For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Free h&r block For more information about involuntary conversions, see chapter 11. Free h&r block Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Free h&r block A nontaxable gain or loss also is known as an unrecognized gain or loss. Free h&r block If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. Free h&r block Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Free h&r block For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. Free h&r block There must also be an exchange of like-kind property. Free h&r block For more information, see Like-Kind Exchanges in  chapter 8. Free h&r block The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. Free h&r block Example 1. Free h&r block You traded a truck you used in your farming business for a new smaller truck to use in farming. Free h&r block The adjusted basis of the old truck was $10,000. Free h&r block The FMV of the new truck is $30,000. Free h&r block Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. Free h&r block Example 2. Free h&r block You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). Free h&r block You use both the field cultivator and the planter in your farming business. Free h&r block The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. Free h&r block   Exchange expenses generally are the closing costs that you pay. Free h&r block They include such items as brokerage commissions, attorney fees, and deed preparation fees. Free h&r block Add them to the basis of the like-kind property you receive. Free h&r block Property plus cash. Free h&r block   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. Free h&r block Example. Free h&r block You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. Free h&r block Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). Free h&r block Special rules for related persons. Free h&r block   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. Free h&r block Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. Free h&r block Each person reports it on the tax return filed for the year in which the later disposition occurred. Free h&r block If this rule applies, the basis of the property received in the original exchange will be its FMV. Free h&r block For more information, see chapter 8. Free h&r block Exchange of business property. Free h&r block   Exchanging the property of one business for the property of another business generally is a multiple property exchange. Free h&r block For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. Free h&r block Basis for depreciation. Free h&r block   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. Free h&r block For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. Free h&r block Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Free h&r block The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. Free h&r block Decrease the basis by the following amounts. Free h&r block Any money you receive. Free h&r block Any loss you recognize on the exchange. Free h&r block Increase the basis by the following amounts. Free h&r block Any additional costs you incur. Free h&r block Any gain you recognize on the exchange. Free h&r block If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Free h&r block Example 1. Free h&r block You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. Free h&r block You realize a gain of $40,000. Free h&r block This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). Free h&r block Include your gain in income (recognize gain) only to the extent of the cash received. Free h&r block Your basis in the land you received is figured as follows. Free h&r block Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. Free h&r block You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. Free h&r block You realize a gain of $7,250. Free h&r block This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). Free h&r block You include all the gain in your income (recognize gain) because the gain is less than the cash you received. Free h&r block Your basis in the truck you received is figured as follows. Free h&r block Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. Free h&r block   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Free h&r block The rest is the basis of the like-kind property. Free h&r block Example. Free h&r block You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. Free h&r block You also received $1,000 cash and a truck that had an FMV of $3,000. Free h&r block The truck is unlike property. Free h&r block You realized a gain of $1,500. Free h&r block This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). Free h&r block You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. Free h&r block Your basis in the properties you received is figured as follows. Free h&r block Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). Free h&r block This is the truck's FMV. Free h&r block The rest ($12,500) is the basis of the tractor. Free h&r block Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. Free h&r block Example. Free h&r block You used a tractor on your farm for 3 years. Free h&r block Its adjusted basis is $22,000 and its FMV is $40,000. Free h&r block You are interested in a new tractor, which sells for $60,000. Free h&r block Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. Free h&r block Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). Free h&r block However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. Free h&r block Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). Free h&r block Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. Free h&r block Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. Free h&r block You also must know its FMV at the time it was given to you and any gift tax paid on it. Free h&r block FMV equal to or greater than donor's adjusted basis. Free h&r block   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. Free h&r block Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Free h&r block   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Free h&r block See Adjusted Basis , earlier. Free h&r block   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Free h&r block Figure the increase by multiplying the gift tax paid by the following fraction. Free h&r block Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Free h&r block The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Free h&r block Example. Free h&r block In 2013, you received a gift of property from your mother that had an FMV of $50,000. Free h&r block Her adjusted basis was $20,000. Free h&r block The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Free h&r block She paid a gift tax of $7,320. Free h&r block Your basis, $26,076, is figured as follows. Free h&r block Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Free h&r block 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Free h&r block If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Free h&r block However, your basis cannot exceed the FMV of the gift when it was given to you. Free h&r block FMV less than donor's adjusted basis. Free h&r block   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Free h&r block Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Free h&r block Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Free h&r block (See Adjusted Basis , earlier. Free h&r block )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. Free h&r block Example. Free h&r block You received farmland as a gift from your parents when they retired from farming. Free h&r block At the time of the gift, the land had an FMV of $80,000. Free h&r block Your parents' adjusted basis was $100,000. Free h&r block After you received the land, no events occurred that would increase or decrease your basis. Free h&r block If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. Free h&r block If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. Free h&r block If the sales price is between $80,000 and $100,000, you have neither gain nor loss. Free h&r block For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. Free h&r block If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. Free h&r block Business property. Free h&r block   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Free h&r block Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Free h&r block The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. Free h&r block However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. Free h&r block The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Free h&r block For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. Free h&r block Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Free h&r block If a federal estate return is filed, you can use its appraised value. Free h&r block The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. Free h&r block For information on the alternate valuation, see the Instructions for Form 706. Free h&r block The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. Free h&r block If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Free h&r block Special-use valuation method. Free h&r block   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. Free h&r block If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. Free h&r block If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. Free h&r block The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. Free h&r block   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. Free h&r block Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. Free h&r block Figure all FMVs without regard to the special-use valuation. Free h&r block   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. Free h&r block This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. Free h&r block The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. Free h&r block   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. Free h&r block To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. Free h&r block If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. Free h&r block The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. Free h&r block   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. Free h&r block   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. Free h&r block Property inherited from a decedent who died in 2010. Free h&r block   If you inherited property from a decedent who died in 2010, different rules may apply. Free h&r block See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. Free h&r block Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. Free h&r block Partner's basis. Free h&r block   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. Free h&r block However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Free h&r block For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. Free h&r block Shareholder's basis. Free h&r block   The basis of property distributed by a corporation to a shareholder is its fair market value. Free h&r block For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. Free h&r block Prev  Up  Next   Home   More Online Publications
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Taxpayer Rights

Whether you file a Form 1040EZ or a complicated corporate return, you will benefit from knowing your rights as a taxpayer and being familiar with the IRS' obligations to protect them. The goal of the Taxpayer Rights Corner is to be your one-stop shop for taxpayer rights information during every step of your interaction with the IRS.


Know Your Rights

You have rights as a taxpayer when dealing with the IRS.


Your Civil Rights Are Protected

Under no circumstances will the Internal Revenue Service tolerate discrimination by its employees, grantees, contractors, and/or subcontractors. NO ONE shall be excluded from participating in, be denied the benefits of, or be subject to discrimination because of: race, color, sex, national origin, disability, reprisal, or age in programs or activities funded by the Department of Treasury - Internal Revenue Service.


Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an IRS program that provides an independent system to assure that tax problems, which have not been resolved through normal channels, are promptly and fairly handled.


Notices

What should you do if you receive a notice from the IRS?


Your Rights to Representation

Learn more about granting power of attorney.

You are entitled to similar protection of confidentiality with respect to tax advice given by a federally authorized tax practitioner as with an attorney.

Every taxpayer is entitled to have access to representation. The Low Income Tax Clinic grant program is designed to help accredited academic institutions and non-profit organizations provide low to no-cost tax assistance (such as representing the taxpayer during an audit or tax collection effort) and/or tax outreach to taxpayers for whom English is a second language. 

  • Frequently Asked Questions

Examination

We accept most taxpayer's returns as filed. If we inquire about your return or select it for examination, it does not suggest that you are dishonest. The inquiry or examination may or may not result in more tax. To learn about your rights during the examination process, and for information about how audits are conducted;


Appeal Rights

It is your right to appeal any action taken by the IRS to change your account.


Collection Process

Learn about the process IRS may follow to collect overdue taxes, including a summary of your rights and other important information about the collection process.


Innocent Spouse

The Reform Act of 1998, broadened the relief from joint liability available to spouses who file joint returns.


Refund Offset

If you are due a refund but have not paid certain amounts you owe, all or part of your refund may be used to pay all or part of the past-due amount. This includes past-due federal income tax, other federal debts (such as student loans), state income tax, and child and spousal support payments.


Where To Go For 1040 Help?

The IRS sponsors volunteer assistance programs and offers help to taxpayers in many of its offices and other community locations.

Page Last Reviewed or Updated: 14-Mar-2014

The Free H&r Block

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