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Free Tax Software For 2012

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Free Tax Software For 2012

Free tax software for 2012 Publication 15 - Main Content Table of Contents 1. Free tax software for 2012 Employer Identification Number (EIN) 2. Free tax software for 2012 Who Are Employees?Relief provisions. Free tax software for 2012 Business Owned and Operated by Spouses 3. Free tax software for 2012 Family Employees 4. Free tax software for 2012 Employee's Social Security Number (SSN)Registering for SSNVS. Free tax software for 2012 5. Free tax software for 2012 Wages and Other CompensationAccountable plan. Free tax software for 2012 Nonaccountable plan. Free tax software for 2012 Per diem or other fixed allowance. Free tax software for 2012 50% test. Free tax software for 2012 Health Savings Accounts and medical savings accounts. Free tax software for 2012 Nontaxable fringe benefits. Free tax software for 2012 When fringe benefits are treated as paid. Free tax software for 2012 Valuation of fringe benefits. Free tax software for 2012 Withholding on fringe benefits. Free tax software for 2012 Depositing taxes on fringe benefits. Free tax software for 2012 6. Free tax software for 2012 TipsOrdering rule. Free tax software for 2012 7. Free tax software for 2012 Supplemental Wages 8. Free tax software for 2012 Payroll Period 9. Free tax software for 2012 Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Free tax software for 2012 Required Notice to Employees About the Earned Income Credit (EIC) 11. Free tax software for 2012 Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Free tax software for 2012 Filing Form 941 or Form 944 13. Free tax software for 2012 Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Free tax software for 2012 Federal Unemployment (FUTA) TaxSuccessor employer. Free tax software for 2012 Household employees. Free tax software for 2012 When to deposit. Free tax software for 2012 Household employees. Free tax software for 2012 Electronic filing by reporting agents. Free tax software for 2012 16. Free tax software for 2012 How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Free tax software for 2012 Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Free tax software for 2012 The EIN is a nine-digit number the IRS issues. Free tax software for 2012 The digits are arranged as follows: 00-0000000. Free tax software for 2012 It is used to identify the tax accounts of employers and certain others who have no employees. Free tax software for 2012 Use your EIN on all of the items you send to the IRS and SSA. Free tax software for 2012 For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Free tax software for 2012 If you do not have an EIN, you may apply for one online. Free tax software for 2012 Go to the IRS. Free tax software for 2012 gov and click on the Apply for an EIN Online link under Tools. Free tax software for 2012 You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Free tax software for 2012 Do not use an SSN in place of an EIN. Free tax software for 2012 You should have only one EIN. Free tax software for 2012 If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Free tax software for 2012 Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Free tax software for 2012 The IRS will tell you which number to use. Free tax software for 2012 If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Free tax software for 2012 If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. Free tax software for 2012 2. Free tax software for 2012 Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Free tax software for 2012 See Publication 15-A for details on statutory employees and nonemployees. Free tax software for 2012 Employee status under common law. Free tax software for 2012   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. Free tax software for 2012 This is so even when you give the employee freedom of action. Free tax software for 2012 What matters is that you have the right to control the details of how the services are performed. Free tax software for 2012 See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Free tax software for 2012   Generally, people in business for themselves are not employees. Free tax software for 2012 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 tax software for 2012 However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Free tax software for 2012   If an employer-employee relationship exists, it does not matter what it is called. Free tax software for 2012 The employee may be called an agent or independent contractor. Free tax software for 2012 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 tax software for 2012 Statutory employees. Free tax software for 2012   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Free tax software for 2012 Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. Free tax software for 2012 An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Free tax software for 2012 A full-time life insurance salesperson who sells primarily for one company. Free tax software for 2012 A homeworker who works by 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 tax software for 2012 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 tax software for 2012 The orders must be for merchandise for resale or supplies for use in the customer's business. Free tax software for 2012 The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Free tax software for 2012    Statutory nonemployees. Free tax software for 2012   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Free tax software for 2012 They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Free tax software for 2012 H-2A agricultural workers. Free tax software for 2012   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Free tax software for 2012 Treating employees as nonemployees. Free tax software for 2012   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. Free tax software for 2012 You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. Free tax software for 2012 The applicable rates depend on whether you filed required Forms 1099. Free tax software for 2012 You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. Free tax software for 2012 You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Free tax software for 2012 You continue to owe the full employer share of social security and Medicare taxes. Free tax software for 2012 The employee remains liable for the employee share of social security and Medicare taxes. Free tax software for 2012 See Internal Revenue Code section 3509 for details. Free tax software for 2012 Also see the Instructions for Form 941-X. Free tax software for 2012   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Free tax software for 2012 Section 3509 is not available for reclassifying statutory employees. Free tax software for 2012 See Statutory employees , earlier in this section. Free tax software for 2012   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Free tax software for 2012 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Free tax software for 2012 For Medicare taxes; employer rate of 1. Free tax software for 2012 45% plus 20% of the employee rate of 1. Free tax software for 2012 45%, for a total rate of 1. Free tax software for 2012 74% of wages. Free tax software for 2012 For Additional Medicare Tax; 0. Free tax software for 2012 18% (20% of the employee rate of 0. Free tax software for 2012 9%) of wages subject to Additional Medicare Tax. Free tax software for 2012 For income tax withholding, the rate is 1. Free tax software for 2012 5% of wages. Free tax software for 2012   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Free tax software for 2012 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Free tax software for 2012 For Medicare taxes; employer rate of 1. Free tax software for 2012 45% plus 40% of the employee rate of 1. Free tax software for 2012 45%, for a total rate of 2. Free tax software for 2012 03% of wages. Free tax software for 2012 For Additional Medicare Tax; 0. Free tax software for 2012 36% (40% of the employee rate of 0. Free tax software for 2012 9%) of wages subject to Additional Medicare Tax. Free tax software for 2012 For income tax withholding, the rate is 3. Free tax software for 2012 0% of wages. Free tax software for 2012 Relief provisions. Free tax software for 2012   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Free tax software for 2012 To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. Free tax software for 2012 You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Free tax software for 2012 See Publication 1976, Do You Qualify for Relief Under Section 530. Free tax software for 2012 IRS help. Free tax software for 2012   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Free tax software for 2012 Voluntary Classification Settlement Program (VCSP). Free tax software for 2012   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 tax software for 2012 To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Free tax software for 2012 For more information visit IRS. Free tax software for 2012 gov and enter “VCSP” in the search box. Free tax software for 2012 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 tax software for 2012 See Publication 541, Partnerships, for more details. Free tax software for 2012 The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Free tax software for 2012 Exception—Qualified joint venture. Free tax software for 2012   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. Free tax software for 2012 A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). Free tax software for 2012   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. Free tax software for 2012 Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Free tax software for 2012   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Free tax software for 2012 If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. Free tax software for 2012 Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Free tax software for 2012 However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. Free tax software for 2012    Note. Free tax software for 2012 If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Free tax software for 2012   For more information on qualified joint ventures, visit IRS. Free tax software for 2012 gov and enter “qualified joint venture” in the search box. Free tax software for 2012 Exception—Community income. Free tax software for 2012   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Free tax software for 2012 S. Free tax software for 2012 possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Free tax software for 2012 You may still make an election to be taxed as a qualified joint venture instead of a partnership. Free tax software for 2012 See Exception—Qualified joint venture , earlier. Free tax software for 2012 3. Free tax software for 2012 Family Employees Child employed by parents. Free tax software for 2012   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Free tax software for 2012 If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. Free tax software for 2012 However, see Covered services of a child or spouse , later in this section. Free tax software for 2012 Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. Free tax software for 2012 Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. Free tax software for 2012 One spouse employed by another. Free tax software for 2012   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. Free tax software for 2012 However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. Free tax software for 2012 Covered services of a child or spouse. Free tax software for 2012   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. Free tax software for 2012 Parent employed by son or daughter. Free tax software for 2012   When the employer is a son or daughter employing his or her parent the following rules apply. Free tax software for 2012 Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. Free tax software for 2012 Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. Free tax software for 2012    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. Free tax software for 2012   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Free tax software for 2012 4. Free tax software for 2012 Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. Free tax software for 2012 This requirement also applies to resident and nonresident alien employees. Free tax software for 2012 You should ask your employee to show you his or her social security card. Free tax software for 2012 The employee may show the card if it is available. Free tax software for 2012 Do not accept a social security card that says “Not valid for employment. Free tax software for 2012 ” A social security number issued with this legend does not permit employment. Free tax software for 2012 You may, but are not required to, photocopy the social security card if the employee provides it. Free tax software for 2012 If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Free tax software for 2012 See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Free tax software for 2012 Applying for a social security card. Free tax software for 2012   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation. Free tax software for 2012 You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Free tax software for 2012 socialsecurity. Free tax software for 2012 gov/online/ss-5. Free tax software for 2012 html. Free tax software for 2012 The employee must complete and sign Form SS-5; it cannot be filed by the employer. Free tax software for 2012 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 tax software for 2012 Applying for a social security number. Free tax software for 2012   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Free tax software for 2012 If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Free tax software for 2012 When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. Free tax software for 2012 Furnish copies B, C, and 2 of Form W-2c to the employee. Free tax software for 2012 Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. Free tax software for 2012 For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Free tax software for 2012 socialsecurity. Free tax software for 2012 gov/employer. Free tax software for 2012 Advise your employee to correct the SSN on his or her original Form W-2. Free tax software for 2012 Correctly record the employee's name and SSN. Free tax software for 2012   Record the name and number of each employee as they are shown on the employee's social security card. Free tax software for 2012 If the employee's 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 tax software for 2012 Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. Free tax software for 2012 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 for the most recently filed Form W-2. Free tax software for 2012 It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. Free tax software for 2012 IRS individual taxpayer identification numbers (ITINs) for aliens. Free tax software for 2012   Do not accept an ITIN in place of an SSN for employee identification or for work. Free tax software for 2012 An ITIN is only available to resident and nonresident aliens who are not eligible for U. Free tax software for 2012 S. Free tax software for 2012 employment and need identification for other tax purposes. Free tax software for 2012 You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). Free tax software for 2012    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Free tax software for 2012 If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier. Free tax software for 2012 Do not use an ITIN in place of an SSN on Form W-2. Free tax software for 2012 Verification of social security numbers. Free tax software for 2012   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 tax software for 2012 Visit www. Free tax software for 2012 socialsecurity. Free tax software for 2012 gov/employer/ssnv. Free tax software for 2012 htm for more information. Free tax software for 2012 Registering for SSNVS. Free tax software for 2012   You must register online and receive authorization from your employer to use SSNVS. Free tax software for 2012 To register, visit SSA's website at www. Free tax software for 2012 ssa. Free tax software for 2012 gov/employer and click on the Business Services Online link. Free tax software for 2012 Follow the registration instructions to obtain a user identification (ID) and password. Free tax software for 2012 You will need to provide the following information about yourself and your company. Free tax software for 2012 Name. Free tax software for 2012 SSN. Free tax software for 2012 Date of birth. Free tax software for 2012 Type of employer. Free tax software for 2012 EIN. Free tax software for 2012 Company name, address, and telephone number. Free tax software for 2012 Email address. Free tax software for 2012   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Free tax software for 2012 You must enter the activation code online to use SSNVS. Free tax software for 2012 5. Free tax software for 2012 Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Free tax software for 2012 The pay may be in cash or in other forms. Free tax software for 2012 It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Free tax software for 2012 It does not matter how you measure or make the payments. Free tax software for 2012 Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. Free tax software for 2012 Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Free tax software for 2012 More information. Free tax software for 2012   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Free tax software for 2012 Also, see section 15 for exceptions to the general rules for wages. Free tax software for 2012 Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Free tax software for 2012 Publication 15-B provides information on other forms of compensation, including: Accident and health benefits, Achievement awards, Adoption assistance, Athletic facilities, De minimis (minimal) benefits, Dependent care assistance, Educational assistance, Employee discounts, Employee stock options, Employer-provided cell phones, Group-term life insurance coverage, Health Savings Accounts, Lodging on your business premises, Meals, Moving expense reimbursements, No-additional-cost services, Retirement planning services, Transportation (commuting) benefits, Tuition reduction, and Working condition benefits. Free tax software for 2012 Employee business expense reimbursements. Free tax software for 2012   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Free tax software for 2012 How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Free tax software for 2012 If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Free tax software for 2012   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Free tax software for 2012 Accountable plan. Free tax software for 2012   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Free tax software for 2012 They must have paid or incurred deductible expenses while performing services as your employees. Free tax software for 2012 The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. Free tax software for 2012 They must substantiate these expenses to you within a reasonable period of time. Free tax software for 2012 They must return any amounts in excess of substantiated expenses within a reasonable period of time. Free tax software for 2012   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Free tax software for 2012   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. Free tax software for 2012 This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. Free tax software for 2012   A reasonable period of time depends on the facts and circumstances. Free tax software for 2012 Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Free tax software for 2012 Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. Free tax software for 2012 Nonaccountable plan. Free tax software for 2012   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Free tax software for 2012 Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. Free tax software for 2012   See section 7 for more information on supplemental wages. Free tax software for 2012 Per diem or other fixed allowance. Free tax software for 2012   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Free tax software for 2012 In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Free tax software for 2012 The 2013 standard mileage rate for auto expenses was 56. Free tax software for 2012 5 cents per mile. Free tax software for 2012 The rate for 2014 is 56 cents per mile. Free tax software for 2012   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Free tax software for 2012 Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). Free tax software for 2012   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Free tax software for 2012 This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Free tax software for 2012 Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Free tax software for 2012 ” Wages not paid in money. Free tax software for 2012   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. Free tax software for 2012 ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Free tax software for 2012 Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Free tax software for 2012   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. Free tax software for 2012 Withhold income tax on these payments only if you and the employee agree to do so. Free tax software for 2012 Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. Free tax software for 2012 Moving expenses. Free tax software for 2012   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. Free tax software for 2012 Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Free tax software for 2012 For more information on moving expenses, see Publication 521, Moving Expenses. Free tax software for 2012 Meals and lodging. Free tax software for 2012   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. Free tax software for 2012 The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. Free tax software for 2012    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. Free tax software for 2012 For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. Free tax software for 2012   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Free tax software for 2012 A written statement that the meals or lodging are for your convenience is not sufficient. Free tax software for 2012 50% test. Free tax software for 2012   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. Free tax software for 2012 If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. Free tax software for 2012 For more information, see Publication 15-B. Free tax software for 2012 Health insurance plans. Free tax software for 2012   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Free tax software for 2012 Generally, this exclusion also applies to qualified long-term care insurance contracts. Free tax software for 2012 However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). Free tax software for 2012 For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. Free tax software for 2012 See Announcement 92-16 for more information. Free tax software for 2012 You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Free tax software for 2012 Health Savings Accounts and medical savings accounts. Free tax software for 2012   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. Free tax software for 2012 To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Free tax software for 2012 Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. Free tax software for 2012 However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. Free tax software for 2012 For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Free tax software for 2012 Medical care reimbursements. Free tax software for 2012   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. Free tax software for 2012 See Publication 15-B for an exception for highly compensated employees. Free tax software for 2012 Differential wage payments. Free tax software for 2012   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. Free tax software for 2012   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Free tax software for 2012 Employers should report differential wage payments in box 1 of Form W-2. Free tax software for 2012 For more information about the tax treatment of differential wage payments, visit IRS. Free tax software for 2012 gov and enter “employees in a combat zone” in the search box. Free tax software for 2012 Fringe benefits. Free tax software for 2012   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Free tax software for 2012 The benefits are subject to income tax withholding and employment taxes. Free tax software for 2012 Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Free tax software for 2012 In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. Free tax software for 2012 There are other special rules you and your employees may use to value certain fringe benefits. Free tax software for 2012 See Publication 15-B for more information. Free tax software for 2012 Nontaxable fringe benefits. Free tax software for 2012   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Free tax software for 2012 See Publication 15-B for details. Free tax software for 2012 The following are some examples of nontaxable fringe benefits. Free tax software for 2012 Services provided to your employees at no additional cost to you. Free tax software for 2012 Qualified employee discounts. Free tax software for 2012 Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Free tax software for 2012 Examples include a company car for business use and subscriptions to business magazines. Free tax software for 2012 Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). Free tax software for 2012 Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Free tax software for 2012 Qualified moving expense reimbursement. Free tax software for 2012 See Moving expenses , earlier in this section, for details. Free tax software for 2012 The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Free tax software for 2012 Qualified tuition reduction an educational organization provides to its employees for education. Free tax software for 2012 For more information, see Publication 970, Tax Benefits for Education. Free tax software for 2012 Employer-provided cell phones provided primarily for a noncompensatory business reason. Free tax software for 2012   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. Free tax software for 2012 No-additional-cost services. Free tax software for 2012 Qualified employee discounts. Free tax software for 2012 Meals provided at an employer operated eating facility. Free tax software for 2012 Reduced tuition for education. Free tax software for 2012  For more information, including the definition of a highly compensated employee, see Publication 15-B. Free tax software for 2012 When fringe benefits are treated as paid. Free tax software for 2012   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. Free tax software for 2012 You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Free tax software for 2012 You do not have to make this choice for all employees. Free tax software for 2012 You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. Free tax software for 2012 See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Free tax software for 2012 Valuation of fringe benefits. Free tax software for 2012   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Free tax software for 2012 Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Free tax software for 2012 Withholding on fringe benefits. Free tax software for 2012   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. Free tax software for 2012 However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Free tax software for 2012   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Free tax software for 2012 You must, however, withhold social security and Medicare taxes on the use of the vehicle. Free tax software for 2012 See Publication 15-B for more information on this election. Free tax software for 2012 Depositing taxes on fringe benefits. Free tax software for 2012   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Free tax software for 2012 To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Free tax software for 2012   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. Free tax software for 2012 See Valuation of fringe benefits , earlier. Free tax software for 2012 If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Free tax software for 2012 See section 11 for information on deposit penalties. Free tax software for 2012   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. Free tax software for 2012 However, you must recover the income taxes before April 1 of the following year. Free tax software for 2012 Sick pay. Free tax software for 2012   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. Free tax software for 2012 These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Free tax software for 2012 In either case, these payments are subject to social security, Medicare, and FUTA taxes. Free tax software for 2012 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 tax software for 2012 The payments are always subject to federal income tax. Free tax software for 2012 See Publication 15-A for more information. Free tax software for 2012 6. Free tax software for 2012 Tips Tips your employee receives from customers are generally subject to withholding. Free tax software for 2012 Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Free tax software for 2012 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 tax software for 2012 Both directly and indirectly tipped employees must report tips to you. Free tax software for 2012 No report is required for months when tips are less than $20. Free tax software for 2012 Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Free tax software for 2012 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 the report covers, and The total of tips received during the month or period. Free tax software for 2012 Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. Free tax software for 2012 You are permitted to establish a system for electronic tip reporting by employees. Free tax software for 2012 See Regulations section 31. Free tax software for 2012 6053-1(d). Free tax software for 2012 Collecting taxes on tips. Free tax software for 2012   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Free tax software for 2012 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 tax software for 2012 If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Free tax software for 2012   You can collect these taxes from the employee's wages or from other funds he or she makes available. Free tax software for 2012 See Tips treated as supplemental wages in section 7 for more information. Free tax software for 2012 Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. Free tax software for 2012 You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Free tax software for 2012 You are responsible for the employer Medicare tax for the whole year on all wages and tips. Free tax software for 2012 File Form 941 or Form 944 to report withholding and employment taxes on tips. Free tax software for 2012 Ordering rule. Free tax software for 2012   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. Free tax software for 2012 If there are not enough funds available, withhold taxes in the following order. Free tax software for 2012 Withhold on regular wages and other compensation. Free tax software for 2012 Withhold social security and Medicare taxes on tips. Free tax software for 2012 Withhold income tax on tips. Free tax software for 2012 Reporting tips. Free tax software for 2012   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Free tax software for 2012 Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Free tax software for 2012 Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Free tax software for 2012 ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Free tax software for 2012 See section 13 and the General Instructions for Forms W-2 and W-3. Free tax software for 2012   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 tax software for 2012 See Revenue Ruling 2012-18, 2012-26 I. Free tax software for 2012 R. Free tax software for 2012 B. Free tax software for 2012 1032, available at www. Free tax software for 2012 irs. Free tax software for 2012 gov/irb/2012-26_IRB/ar07. Free tax software for 2012 html. Free tax software for 2012 Allocated tips. Free tax software for 2012   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Free tax software for 2012 However, do not withhold income, social security, or Medicare taxes on allocated tips. Free tax software for 2012   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. Free tax software for 2012   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Free tax software for 2012 For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. Free tax software for 2012 For information on filing Form 8027 electronically with the IRS, see Publication 1239. Free tax software for 2012 Tip Rate Determination and Education Program. Free tax software for 2012   Employers may participate in the Tip Rate Determination and Education Program. Free tax software for 2012 The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. Free tax software for 2012 The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Free tax software for 2012 A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Free tax software for 2012 To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Free tax software for 2012 Additionally, visit IRS. Free tax software for 2012 gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Free tax software for 2012 7. Free tax software for 2012 Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Free tax software for 2012 They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Free tax software for 2012 Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Free tax software for 2012 How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Free tax software for 2012 See Regulations section 31. Free tax software for 2012 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Free tax software for 2012 Also see Revenue Ruling 2008-29, 2008-24 I. Free tax software for 2012 R. Free tax software for 2012 B. Free tax software for 2012 1149, available at www. Free tax software for 2012 irs. Free tax software for 2012 gov/irb/2008-24_IRB/ar08. Free tax software for 2012 html. Free tax software for 2012 Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Free tax software for 2012   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Free tax software for 2012 If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. Free tax software for 2012 6% (or the highest rate of income tax for the year). Free tax software for 2012 Withhold using the 39. Free tax software for 2012 6% rate without regard to the employee's Form W-4. Free tax software for 2012 In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Free tax software for 2012 For more information, see Treasury Decision 9276, 2006-37 I. Free tax software for 2012 R. Free tax software for 2012 B. Free tax software for 2012 423, available at www. Free tax software for 2012 irs. Free tax software for 2012 gov/irb/2006-37_IRB/ar09. Free tax software for 2012 html. Free tax software for 2012 Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Free tax software for 2012   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. Free tax software for 2012 Supplemental wages combined with regular wages. Free tax software for 2012   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. Free tax software for 2012 Supplemental wages identified separately from regular wages. Free tax software for 2012   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages. Free tax software for 2012 If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Free tax software for 2012 Withhold a flat 25% (no other percentage allowed). Free tax software for 2012 If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Free tax software for 2012 If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Free tax software for 2012 Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Free tax software for 2012 Subtract the tax withheld from the regular wages. Free tax software for 2012 Withhold the remaining tax from the supplemental wages. Free tax software for 2012 If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax. Free tax software for 2012 If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. Free tax software for 2012 This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Free tax software for 2012 Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Free tax software for 2012 Example 1. Free tax software for 2012 You pay John Peters a base salary on the 1st of each month. Free tax software for 2012 He is single and claims one withholding allowance. Free tax software for 2012 In January he is paid $1,000. Free tax software for 2012 Using the wage bracket tables, you withhold $50 from this amount. Free tax software for 2012 In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. Free tax software for 2012 You figure the withholding based on the total of $3,000. Free tax software for 2012 The correct withholding from the tables is $338. Free tax software for 2012 Example 2. Free tax software for 2012 You pay Sharon Warren a base salary on the 1st of each month. Free tax software for 2012 She is single and claims one allowance. Free tax software for 2012 Her May 1 pay is $2,000. Free tax software for 2012 Using the wage bracket tables, you withhold $188. Free tax software for 2012 On May 14 she receives a bonus of $1,000. Free tax software for 2012 Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). Free tax software for 2012 Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Free tax software for 2012 Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Free tax software for 2012 Withhold $150 from the bonus payment. Free tax software for 2012 Example 3. Free tax software for 2012 The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Free tax software for 2012 You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Free tax software for 2012 Example 4. Free tax software for 2012 The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Free tax software for 2012 Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). Free tax software for 2012 Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Free tax software for 2012 Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). Free tax software for 2012 Withhold $443 from the second bonus payment. Free tax software for 2012 Tips treated as supplemental wages. Free tax software for 2012   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Free tax software for 2012 If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Free tax software for 2012 If you have not withheld income tax from the regular wages, add the tips to the regular wages. Free tax software for 2012 Then withhold income tax on the total. Free tax software for 2012 If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. Free tax software for 2012 Vacation pay. Free tax software for 2012   Vacation pay is subject to withholding as if it were a regular wage payment. Free tax software for 2012 When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Free tax software for 2012 If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. Free tax software for 2012 8. Free tax software for 2012 Payroll Period Your payroll period is a period of service for which you usually pay wages. Free tax software for 2012 When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Free tax software for 2012 No regular payroll period. Free tax software for 2012   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Free tax software for 2012 Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Free tax software for 2012 If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. Free tax software for 2012 Employee paid for period less than 1 week. Free tax software for 2012   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. Free tax software for 2012 If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Free tax software for 2012 You then figure withholding based on the daily or miscellaneous period. Free tax software for 2012 9. Free tax software for 2012 Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Free tax software for 2012   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Free tax software for 2012 Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. Free tax software for 2012 Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Free tax software for 2012 irs. Free tax software for 2012 gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Free tax software for 2012   Ask all new employees to give you a signed Form W-4 when they start work. Free tax software for 2012 Make the form effective with the first wage payment. Free tax software for 2012 If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. Free tax software for 2012 Form in Spanish. Free tax software for 2012   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. Free tax software for 2012 For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Free tax software for 2012 The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Free tax software for 2012 Electronic system to receive Form W-4. Free tax software for 2012   You may establish a system to electronically receive Forms W-4 from your employees. Free tax software for 2012 See Regulations section 31. Free tax software for 2012 3402(f)(5)-1(c) for more information. Free tax software for 2012 Effective date of Form W-4. Free tax software for 2012   A Form W-4 remains in effect until the employee gives you a new one. Free tax software for 2012 When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. Free tax software for 2012 If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. Free tax software for 2012 For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. Free tax software for 2012 A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Free tax software for 2012 Successor employer. Free tax software for 2012   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. Free tax software for 2012 See Revenue Procedure 2004-53, 2004-34 I. Free tax software for 2012 R. Free tax software for 2012 B. Free tax software for 2012 320, available at www. Free tax software for 2012 irs. Free tax software for 2012 gov/irb/2004-34_IRB/ar13. Free tax software for 2012 html. Free tax software for 2012 Completing Form W-4. Free tax software for 2012   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Free tax software for 2012 Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Free tax software for 2012 However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. Free tax software for 2012 Employees may claim fewer withholding allowances than they are entitled to claim. Free tax software for 2012 They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. Free tax software for 2012 See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Free tax software for 2012 Along with Form W-4, you may wish to order Publication 505 for use by your employees. Free tax software for 2012 Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Free tax software for 2012 If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. Free tax software for 2012 Exemption from federal income tax withholding. Free tax software for 2012   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. Free tax software for 2012 See the Form W-4 instructions for more information. Free tax software for 2012 However, the wages are still subject to social security and Medicare taxes. Free tax software for 2012 See also Invalid Forms W-4 , later in this section. Free tax software for 2012   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Free tax software for 2012 To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. Free tax software for 2012 If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. Free tax software for 2012 If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. Free tax software for 2012 Withholding income taxes on the wages of nonresident alien employees. Free tax software for 2012   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Free tax software for 2012 However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Free tax software for 2012 Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Free tax software for 2012 Withholding adjustment for nonresident alien employees. Free tax software for 2012   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. Free tax software for 2012 Nonresident alien students from India and business apprentices from India are not subject to this procedure. Free tax software for 2012 Instructions. Free tax software for 2012   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. Free tax software for 2012 Step 1. Free tax software for 2012   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. Free tax software for 2012    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Free tax software for 2012 30     Biweekly 86. Free tax software for 2012 50     Semimonthly 93. Free tax software for 2012 80     Monthly 187. Free tax software for 2012 50     Quarterly 562. Free tax software for 2012 50     Semiannually 1,125. Free tax software for 2012 00     Annually 2,250. Free tax software for 2012 00     Daily or Miscellaneous (each day of the payroll period) 8. Free tax software for 2012 70   Step 2. Free tax software for 2012   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Free tax software for 2012 Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Free tax software for 2012 Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Free tax software for 2012 If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. Free tax software for 2012 If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. Free tax software for 2012 The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Free tax software for 2012 The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Free tax software for 2012 Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Free tax software for 2012 This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Free tax software for 2012 Example. Free tax software for 2012 An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Free tax software for 2012 The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). Free tax software for 2012 The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. Free tax software for 2012 50 from the chart under Step 1 ($586. Free tax software for 2012 50 total). Free tax software for 2012 The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Free tax software for 2012 Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. Free tax software for 2012 The $86. Free tax software for 2012 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. Free tax software for 2012 Also, the $86. Free tax software for 2012 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Free tax software for 2012 Supplemental wage payment. Free tax software for 2012   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Free tax software for 2012 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. Free tax software for 2012 Nonresident alien employee's Form W-4. Free tax software for 2012   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding, Request withholding as if they are single, regardless of their actual marital status, Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. Free tax software for 2012   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Free tax software for 2012 A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. Free tax software for 2012 Form 8233. Free tax software for 2012   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. Free tax software for 2012 See Publication 515 for details. Free tax software for 2012 IRS review of requested Forms W-4. Free tax software for 2012   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Free tax software for 2012 You may also be directed to send certain Forms W-4 to the IRS. Free tax software for 2012 You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. Free tax software for 2012 Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. Free tax software for 2012 The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. Free tax software for 2012 R. Free tax software for 2012 B. Free tax software for 2012 455, which is available at www. Free tax software for 2012 irs. Free tax software for 2012 gov/irb/2007-35_IRB/ar10. Free tax software for 2012 html. Free tax software for 2012 When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Free tax software for 2012 After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). Free tax software for 2012 However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter
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The Free Tax Software For 2012

Free tax software for 2012 1. Free tax software for 2012   Tax Withholding for 2014 Table of Contents Introduction Useful Items - You may want to see: Salaries and WagesDetermining Amount of Tax Withheld Using Form W-4 Completing Form W-4 and Worksheets Getting the Right Amount of Tax Withheld Rules Your Employer Must Follow Exemption From Withholding Supplemental Wages Penalties Tips Taxable Fringe BenefitsSpecial rule. Free tax software for 2012 Exceptions. Free tax software for 2012 Sick Pay Pensions and AnnuitiesPeriodic Payments Nonperiodic Payments Eligible Rollover Distributions Choosing Not To Have Income Tax Withheld Gambling WinningsException. Free tax software for 2012 Identical wagers. Free tax software for 2012 Unemployment Compensation Federal Payments Backup WithholdingTaxpayer identification number. Free tax software for 2012 Underreported interest or dividends. Free tax software for 2012 Introduction This chapter discusses income tax withholding on: Salaries and wages, Tips, Taxable fringe benefits, Sick pay, Pensions and annuities, Gambling winnings, Unemployment compensation, and Certain federal payments. Free tax software for 2012 This chapter explains in detail the rules for withholding tax from each of these types of income. Free tax software for 2012 The discussion of salaries and wages includes an explanation of how to complete Form W-4. Free tax software for 2012 This chapter also covers backup withholding on interest, dividends, and other payments. Free tax software for 2012 Useful Items - You may want to see: Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-4P Withholding Certificate for Pension or Annuity Payments W-4S Request for Federal Income Tax Withholding From Sick Pay W-4V Voluntary Withholding Request See chapter 5 of this publication for information about getting these publications and forms. Free tax software for 2012 Salaries and Wages Income tax is withheld from the pay of most employees. Free tax software for 2012 Your pay includes your regular pay, bonuses, commissions, and vacation allowances. Free tax software for 2012 It also includes reimbursements and other expense allowances paid under a nonaccountable plan. Free tax software for 2012 See Supplemental Wages , later, for definitions of accountable and nonaccountable plans. Free tax software for 2012 If your income is low enough that you will not have to pay income tax for the year, you may be exempt from withholding. Free tax software for 2012 This is explained under Exemption From Withholding , later. Free tax software for 2012 You can ask your employer to withhold income tax from noncash wages and other wages not subject to withholding. Free tax software for 2012 If your employer does not agree to withhold tax, or if not enough is withheld, you may have to pay estimated tax, as discussed in chapter 2. Free tax software for 2012 Military retirees. Free tax software for 2012   Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes. Free tax software for 2012 Household workers. Free tax software for 2012   If you are a household worker, you can ask your employer to withhold income tax from your pay. Free tax software for 2012 A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter. Free tax software for 2012   Tax is withheld only if you want it withheld and your employer agrees to withhold it. Free tax software for 2012 If you do not have enough income tax withheld, you may have to pay estimated tax, as discussed in chapter 2. Free tax software for 2012 Farmworkers. Free tax software for 2012   Generally, income tax is withheld from your cash wages for work on a farm unless your employer both: Pays you cash wages of less than $150 during the year, and Has expenditures for agricultural labor totaling less than $2,500 during the year. Free tax software for 2012 Differential wage payments. Free tax software for 2012   When employees are on leave from employment for military duty, some employers make up the difference between the military pay and civilian pay. Free tax software for 2012 Payments to an employee who is on active duty for a period of more than 30 days will be subject to income tax withholding, but not subject to social security or Medicare taxes. Free tax software for 2012 The wages and withholding will be reported on Form W-2, Wage and Tax Statement. Free tax software for 2012 Determining Amount of Tax Withheld Using Form W-4 The amount of income tax your employer withholds from your regular pay depends on two things. Free tax software for 2012 The amount you earn in each payroll period. Free tax software for 2012 The information you give your employer on Form W-4. Free tax software for 2012 Form W-4 includes four types of information that your employer will use to figure your withholding. Free tax software for 2012 Whether to withhold at the single rate or at the lower married rate. Free tax software for 2012 How many withholding allowances you claim (each allowance reduces the amount withheld). Free tax software for 2012 Whether you want an additional amount withheld. Free tax software for 2012 Whether you are claiming an exemption from withholding in 2014. Free tax software for 2012 See Exemption From Withholding , later. Free tax software for 2012 Note. Free tax software for 2012 You must specify a filing status and a number of withholding allowances on Form W-4. Free tax software for 2012 You cannot specify only a dollar amount of withholding. Free tax software for 2012 New Job When you start a new job, you must fill out a Form W-4 and give it to your employer. Free tax software for 2012 Your employer should have copies of the form. Free tax software for 2012 If you need to change the information later, you must fill out a new form. Free tax software for 2012 If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. Free tax software for 2012 You may be able to avoid overwithholding if your employer agrees to use the part-year method. Free tax software for 2012 See Part-Year Method , later, for more information. Free tax software for 2012 Employee also receiving pension income. Free tax software for 2012   If you receive pension or annuity income and begin a new job, you will need to file Form W-4 with your new employer. Free tax software for 2012 However, you can choose to split your withholding allowances between your pension and job in any manner. Free tax software for 2012 Changing Your Withholding During the year changes may occur to your marital status, exemptions, adjustments, deductions, or credits you expect to claim on your tax return. Free tax software for 2012 When this happens, you may need to give your employer a new Form W-4 to change your withholding status or number of allowances. Free tax software for 2012 If the changes reduce the number of allowances you are allowed to claim or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days. Free tax software for 2012 See Marital Status (Line 3 of Form W-4) and Withholding Allowances (Line 5 of Form W-4) , later. Free tax software for 2012 Generally, you can submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason. Free tax software for 2012 See Table 1-1 for examples of personal and financial changes you should consider. Free tax software for 2012 Table 1-1. Free tax software for 2012 Personal and Financial Changes Factor Examples Lifestyle change Marriage Divorce Birth or adoption of child Loss of an exemption Purchase of a new home Retirement Filing chapter 11 bankruptcy Wage income You or your spouse start or stop working, or start or stop a second job Change in the amount of taxable income not subject to withholding Interest income Dividends Capital gains Self-employment income IRA (including certain Roth  IRA) distributions Change in the amount of adjustments to income IRA deduction Student loan interest deduction Alimony expense Change in the amount of itemized deductions or tax credits Medical expenses Taxes Interest expense Gifts to charity Job expenses Dependent care expenses Education credit Child tax credit Earned income credit If you change the number of your withholding allowances, you can request that your employer withhold using the Cumulative Wage Method , explained later. Free tax software for 2012 Checking Your Withholding After you have given your employer a Form W-4, you can check to see whether the amount of tax withheld from your pay is too much or too little. Free tax software for 2012 If too much or too little tax is being withheld, you should give your employer a new Form W-4 to change your withholding. Free tax software for 2012 You can get a blank Form W-4 from your employer or print the form from IRS. Free tax software for 2012 gov. Free tax software for 2012 You should try to have your withholding match your actual tax liability. Free tax software for 2012 If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. Free tax software for 2012 If too much tax is withheld, you will lose the use of that money until you get your refund. Free tax software for 2012 Always check your withholding if there are personal or financial changes in your life or changes in the law that might change your tax liability. Free tax software for 2012 See Table 1-1 for examples. Free tax software for 2012 Note. Free tax software for 2012 You cannot give your employer a payment to cover federal income tax withholding on salaries and wages for past pay periods or a payment for estimated tax. Free tax software for 2012 When Should You Check Your Withholding? The earlier in the year you check your withholding, the easier it is to get the right amount of tax withheld. Free tax software for 2012 You should check your withholding when any of the following situations occur. Free tax software for 2012 You receive a paycheck stub (statement) covering a full pay period in 2014, showing tax withheld based on 2014 tax rates. Free tax software for 2012 You prepare your 2013 tax return and get a: Big refund, or Balance due that is: More than you can comfortably pay, or Subject to a penalty. Free tax software for 2012 There are changes in your life or financial situation that affect your tax liability. Free tax software for 2012 See Table 1-1. Free tax software for 2012 There are changes in the tax law that affect your tax liability. Free tax software for 2012 How Do You Check Your Withholding? You can use the worksheets and tables in this publication to see if you are having the right amount of tax withheld. Free tax software for 2012 You can also use the IRS Withholding calculator at www. Free tax software for 2012 irs. Free tax software for 2012 gov/individuals. Free tax software for 2012 If you use the worksheets and tables in this publication, follow these steps. Free tax software for 2012 Fill out Worksheet 1-5 to project your total federal income tax liability for 2014. Free tax software for 2012 Fill out Worksheet 1-7 to project your total federal withholding for 2014 and compare that with your projected tax liability from Worksheet 1-5. Free tax software for 2012 If you are not having enough tax withheld, line 6 of Worksheet 1-7 will show you how much more to have withheld each payday. Free tax software for 2012 For ways to increase the amount of tax withheld, see How Do You Increase Your Withholding? If line 5 of Worksheet 1-7 shows that you are having more tax withheld than necessary, see How Do You Decrease Your Withholding, for ways to decrease the amount of tax you have withheld each payday. Free tax software for 2012 How Do You Increase Your Withholding? There are two ways to increase your withholding. Free tax software for 2012 You can: Decrease the number of allowances you claim on Form W-4, or Enter an additional amount that you want withheld from each paycheck on Form W-4. Free tax software for 2012 Requesting an additional amount withheld. Free tax software for 2012   You can request that an additional amount be withheld from each paycheck by following these steps. Free tax software for 2012 Complete Worksheets 1-5 and 1-7. Free tax software for 2012 Complete a new Form W-4 if the amount on Worksheet 1-7, line 5: Is more than you want to pay with your tax return or in estimated tax payments throughout the year, or Would cause you to pay a penalty when you file your tax return for 2014. Free tax software for 2012 Enter on your new Form W-4, the same number of withholding allowances your employer now uses for your withholding. Free tax software for 2012 This is the number of allowances you entered on the last Form W-4 you gave your employer. Free tax software for 2012 Enter on your new Form W-4, the amount from Worksheet 1-7, line 6. Free tax software for 2012 Give your newly completed Form W-4 to your employer. Free tax software for 2012   If you have this additional amount withheld from your pay each payday, you should avoid owing a large amount at the end of the year. Free tax software for 2012 Example. Free tax software for 2012 Early in 2014, Steve Miller used Worksheets 1-5, 1-6, and 1-7 to project his 2014 tax liability ($4,316) and his withholding for the year ($3,516). Free tax software for 2012 Steve's tax will be underwithheld by $800 ($4,316 − $3,516). Free tax software for 2012 His choices are to pay this amount when he files his 2014 tax return, make estimated tax payments, or increase his withholding now. Free tax software for 2012 Steve gets a new Form W-4 from his employer, who tells him that there are 50 paydays remaining in 2014. Free tax software for 2012 Steve completes the new Form W-4 as before, entering the same number of withholding allowances as before, but, in addition, entering $16 ($800 ÷ 50) on the form as the additional amount to be withheld from his pay each payday. Free tax software for 2012 He gives the completed form to his employer. Free tax software for 2012 What if I have more than one job or my spouse also has a job?   You are more likely to need to increase your withholding if you have more than one job or if you are married filing jointly and your spouse also works. Free tax software for 2012 If this is the case, you can increase your withholding for one or more of the jobs. Free tax software for 2012   You can apply the amount on Worksheet 1-7, line 5, to only one job or divide it between the jobs any way you wish. Free tax software for 2012 For each job, determine the extra amount that you want to apply to that job and divide that amount by the number of paydays remaining in 2014 for that job. Free tax software for 2012 This will give you the additional amount to enter on the Form W-4 you will file for that job. Free tax software for 2012 You need to give your employer a new Form W-4 for each job for which you are changing your withholding. Free tax software for 2012 Example. Free tax software for 2012 Meg Green works in a store and earns $46,000 a year. Free tax software for 2012 Her husband, John, works full-time in manufacturing and earns $68,000 a year. Free tax software for 2012 In 2014, they will also have $184 in taxable interest and $1,000 of other taxable income. Free tax software for 2012 They expect to file a joint income tax return. Free tax software for 2012 Meg and John complete Worksheets 1-5, 1-6, and 1-7. Free tax software for 2012 Line 5 of Worksheet 1-7 shows that they will owe an additional $4,459 after subtracting their withholding for the year. Free tax software for 2012 They can divide the $4,459 any way they want. Free tax software for 2012 They can enter an additional amount on either of their Forms W-4, or divide it between them. Free tax software for 2012 They decide to have the additional amount withheld from John's wages, so they enter $91 ($4,459 ÷ 49 remaining paydays) on his Form W-4. Free tax software for 2012 Both claim the same number of allowances as before. Free tax software for 2012 How Do You Decrease Your Withholding? If your completed Worksheets 1-5 and 1-7 show that you may have more tax withheld than your projected tax liability for 2014, you may be able to decrease your withholding. Free tax software for 2012 There are two ways to do this. Free tax software for 2012 You can: Decrease any additional amount you are having withheld, or Increase the number of allowances you claim on Form W-4. Free tax software for 2012 You can claim only the number of allowances to which you are entitled. Free tax software for 2012 To see if you can decrease your withholding by increasing your allowances, see the Form W-4 instructions and the rest of this publication. Free tax software for 2012 Increasing the number of allowances. Free tax software for 2012   Figure and increase the number of withholding allowances you can claim as follows. Free tax software for 2012 On a new Form W-4, complete the Personal Allowances Worksheet. Free tax software for 2012 If you plan to itemize deductions, claim adjustments to income, or claim tax credits, complete a new Deductions and Adjustments Worksheet. Free tax software for 2012 If you plan to claim tax credits, see Converting Credits to Withholding Allowances, later. Free tax software for 2012 If you meet the criteria on line H of the Form W-4 Personal Allowances Worksheet, complete a new Two-Earners/Multiple Jobs Worksheet. Free tax software for 2012 If the number of allowances you can claim on Form W-4, is different from the number you already are claiming, give the newly completed Form W-4 to your employer. Free tax software for 2012 Converting Credits to Withholding Allowances Table 1-2 , later, shows many of the tax credits you may be able to use to decrease your withholding. Free tax software for 2012 The Form W-4 Personal Allowances Worksheet provides only rough adjustments for the child and dependent care credit and the child tax credit. Free tax software for 2012 Complete Worksheet 1-8 to figure these credits more accurately and also take other credits into account. Free tax software for 2012 Include the amount from line 12 of Worksheet 1-8 in the total on line 5 of the Deductions and Adjustments Worksheet. Free tax software for 2012 Then complete the Deductions and Adjustments Worksheet and the rest of Form W-4. Free tax software for 2012 If you take the child and dependent care credit into account on Worksheet 1-8, enter -0- on line F of the Personal Allowances Worksheet. Free tax software for 2012 If you take the child tax credit into account on Worksheet 1-8, enter -0- on line G of the Personal Allowances Worksheet. Free tax software for 2012 Example. Free tax software for 2012 Brett and Alyssa Davis are married and expect to file a joint return for 2014. Free tax software for 2012 Their expected taxable income from all sources is $68,000. Free tax software for 2012 They expect to have $15,900 of itemized deductions. Free tax software for 2012 Their projected tax credits include a child and dependent care credit of $960 and an adoption credit of $1,500. Free tax software for 2012 The Davis' complete Worksheet 1-8, as follows, to see whether they can convert their tax credits into additional withholding allowances. Free tax software for 2012 Line 1, expected child and dependent care credit—$960. Free tax software for 2012 Line 9, expected adoption credit—$1,500. Free tax software for 2012 Line 10, total estimated tax credits—$2,460. Free tax software for 2012 Line 11. Free tax software for 2012 Their combined total income from all sources, $68,000, falls between $42,001 and $98,000 on the table for married filing jointly or qualifying widow(er). Free tax software for 2012 The number to the right of this range is 6. Free tax software for 2012 7. Free tax software for 2012 Line 12, multiply line 10 by line 11—$16,482. Free tax software for 2012 Then the Davis' complete the Form W-4 worksheets. Free tax software for 2012 Because they choose to account for their child and dependent care credit on the Deductions and Adjustments Worksheet, they enter -0- on line F of the Personal Allowances Worksheet and figure a new total for line H. Free tax software for 2012 They take the result on line 12 of Worksheet 1-8, add it to their other adjustments on line 5 of the Form W-4 Deductions and Adjustments Worksheet, and complete the Form W-4 worksheets. Free tax software for 2012 When Will Your New Form W-4 Go Into Effect? If the change is for the current year, your employer must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4. Free tax software for 2012 If the change is for next year, your new Form W-4 will not take effect until next year. Free tax software for 2012 Retirees Returning to the Workforce When you first began receiving your pension, you told the payer how much tax to withhold, if any, by completing Form W-4P, Withholding Certificate for Pension or Annuity Payments (or similar form). Free tax software for 2012 However, if your retirement pay is from the military or certain deferred compensation plans, you completed Form W-4 instead of Form W-4P. Free tax software for 2012 You completed either form based on your projected income at that time. Free tax software for 2012 Now that you are returning to the workforce, your new Form W-4 (given to your employer) and your Form W-4 or W-4P (on file with your pension plan) must work together to determine the correct amount of withholding for your new amount of income. Free tax software for 2012 The worksheets that come with Forms W-4 and W-4P are basically the same, so you can use either set of worksheets to figure out how many withholding allowances you are entitled to claim. Free tax software for 2012 Start off with the Personal Allowances Worksheet. Free tax software for 2012 Then, if you will be itemizing your deductions, claiming adjustments to income, or claiming tax credits when you file your tax return, complete the Deductions and Adjustments Worksheet. Free tax software for 2012 The third worksheet is the most important for this situation. Free tax software for 2012 Form W-4 calls it the Two-Earners/Multiple Jobs Worksheet, Form W-4P calls it the Multiple Pensions/More-Than-One-Income Worksheet—both are the same. Free tax software for 2012 If you have more than one source of income, in order to have enough withholding to cover the tax on your higher income, you may need to claim fewer withholding allowances or request your employer to withhold an additional amount from each paycheck. Free tax software for 2012 Once you have figured out how many allowances you are entitled to claim, look at the income from both your pension and your new job, and how often you receive payments. Free tax software for 2012 It is your decision how to divide up your withholding allowances between these sources of income. Free tax software for 2012 For example, you may want to “take home” most of your weekly paycheck to use as spending money and use your monthly pension to “pay the bills. Free tax software for 2012 ” In that case, change your Form W-4P to zero allowances and claim all that you are entitled to on your Form W-4. Free tax software for 2012 There are a couple of ways you can get a better idea of how much tax will be withheld when claiming a certain number of allowances. Free tax software for 2012 Use the withholding tables in Publication 15 (Circular E), Employer's Tax Guide. Free tax software for 2012 Contact your pension provider and your employer's payroll department. Free tax software for 2012 And remember, this is not a final decision. Free tax software for 2012 If you do not get the correct amount of withholding with the first Forms W-4 and W-4P you submit, you should refigure your allowances (or divide them differently) using the information and worksheets in this publication, or the resources mentioned above. Free tax software for 2012 You should go through this same process each time your life situation changes, whether it be for personal or financial reasons. Free tax software for 2012 You may need more tax withheld, or you may need less. Free tax software for 2012 Table 1-2. Free tax software for 2012 Tax Credits for 2014 For more information about the . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 See . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 Adoption credit Form 8839 instructions Child and dependent care expenses, credit for Publication 503, Child and Dependent Care Expenses Child tax credit (including the additional child tax credit) Instructions for Form 1040 or Form 1040A Earned income credit Publication 596, Earned Income Credit Education credits Publication 970, Tax Benefits for Education Elderly or the disabled, credit for the Publication 524, Credit for the Elderly or the Disabled Foreign tax credit (except any credit that applies to wages not subject to U. Free tax software for 2012 S. Free tax software for 2012 income tax withholding because they are subject to income tax withholding by a foreign country) Publication 514, Foreign Tax Credit for Individuals General business credit Form 3800, General Business Credit Mortgage interest credit Publication 530, Tax Information for First-Time Homeowners Qualified electric vehicle passive activity credit Form 8834 Prior year minimum tax, credit for (if you paid alternative minimum tax in an earlier year) Form 8801 instructions Retirement savings contributions credit (saver's credit) Publication 590, Individual Retirement Arrangements (IRAs) Tax credit bonds, credit to holders of Form 8912 instructions Completing Form W-4 and Worksheets When reading the following discussion, you may find it helpful to refer to Form W-4. Free tax software for 2012 Marital Status There is a lower withholding rate for people who qualify to check the “Married” box on line 3 of Form W-4. Free tax software for 2012 Everyone else must have tax withheld at the higher single rate. Free tax software for 2012 Single. Free tax software for 2012   You must check the “Single” box if any of the following applies. Free tax software for 2012 You are single. Free tax software for 2012 If you are divorced, or separated from your spouse under a court decree of separate maintenance, you are considered single. Free tax software for 2012 You are married, but neither you nor your spouse is a citizen or resident of the United States. Free tax software for 2012 You are married, either you or your spouse is a nonresident alien, and you have not chosen to have that person treated as a resident alien for tax purposes. Free tax software for 2012 For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. Free tax software for 2012 Married. Free tax software for 2012   You qualify to check the “Married” box if any of the following applies. Free tax software for 2012 You are married and neither you nor your spouse is a nonresident alien. Free tax software for 2012 You are considered married for the whole year even if your spouse died during the year. Free tax software for 2012 You are married and either you or your spouse is a nonresident alien who has chosen to be treated as a resident alien for tax purposes. Free tax software for 2012 For more information, see Nonresident Spouse Treated as a Resident in chapter 1 of Publication 519. Free tax software for 2012 You expect to be able to file your return as a qualifying widow or widower. Free tax software for 2012 You usually can use this filing status if your spouse died within the previous 2 years and you provide more than half the cost of keeping up a home for the entire year that was the main home for you and your child whom you can claim as a dependent. Free tax software for 2012 However, you must file a new Form W-4 showing your filing status as single by December 1 of the last year you are eligible to file as a qualifying widow or widower. Free tax software for 2012 For more information on this filing status, see Qualifying Widow(er) With Dependent Child under Filing Status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Free tax software for 2012 Married, but withhold at higher single rate. Free tax software for 2012   Some married people find that they do not have enough tax withheld at the married rate. Free tax software for 2012 This can happen, for example, when both spouses work. Free tax software for 2012 To avoid this, you can check the “Married, but withhold at higher Single rate” box (even if you qualify for the married rate). Free tax software for 2012 Also, you may find that more tax is withheld if you fill out the Two-Earners/Multiple Jobs Worksheet, explained later. Free tax software for 2012 Withholding Allowances The more allowances you claim on Form W-4, the less income tax your employer will withhold. Free tax software for 2012 You will have the most tax withheld if you claim “0” allowances. Free tax software for 2012 The number of allowances you can claim depends on the following factors. Free tax software for 2012 How many exemptions you can take on your tax return. Free tax software for 2012 Whether you have income from more than one job. Free tax software for 2012 What deductions, adjustments to income, and credits you expect to have for the year. Free tax software for 2012 Whether you will file as head of household. Free tax software for 2012 If you are married (filing jointly), it also depends on whether your spouse also works and claims any allowances on his or her own Form W-4. Free tax software for 2012 Or, if married filing separately, whether or not your spouse also works. Free tax software for 2012 Form W-4 worksheets. Free tax software for 2012    Form W-4 has worksheets to help you figure how many withholding allowances you can claim. Free tax software for 2012 The worksheets are for your own records. Free tax software for 2012 Do not give them to your employer. Free tax software for 2012   Complete only one set of Form W-4 worksheets, no matter how many jobs you have. Free tax software for 2012 If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and each must give Form W-4 to your employers. Free tax software for 2012 Complete separate sets of worksheets only if you and your spouse will file separate returns. Free tax software for 2012   If you are not exempt from withholding (see Exemption From Withholding , later), complete the Personal Allowances Worksheet on page 1 of the form. Free tax software for 2012 Also, use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or multiple-job situations. Free tax software for 2012 If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W-4, even if you do not have any deductions or adjustments. Free tax software for 2012   Complete all worksheets that apply to your situation. Free tax software for 2012 The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year. Free tax software for 2012 Multiple jobs. Free tax software for 2012   If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. Free tax software for 2012 Then split your allowances between the Forms W-4 for each job. Free tax software for 2012 You cannot claim the same allowances with more than one employer at the same time. Free tax software for 2012 You can claim all your allowances with one employer and none with the other(s), or divide them any other way. Free tax software for 2012 Married individuals. Free tax software for 2012   If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Free tax software for 2012 Use only one set of worksheets. Free tax software for 2012 You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims. Free tax software for 2012   If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions, exemptions, and credits. Free tax software for 2012 Alternative method of figuring withholding allowances. Free tax software for 2012   You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances. Free tax software for 2012   The method you use must be based on withholding schedules, the tax rate schedules, and the 2014 Estimated Tax Worksheet in chapter 2. Free tax software for 2012 It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W-4. Free tax software for 2012   You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W-4 worksheets. Free tax software for 2012 You still must give your employer a Form W-4 claiming your withholding allowances. Free tax software for 2012 Employees who are not citizens or residents. Free tax software for 2012   If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. Free tax software for 2012 However, this rule does not apply if you are a resident of Canada or Mexico, or if you are a U. Free tax software for 2012 S. Free tax software for 2012 national. Free tax software for 2012 It also does not apply if your spouse is a U. Free tax software for 2012 S. Free tax software for 2012 citizen or resident and you have chosen to be treated as a resident of the United States for tax purposes. Free tax software for 2012 Special rules apply to residents of South Korea and India. Free tax software for 2012 For more information, see Withholding From Compensation in chapter 8 of Publication 519. Free tax software for 2012 Personal Allowances Worksheet Use the Personal Allowances Worksheet on page 1 of Form W-4 to figure your withholding allowances based on all of the following that apply. Free tax software for 2012 Exemptions. Free tax software for 2012 Only one job. Free tax software for 2012 Head of household filing status. Free tax software for 2012 Child and dependent care credit. Free tax software for 2012 Child tax credit. Free tax software for 2012 Exemptions (worksheet lines A, C, and D). Free tax software for 2012   You can claim one withholding allowance for each exemption you expect to claim on your tax return. Free tax software for 2012 Self. Free tax software for 2012   You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. Free tax software for 2012 If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption. Free tax software for 2012 Spouse. Free tax software for 2012   You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. Free tax software for 2012 Do not claim this allowance if you and your spouse expect to file separate returns. Free tax software for 2012 Dependents. Free tax software for 2012   You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return. Free tax software for 2012 Only one job (worksheet line B). Free tax software for 2012    You can claim an additional withholding allowance if any of the following apply for 2014. Free tax software for 2012 You are single and you have only one job at a time. Free tax software for 2012 You are married, you have only one job at a time, and your spouse does not work. Free tax software for 2012 Your wages from a second job or your spouse's wages (or the total of both) are $1,500 or less. Free tax software for 2012 If you qualify for this allowance, enter “1” on line B of the worksheet. Free tax software for 2012 Head of household filing status (worksheet line E). Free tax software for 2012   Generally, you can file as head of household if you are unmarried and pay more than half the cost of keeping up a home that: Was the main home for all of 2014 of your parent whom you can claim as a dependent, or You lived in for more than half the year with your qualifying child or any other person you can claim as a dependent. Free tax software for 2012 For more information, see Publication 501. Free tax software for 2012   If you expect to file as head of household on your 2014 tax return, enter “1” on line E of the worksheet. Free tax software for 2012 Reduction of personal allowances. Free tax software for 2012   For 2014, your deduction for personal exemptions on your tax return is reduced if your adjusted gross income (AGI) is more than the AGI shown next for your filing status. Free tax software for 2012 Personal Allowance Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1-1 to figure your reduced number of personal allowances on lines A, C, and D of the Personal Allowances Worksheet. Free tax software for 2012 Worksheet 1-1. Free tax software for 2012 Personal Allowances Worksheet (Form W-4) Reduction of Personal Allowances if AGI Above Phaseout Threshold 1. Free tax software for 2012 Enter the total amount of allowances on lines A, C, and D of the Personal Allowance Worksheet without regard to the phaseout rule 1. Free tax software for 2012   2. Free tax software for 2012 Enter your expected AGI 2. Free tax software for 2012       3. Free tax software for 2012 Enter $254,200 if single $305,050 if married filing jointly or qualifying widow(er) $152,525 if married filing separately $279,650 if head of household 3. Free tax software for 2012       4. Free tax software for 2012 Subtract line 3 from line 2 4. Free tax software for 2012       5. Free tax software for 2012 Divide line 4 by $125,000 ($62,500 if married filing separately). Free tax software for 2012 Enter the result as a decimal 5. Free tax software for 2012   6. Free tax software for 2012 Multiply line 1 by line 5. Free tax software for 2012 If the result is not a whole number, increase it to the next higher whole number 6. Free tax software for 2012   7. Free tax software for 2012 Subtract line 6 from line 1. Free tax software for 2012 The total of the numbers you enter on A, C, and D of the Personal Allowances Worksheet can not be more than this amount 7. Free tax software for 2012     Child and dependent care credit (worksheet line F). Free tax software for 2012   Enter “1” on line F if you expect to claim a credit for at least $2,000 of qualifying child or dependent care expenses on your 2014 return. Free tax software for 2012 Generally, qualifying expenses are those you pay for the care of your dependent who is your qualifying child under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. Free tax software for 2012 For more information, see Publication 503, Child and Dependent Care Expenses. Free tax software for 2012   Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. Free tax software for 2012 Child tax credit (worksheet line G). Free tax software for 2012   If your total income will be less than $65,000 ($95,000 if married), enter “2” on line G for each eligible child. Free tax software for 2012 Subtract “1” from that amount if you have three to six eligible children. Free tax software for 2012 Subtract “2” from that amount if you have seven or more eligible children. Free tax software for 2012   If your total income will be between $65,000 and $84,000 ($95,000 and $119,000 if married), enter “1” on line G for each eligible child. Free tax software for 2012   An eligible child is any child: Who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Who will be under age 17 at the end of 2014, Who is younger than you (or your spouse if filing jointly) or permanently and totally disabled, Who will not provide over half of his or her own support for 2014, Who will not file a joint return, unless the return is filed only as a claim for refund, Who will live with you for more than half of 2014, Who is a U. Free tax software for 2012 S. Free tax software for 2012 citizen, U. Free tax software for 2012 S. Free tax software for 2012 national, or U. Free tax software for 2012 S. Free tax software for 2012 resident alien, and Who will be claimed as a dependent on your return. Free tax software for 2012 If you are a U. Free tax software for 2012 S. Free tax software for 2012 citizen or U. Free tax software for 2012 S. Free tax software for 2012 national and your adopted child lived with you all year as a member of your household, that child meets the citizenship test. Free tax software for 2012   Also, if any other person can claim the child as an eligible child, see Qualifying child of more than one person in the 2013 instructions for Form 1040 or 1040A, line 6c. Free tax software for 2012   For more information about the child tax credit, see the instructions for Form 1040 or Form 1040A. Free tax software for 2012   Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained under Tax credits , later. Free tax software for 2012 Total personal allowances (worksheet line H). Free tax software for 2012    Add lines A through G and enter the total on line H. Free tax software for 2012 If you do not use either of the worksheets on the back of Form W-4, enter the number from line H on line 5 of Form W-4. Free tax software for 2012 Deductions and Adjustments Worksheet Use the Deductions and Adjustments Worksheet on page 2 of Form W-4 if you plan to itemize your deductions, claim certain credits, or claim adjustments to the income on your 2014 tax return and you want to reduce your withholding. Free tax software for 2012 Also, complete this worksheet when you have changes to those items to see if you need to change your withholding. Free tax software for 2012 Use the amount of each item you reasonably can expect to show on your return. Free tax software for 2012 However, do not use more than: The amount shown for that item on your 2013 return (or your 2012 return if you have not yet filed your 2013 return), plus Any additional amount related to a transaction or occurrence (such as payments already made, the signing of an agreement, or the sale of property) that you can prove has happened or will happen during 2013 or 2014. Free tax software for 2012 Do not include any amount shown on your last tax return that has been disallowed by the IRS. Free tax software for 2012 Example. Free tax software for 2012 On June 30, 2013, you bought your first home. Free tax software for 2012 On your 2013 tax return, you claimed itemized deductions of $6,600, the total mortgage interest and real estate tax you paid during the 6 months you owned your home. Free tax software for 2012 Based on your mortgage payment schedule and your real estate tax assessment, you reasonably can expect to claim deductions of $13,200 for those items on your 2014 return. Free tax software for 2012 You can use $13,200 to figure the number of your withholding allowances for itemized deductions. Free tax software for 2012 Not itemizing deductions. Free tax software for 2012   If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter “0” on line 3 of the worksheet. Free tax software for 2012 Itemized deductions (worksheet line 1). Free tax software for 2012   Enter your estimated total itemized deductions on line 1 of the worksheet. Free tax software for 2012   Listed below are some of the deductions you can take into account when figuring additional withholding allowances for 2014. Free tax software for 2012 You normally claim these deductions on Schedule A of Form 1040. Free tax software for 2012 Medical and dental expenses that are more than 10% (7. Free tax software for 2012 5% if either you or your spouse was born before January 2, 1950) of your 2014 AGI (defined under AGI , later). Free tax software for 2012 State and local income or property taxes. Free tax software for 2012 Deductible home mortgage interest. Free tax software for 2012 Investment interest up to net investment income. Free tax software for 2012 Charitable contributions. Free tax software for 2012 Casualty and theft losses that are more than $100 and 10% of your AGI. Free tax software for 2012 Fully deductible miscellaneous itemized deductions, including: Impairment-related work expenses of persons with disabilities, Federal estate tax on income in respect of a decedent, Repayment of more than $3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it, Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death, Gambling losses up to the amount of gambling winnings reported on your return, and Casualty and theft losses from  income-producing property. Free tax software for 2012 Other miscellaneous itemized deductions that are more than 2% of your AGI, including: Unreimbursed employee business expenses, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies, Safe deposit box rental, Tax counsel and assistance, and Certain fees paid to an IRA trustee or custodian. Free tax software for 2012 AGI. Free tax software for 2012   For the purpose of estimating your itemized deductions, your AGI is your estimated total income for 2014 minus any estimated adjustments to income (discussed later) that you include on line 4 of the Deductions and Adjustments Worksheet. Free tax software for 2012 Phaseout of itemized deductions. Free tax software for 2012   For 2014, your total itemized deductions may be phased out (reduced) if your AGI is more than the following thresholds. Free tax software for 2012    Itemized Deduction Phaseout Threshold Single $254,200 Married filing jointly or qualifying widow(er) $305,050 Married filing separately $152,525 Head of household $279,650   If you expect your AGI to be more than the amount listed, use Worksheet 1–2 to figure your reduction in itemized deductions. Free tax software for 2012 Worksheet 1-2. Free tax software for 2012 Deductions and Adjustments Worksheet (Form W-4)—Line 1 Phaseout of Itemized Deductions 1. Free tax software for 2012 Enter the estimated total of your itemized deductions 1. Free tax software for 2012   2. Free tax software for 2012 Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or theft losses, and gambling losses 2. Free tax software for 2012   3. Free tax software for 2012 Is the amount on line 2 less than the amount on line 1? ❑ No. Free tax software for 2012 Stop here. Free tax software for 2012 Your deduction is not limited. Free tax software for 2012 Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. Free tax software for 2012  ❑ Yes. Free tax software for 2012 Subtract line 2 from line 1. Free tax software for 2012 3. Free tax software for 2012       4. Free tax software for 2012 Multiply line 3 by 80% (. Free tax software for 2012 80) 4. Free tax software for 2012       5. Free tax software for 2012 Enter your expected AGI 5. Free tax software for 2012       6. Free tax software for 2012 Enter $305,050 If married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately 6. Free tax software for 2012   7. Free tax software for 2012 Is the amount on line 6 less than the amount on line 5? ❑ No. Free tax software for 2012 Stop here. Free tax software for 2012 Your deduction is not limited. Free tax software for 2012 Enter the amount from line 1 above on line 1 of the Deductions and Adjustments Worksheet. Free tax software for 2012  ❑ Yes. Free tax software for 2012 Subtract line 6 from line 5. Free tax software for 2012 7. Free tax software for 2012       8. Free tax software for 2012 Multiply line 7 by 3% (. Free tax software for 2012 03) 8. Free tax software for 2012       9. Free tax software for 2012 Enter the smaller of line 4 or line 8 9. Free tax software for 2012     10. Free tax software for 2012 Subtract line 9 from line 1. Free tax software for 2012 Enter the result here and on line 1 of the Deductions and Adjustments Worksheet 10. Free tax software for 2012     Adjustments to income (worksheet line 4). Free tax software for 2012   Enter your estimated total adjustments to income on line 4 of the Deductions and Adjustments Worksheet. Free tax software for 2012   You can take the following adjustments to income into account when figuring additional withholding allowances for 2014. Free tax software for 2012 These adjustments appear on page 1 of your Form 1040 or 1040A. Free tax software for 2012 Net losses from Schedules C, D, E, and F of Form 1040 and from Part II of Form 4797, line 18b. Free tax software for 2012 Net operating loss carryovers. Free tax software for 2012 Certain business expenses of reservists, performing artists, and fee-based government officials. Free tax software for 2012 Health savings account or medical savings account deduction. Free tax software for 2012 Certain moving expenses. Free tax software for 2012 Deduction for self-employment tax. Free tax software for 2012 Deduction for contributions to self-employed SEP, and qualified SIMPLE plans. Free tax software for 2012 Self-employed health insurance deduction. Free tax software for 2012 Penalty on early withdrawal of savings. Free tax software for 2012 Alimony paid. Free tax software for 2012 IRA deduction. Free tax software for 2012 Student loan interest deduction. Free tax software for 2012 Jury duty pay given to your employer. Free tax software for 2012 Reforestation amortization and expenses. Free tax software for 2012 Deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit. Free tax software for 2012 Repayment of certain supplemental unemployment benefits. Free tax software for 2012 Contributions to IRC 501(c)(18)(D) pension plans. Free tax software for 2012 Contributions by certain chaplains to IRC 403(b) plans. Free tax software for 2012 Attorney fees and court costs for certain unlawful discrimination claims. Free tax software for 2012 Attorney fees and court costs for certain whistleblower awards. Free tax software for 2012 Estimated amount of decrease in tax attributable to income averaging using Schedule J (Form 1040). Free tax software for 2012 Tax credits (worksheet line 5). Free tax software for 2012   Although you can take most tax credits into account when figuring withholding allowances, the Personal Allowances Worksheet uses only the child and dependent care credit (line F) and the child tax credit (line G). Free tax software for 2012 But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet. Free tax software for 2012   If you take the child and dependent care credit into account on line 5, do not use line F. Free tax software for 2012 If you take the child tax credit into account on line 5, do not use line G. Free tax software for 2012   In addition to the child and dependent care credit and the child tax credit, you can generally take into account the following credits. Free tax software for 2012 See the individual tax form instructions for more details. Free tax software for 2012 Foreign tax credit, except any credit that applies to wages not subject to U. Free tax software for 2012 S. Free tax software for 2012 income tax withholding because they are subject to income tax withholding by a foreign country. Free tax software for 2012 See Publication 514, Foreign Tax Credit for Individuals. Free tax software for 2012 Credit for the elderly or the disabled. Free tax software for 2012 See Publication 524, Credit for the Elderly or the Disabled. Free tax software for 2012 Education credits. Free tax software for 2012 See Publication 970, Tax Benefits for Education. Free tax software for 2012 Retirement savings contributions credit (saver's credit). Free tax software for 2012 See Publication 590. Free tax software for 2012 Mortgage interest credit. Free tax software for 2012 See Publication 530, Tax Information for Homeowners. Free tax software for 2012 Adoption credit. Free tax software for 2012 See the Instructions for Form 8839. Free tax software for 2012 Credit for nonrefundable portion of prior year minimum tax if you paid alternative minimum tax in an earlier year. Free tax software for 2012 See the Instructions for Form 8801. Free tax software for 2012 General business credit. Free tax software for 2012 See the Instructions for Form 3800. Free tax software for 2012 Earned income credit. Free tax software for 2012 See Publication 596. Free tax software for 2012 Figuring line 5 entry. Free tax software for 2012   To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from Table 1-3 . Free tax software for 2012 Example. Free tax software for 2012 You are married and expect to file a joint return for 2014. Free tax software for 2012 Your combined estimated wages are $68,000. Free tax software for 2012 Your estimated tax credits include a child and dependent care credit of $960 and a mortgage interest credit of $1,700 (total credits = $2,660). Free tax software for 2012 In Table 1-3, the number corresponding to your combined estimated wages ($42,001 – $98,000) is 6. Free tax software for 2012 7. Free tax software for 2012 Multiply your total estimated tax credits of $2,660 by 6. Free tax software for 2012 7. Free tax software for 2012 Add the result, $17,822, to the amount you otherwise would show on line 5 of the Deductions and Adjustments Worksheet and enter the total on line 5. Free tax software for 2012 Because you choose to account for your child and dependent care credit this way, do not make an entry on line F of the Personal Allowances Worksheet. Free tax software for 2012 Nonwage income (worksheet line 6). Free tax software for 2012   Enter on line 6 your estimated total nonwage income (other than tax-exempt income). Free tax software for 2012 Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income. Free tax software for 2012   If line 6 is more than line 5, you may not have enough income tax withheld from your wages. Free tax software for 2012 See Getting the Right Amount of Tax Withheld , later. Free tax software for 2012 Net deductions and adjustments (worksheet line 8). Free tax software for 2012    If line 7 is less than $3,950, enter “0” on line 8. Free tax software for 2012 If line 7 is $3,950 or more, divide it by $3,950, drop any fraction, and enter the result on line 8. Free tax software for 2012 Example. Free tax software for 2012 If line 7 is $5,200, $5,200 ÷ $3,950 = 1. Free tax software for 2012 32. Free tax software for 2012 Drop the fraction (. Free tax software for 2012 32) and enter “1” on line 8. Free tax software for 2012 Two-Earners/Multiple Jobs Worksheet Complete the Two-Earners/Multiple Jobs Worksheet on page 2 of Form W-4 if you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs are more than $50,000 ($20,000 if married). Free tax software for 2012 Reducing your allowances (worksheet lines 1-3). Free tax software for 2012   On line 1 of the worksheet, enter the number from line H of the Personal Allowances Worksheet (or line 10 of the Deductions and Adjustments Worksheet, if used). Free tax software for 2012 Using Table 1 in the Two-Earners/Multiple Jobs Worksheet, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower and you are filing jointly, your spouse's job). Free tax software for 2012 Enter that number on line 2. Free tax software for 2012 However, if you are married filing jointly and estimated wages from the highest paying job are $65,000 or less, do not enter more than “3. Free tax software for 2012 ”    Table 1-3. Free tax software for 2012 Deductions and Adjustments Worksheet (Form W-4)—Line 5 a. Free tax software for 2012  Married Filing Jointly or Qualifying Widow(er) If combined income from all sources is:   Multiply credits by: $0 – 42,000 10. Free tax software for 2012 0 $42,001 – 98,000 6. Free tax software for 2012 7 $98,001 – 180,000 4. Free tax software for 2012 0 $180,001 – 270,000 3. Free tax software for 2012 6 $270,001 – 440,000 3. Free tax software for 2012 0 $440,001 – 490,000. Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 . Free tax software for 2012 2. Free tax software for 2012 9 $490,001 and over 2. Free tax software for 2012 5 b. Free tax software for 2012  Single If combined income from all sources is:   Multiply credits by: $0 – 19,000 10. Free tax software for 2012 0 $19,001 – 47,000 6. Free tax software for 2012 7 $47,001 – 104,000 4. Free tax software for 2012 0 $104,001 – 205,000 3. Free tax software for 2012 6 $205,001 – 430,000 3. Free tax software for 2012 0 $430,001 and over 2. Free tax software for 2012 5 c. Free tax software for 2012  Head of Household If combined income from all sources is:   Multiply credits by: $0 – 30,000 10. Free tax software for 2012 0 $30,001 – 66,000 6. Free tax software for 2012 7 $66,001 – 150,000 4. Free tax software for 2012 0 $150,001 – 235,000 3. Free tax software for 2012 6 $235,001 – 430,000 3. Free tax software for 2012 0 $430,001 – 460,000 2. Free tax software for 2012 9 $460,001 and over 2. Free tax software for 2012 5 d. Free tax software for 2012  Married Filing Separately   If combined income from all sources is:   Multiply credits by: $0 – 21,000 10. Free tax software for 2012 0 $21,001 – 49,000 6. Free tax software for 2012 7 $49,001 – 90,000 4. Free tax software for 2012 0 $90,001 – 135,000 3. Free tax software for 2012 6 $135,001 – 220,000 3. Free tax software for 2012 0 $220,001 – 245,000 2. Free tax software for 2012 9 $245,001 and over 2. Free tax software for 2012 5   Subtract line 2 from line 1 and enter the result (but not less than zero) on line 3 and on Form W-4, line 5. Free tax software for 2012 If line 1 is more than or equal to line 2, do not use the rest of the worksheet. Free tax software for 2012   If line 1 is less than line 2, enter “0” on Form W-4, line 5. Free tax software for 2012 Then complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding. Free tax software for 2012 Other amounts owed. Free tax software for 2012   If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. Free tax software for 2012 The total is the additional withholding needed for the year. Free tax software for 2012 Getting the Right Amount of Tax Withheld In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules. Free tax software for 2012 You accurately complete all the Form W-4 worksheets that apply to you. Free tax software for 2012 You give your employer a new Form W-4 when changes occur. Free tax software for 2012 But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. Free tax software for 2012 This is most likely to happen in the following situations. Free tax software for 2012 You are married and both you and your spouse work. Free tax software for 2012 You have more than one job at a time. Free tax software for 2012 You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income. Free tax software for 2012 You will owe additional amounts with your return, such as self-employment tax. Free tax software for 2012 Your withholding is based on obsolete Form W-4 information for a substantial part of the year. Free tax software for 2012 Your earnings are more than $130,000 if you are single or $180,000 if you are married. Free tax software for 2012 You work only part of the year. Free tax software for 2012 You change the number of your withholding allowances during the year. Free tax software for 2012 You are subject to Additional Medicare Tax or Net Investment Income Tax. Free tax software for 2012 If you anticipate liability for Additional Medicare Tax or Net Investment Income Tax, you may request that your employer withhold an additional amount of income tax withholding on Form W-4. Free tax software for 2012 Part-Year Method If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. Free tax software for 2012 To be eligible for the part-year method, you must meet both of the following requirements. Free tax software for 2012 You must use the calendar year (the 12 months from January 1 through December 31) as your tax year. Free tax software for 2012 You cannot use a fiscal year. Free tax software for 2012 You must not expect to be employed for more than 245 days during the year. Free tax software for 2012 To figure this limit, count all calendar days that you are employed (including weekends, vacations, and sick days) beginning with the first day you are on the job for pay and ending with your last day of work. Free tax software for 2012 If you are temporarily laid off for 30 days or less, count those days too. Free tax software for 2012 If you are laid off for more than 30 days, do not count those days. Free tax software for 2012 You will not meet this requirement if you begin working before May 1 and expect to work for the rest of the year. Free tax software for 2012 How to apply for the part-year method. Free tax software for 2012   You must ask your employer in writing to use this method. Free tax software for 2012 The request must state all three of the following. Free tax software for 2012 The date of your last day of work for any prior employer during the current calendar year. Free tax software for 2012 That you do not expect to be employed more than 245 days during the current calendar year. Free tax software for 2012 That you use the calendar year as your tax year. Free tax software for 2012 Cumulative Wage Method If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. Free tax software for 2012 You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. Free tax software for 2012 You must ask your employer in writing to use this method. Free tax software for 2012 To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc. Free tax software for 2012 ) since the beginning of the year. Free tax software for 2012 Aids for Figuring Your Withholding IRS Withholding Calculator. Free tax software for 2012   If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. Free tax software for 2012 Go to www. Free tax software for 2012 irs. Free tax software for 2012 gov/Individuals/IRS-Withholding-Calculator. Free tax software for 2012 It can help you determine the correct amount to be withheld any time during the year. Free tax software for 2012 Rules Your Employer Must Follow It may be helpful for you to know some of the withholding rules your employer must follow. Free tax software for 2012 These rules can affect how to fill out your Form W-4 and how to handle problems that may arise. Free tax software for 2012 New Form W-4. Free tax software for 2012   When you start a new job, your employer should give you a Form W-4 to fill out. Free tax software for 2012 Beginning with your first payday, your employer will use the information you give on the form to figure your withholding. Free tax software for 2012   If you later fill out a new Form W-4, your employer can put it into effect as soon as possible. Free tax software for 2012 The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in. Free tax software for 2012 No Form W-4. Free tax software for 2012   If you do not give your employer a completed Form W-4, your employer must withhold at the highest rate, as if you were single and claimed no withholding allowances. Free tax software for 2012 Repaying withheld tax. Free tax software for 2012   If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W-4. Free tax software for 2012 Your employer cannot repay any of the tax previously withheld. Free tax software for 2012 Instead, claim the full amount withheld when you file your tax return. Free tax software for 2012   However, if your employer has withheld more than the correct amount of tax for the Form W-4 you have in effect, you do not have to fill out a new Form W-4 to have your withholding lowered to the correct amount. Free tax software for 2012 Your employer can repay the amount that was withheld incorrectly. Free tax software for 2012 If you are not repaid, your Form W-2 will reflect the full amount actually withheld, which you would claim when you file your tax return. Free tax software for 2012 IRS review of your withholding. Free tax software for 2012   Whether you are entitled to claim a certain number of allowances or a complete exemption from withholding is subject to review by the IRS. Free tax software for 2012 Your employer may be required to send a copy of the Form W-4 to the IRS. Free tax software for 2012 There is a penalty for supplying false information on Form W-4. Free tax software for 2012 See Penalties , later. Free tax software for 2012   If the IRS determines that you cannot claim more than a specified number of withholding allowances or claim a complete exemption from withholding, the IRS will issue a notice of the maximum number of withholding allowances permitted (commonly referred to as a “lock-in letter”) to both you and your employer. Free tax software for 2012   The IRS will provide a period of time during which you can dispute the determination before your employer adjusts your withholding. Free tax software for 2012 If you believe that you are entitled to claim complete exemption from withholding or claim more withholding allowances than the maximum number specified by the IRS in the lock-in letter, you must submit a new Form W-4 and a written statement to support your claims to the IRS. Free tax software for 2012 Contact information (a toll-free number and an IRS office address) will be provided in the lock-in letter. Free tax software for 2012 At the end of this period, if you have not responded or if your response is not adequate, your employer will be required to withhold based on the original lock-in letter. Free tax software for 2012   After the lock-in letter takes effect, your employer must withhold tax on the basis of the withholding rate (marital status) and maximum number of withholding allowances specified in that letter. Free tax software for 2012   If you later believe that you are entitled to claim exemption from withholding or more allowances than the IRS determined, you can complete a new Form W-4 and a written statement to support the claims made on the Form W-4 and send them directly to the IRS address shown on the lock-in letter. Free tax software for 2012 Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer otherwise. Free tax software for 2012   At any time, either before or after the lock-in letter becomes effective, you may give your employer a new Form W-4 that does not claim complete exemption from withholding and results in more income tax withheld than specified in the lock-in letter. Free tax software for 2012 Your employer must then withhold tax based on this new Form W-4. Free tax software for 2012   Additional information is available at IRS. Free tax software for 2012 gov. Free tax software for 2012 Enter “withholding compliance questions” in the search box. Free tax software for 2012 Exemption From Withholding If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. Free tax software for 2012 The exemption applies only to income tax, not to social security or Medicare tax. Free tax software for 2012 You can claim exemption from withholding for 2014 only if both of the following situations apply. Free tax software for 2012 For 2013 you had a right to a refund of all federal income tax withheld because you had no tax liability. Free tax software for 2012 For 2014 you expect a refund of all federal income tax withheld because you expect to have no tax liability. Free tax software for 2012 Use Figure 1-A to help you decide whether you can claim exemption from withholding. Free tax software for 2012 Do not use Figure 1-A if you: Are 65 or older, Are blind, Will itemize deductions on your 2014 return, Will claim an exemption for a dependent on your 2014 return, or Will claim any tax credits on your 2014 return. Free tax software for 2012 These situations are discussed later. Free tax software for 2012 Students. Free tax software for 2012   If you are a student, you are not automatically exempt. Free tax software for 2012 If you work only part time or during the summer, you may qualify for exemption from withholding. Free tax software for 2012 Example 1. Free tax software for 2012 You are a high school student and expect to earn $2,500 from a summer job. Free tax software for 2012 You do not expect to have any other income during the year, and your parents will be able to claim an exemption for you on their tax return. Free tax software for 2012 You worked last summer and had $375 federal income tax withheld from your pay. Free tax software for 2012 The entire $375 was refunded when you filed your 2013 return. Free tax software for 2012 Using Figure 1-A, you find that you can claim exemption from withholding. Free tax software for 2012 Please click here for the text description of the image. Free tax software for 2012 Figure 1-A: Exemption From Withholding on Form W-4 Example 2. Free tax software for 2012 The facts are the same as in Example 1, except that you also have a savings account and expect to have $400 interest income during the year. Free tax software for 2012 Using Figure 1-A, you find that you cannot claim exemption from withholding because your unearned income will be more than $350 and your total income will be more than $1,000. Free tax software for 2012    You may have to file a tax return, even if you are exempt from withholding. Free tax software for 2012 See Publication 501 to see whether you must file a return. Free tax software for 2012    Age 65 or older or blind. Free tax software for 2012 If you are 65 or older or blind, use Worksheet 1-3 or Worksheet 1-4, to help you decide whether you can claim exemption from withholding. Free tax software for 2012 Do not use either worksheet if you will itemize deductions, claim exemptions for dependents, or claim tax credits on your 2014 return. Free tax software for 2012 Instead, see Itemizing deductions or claiming exemptions or credits, next. Free tax software for 2012 Itemizing deductions or claiming exemptions or credits. Free tax software for 2012   If you had no tax liability for 2013, and you will: Itemize deductions, Claim an exemption for a dependent, or Claim a tax credit, use the 2014 Estimated Tax Worksheet (also see chapter 2), to figure your 2014 expected tax liability. Free tax software for 2012 You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero. Free tax software for 2012 Claiming exemption from withholding. Free tax software for 2012   To claim exemption, you must give your employer a Form W-4. Free tax software for 2012 Do not complete lines 5 and 6. Free tax software for 2012 Enter “Exempt” on line 7. Free tax software for 2012   If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W-4 within 10 days after the change. Free tax software for 2012 If you claim exemption in 2014 but you expect to owe income tax for 2015, you must file a new Form W-4 by December 1, 2014. Free tax software for 2012   Your claim of exempt status may be reviewed by the IRS. Free tax software for 2012 See IRS review of your withholding , earlier. Free tax software for 2012 An exemption is good for only 1 year. Free tax software for 2012   You must give your employer a new Form W-4 by February 15 each year to continue your exemption. Free tax software for 2012 Supplemental Wages Supplemental wages include bonuses, commissions, overtime pay, vacation allowances, certain sick pay, and expense allowances under certain plans. Free tax software for 2012 The payer can figure withholding on supplemental wages using the same method used for your regular wages. Free tax software for 2012 However, if these payments are identified separately from regular wages, your employer or other payer of supplemental wages can withhold income tax from these wages at a flat rate. Free tax software for 2012 Expense allowances. Free tax software for 2012   Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. Free tax software for 2012 A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses. Free tax software for 2012   Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time. Free tax software for 2012 Accountable plan. Free tax software for 2012   To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules. Free tax software for 2012 Your expenses must have a business connection. Free tax software for 2012 That is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Free tax software for 2012 You must adequately account to your employer for these expenses within a reasonable period of time. Free tax software for 2012 You must return any excess reimbursement or allowance within a reasonable period of time. Free tax software for 2012    An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. Free tax software for 2012   The definition of reasonable period of time depends on the facts and circumstances of your situation. Free tax software for 2012 However, regardless of those facts and circumstances, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Free tax software for 2012 You receive an advance within 30 days of the time you have an expense. Free tax software for 2012 You adequately account for your expenses within 60 days after they were paid or incurred. Free tax software for 2012 You return any excess reimbursement within 120 days after the expense was paid or incurred. Free tax software for 2012 You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. Free tax software for 2012 Nonaccountable plan. Free tax software for 2012   Any plan that does not meet the definition of an accountable plan is considered a nonaccountable plan. Free tax software for 2012 For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. Free tax software for 2012 Penalties You may have to pay a penalty of $500 if both of the following apply. Free tax software for 2012 You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld. Free tax software for 2012 You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4. Free tax software for 2012 There is also a criminal penalty for willfully supplying false or fraudulent information on your Form W-4 or for willfully failing to supply information that would increase the amount withheld. Free tax software for 2012 The penalty upon conviction can be either a fine of up to $1,000 or imprisonment for up to 1 year, or both. Free tax software for 2012 These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. Free tax software for 2012 A simple error or an honest mistake will not result in one of these penalties. Free tax software for 2012 For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty. Free tax software for 2012 However, see chapter 4 for information on the penalty for underpaying your tax. Free tax software for 2012 Tips The tips you receive while working on your job are considered part of your pay. Free tax software for 2012 You must include your tips on your tax return on the same line as your regular pay. Free tax software for 2012 However, tax is not withheld directly from tip income, as it is from your regular pay. 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Free tax software for 2012 Your employer can figure your withholding in either of two ways. Free tax software for 2012 By withholding at the regular rate on the sum of your pay plus your reported tips. Free tax software for 2012 By withholding at the regular rate on your pay plus a percentage of your reported tips. Free tax software for 2012 Not enough pay to cover taxes. Free tax software for 2012   If your regular pay is not enough for your employer to withhold all the tax (including income tax and social security and Medicare taxes (or the equivalent railroad retirement tax)) due on your pay plus your tips, you can give your employer money to cover the shortage. Free tax software for 2012   If you do not give your employer money to cover the shortage, your employer first withholds as much Medicare tax and social security or railroad retirement tax as possible, up to the proper amount, and then withholds income tax up to the full amount of your pay. 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