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Freefile com 5. Freefile com   Recordkeeping Table of Contents How To Prove ExpensesWhat Are Adequate Records? What If I Have Incomplete Records? Separating and Combining Expenses How Long To Keep Records and Receipts Examples of Records If you deduct travel, entertainment, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. Freefile com This chapter discusses the records you need to keep to prove these expenses. Freefile com If you keep timely and accurate records, you will have support to show the IRS if your tax return is ever examined. Freefile com You will also have proof of expenses that your employer may require if you are reimbursed under an accountable plan. Freefile com These plans are discussed in chapter 6 under Reimbursements . Freefile com How To Prove Expenses Table 5-1 is a summary of records you need to prove each expense discussed in this publication. Freefile com You must be able to prove the elements listed across the top portion of the chart. Freefile com You prove them by having the information and receipts (where needed) for the expenses listed in the first column. Freefile com You cannot deduct amounts that you approximate or estimate. Freefile com You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. Freefile com You must generally prepare a written record for it to be considered adequate. Freefile com This is because written evidence is more reliable than oral evidence alone. Freefile com However, if you prepare a record on a computer, it is considered an adequate record. Freefile com What Are Adequate Records? You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. Freefile com You should also keep documentary evidence that, together with your record, will support each element of an expense. Freefile com Documentary evidence. Freefile com   You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. Freefile com Exception. Freefile com   Documentary evidence is not needed if any of the following conditions apply. Freefile com You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. Freefile com ( Accountable plans and per diem allowances are discussed in chapter 6. Freefile com ) Your expense, other than lodging, is less than $75. Freefile com You have a transportation expense for which a receipt is not readily available. Freefile com Adequate evidence. Freefile com   Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense. Freefile com   For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information. Freefile com The name and location of the hotel. Freefile com The dates you stayed there. Freefile com Separate amounts for charges such as lodging, meals, and telephone calls. Freefile com   A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information. Freefile com The name and location of the restaurant. Freefile com The number of people served. Freefile com The date and amount of the expense. Freefile com If a charge is made for items other than food and beverages, the receipt must show that this is the case. Freefile com Canceled check. Freefile com   A canceled check, together with a bill from the payee, ordinarily establishes the cost. Freefile com However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose. Freefile com Duplicate information. Freefile com   You do not have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner. Freefile com   You do not have to record amounts your employer pays directly for any ticket or other travel item. Freefile com However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend. Freefile com Timely-kept records. Freefile com   You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. Freefile com A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall. Freefile com   You do not need to write down the elements of every expense on the day of the expense. Freefile com If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record. Freefile com   If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. Freefile com This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record. Freefile com Proving business purpose. Freefile com   You must generally provide a written statement of the business purpose of an expense. Freefile com However, the degree of proof varies according to the circumstances in each case. Freefile com If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation. Freefile com Example. Freefile com If you are a sales representative who calls on customers on an established sales route, you do not have to give a written explanation of the business purpose for traveling that route. Freefile com You can satisfy the requirements by recording the length of the delivery route once, the date of each trip at or near the time of the trips, and the total miles you drove the car during the tax year. Freefile com You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence. Freefile com Confidential information. Freefile com   You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. Freefile com However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense. Freefile com What If I Have Incomplete Records? If you do not have complete records to prove an element of an expense, then you must prove the element with: Your own written or oral statement containing specific information about the element, and Other supporting evidence that is sufficient to establish the element. Freefile com If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. Freefile com Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Freefile com Documentary evidence can be receipts, paid bills, or similar evidence. Freefile com If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial rather than direct. Freefile com For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. Freefile com Invoices of deliveries establish when you used the car for business. Freefile com Table 5-1. Freefile com How To Prove Certain Business Expenses IF you have expenses for . Freefile com . Freefile com THEN you must keep records that show details of the following elements . Freefile com . Freefile com . Freefile com   Amount Time Place or  Description Business Purpose Business Relationship Travel Cost of each separate expense for travel, lodging, and meals. Freefile com Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc. Freefile com Dates you left and returned for each trip and number of days spent on business. Freefile com Destination or area of your travel (name of city, town, or other designation). Freefile com Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Freefile com    Relationship: N/A Entertainment Cost of each separate expense. Freefile com Incidental expenses such as taxis, telephones, etc. Freefile com , may be totaled on a daily basis. Freefile com Date of entertainment. Freefile com (Also see Business Purpose. Freefile com ) Name and address or location of place of entertainment. Freefile com Type of entertainment if not otherwise apparent. Freefile com (Also see Business Purpose. Freefile com ) Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Freefile com  For entertainment, the nature of the business discussion or activity. Freefile com If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity. Freefile com    Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. Freefile com  For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal. Freefile com Gifts Cost of the gift. Freefile com Date of the gift. Freefile com Description of the gift. Freefile com   Transportation Cost of each separate expense. Freefile com For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. Freefile com Date of the expense. Freefile com For car expenses, the date of the use of the car. Freefile com Your business destination. Freefile com Purpose: Business purpose for the expense. Freefile com    Relationship: N/A Sampling. Freefile com   You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. Freefile com You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year. Freefile com Example. Freefile com You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. Freefile com There is no other business use of the car, but you and your family use the car for personal purposes. Freefile com You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Freefile com Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Freefile com Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year. Freefile com Exceptional circumstances. Freefile com   You can satisfy the substantiation requirements with other evidence if, because of the nature of the situation in which an expense is made, you cannot get a receipt. Freefile com This applies if all the following are true. Freefile com You were unable to obtain evidence for an element of the expense or use that completely satisfies the requirements explained earlier under What Are Adequate Records . Freefile com You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What If I Have Incomplete Records . Freefile com You have presented other evidence for the element that is the best proof possible under the circumstances. Freefile com Destroyed records. Freefile com   If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Freefile com Reasons beyond your control include fire, flood, and other casualties. Freefile com    Table 5-2. Freefile com Daily Business Mileage and Expense Log Name:       Odometer Readings Expenses Date Destination  (City, Town, or Area) Business Purpose Start Stop Miles  this trip Type  (Gas, oil, tolls, etc. Freefile com ) Amount                                                                                                                   Weekly  Total             Total Year-to-Date             Separating and Combining Expenses This section explains when expenses must be kept separate and when expenses can be combined. Freefile com Separating expenses. Freefile com   Each separate payment is generally considered a separate expense. Freefile com For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. Freefile com You must record them separately in your records. Freefile com Season or series tickets. Freefile com   If you buy season or series tickets for business use, you must treat each ticket in the series as a separate item. Freefile com To determine the cost of individual tickets, divide the total cost (but not more than face value) by the number of games or performances in the series. Freefile com You must keep records to show whether you use each ticket as a gift or entertainment. Freefile com Also, you must be able to prove the cost of nonluxury box seat tickets if you rent a skybox or other private luxury box for more than one event. Freefile com See Entertainment tickets in chapter 2. Freefile com Combining items. Freefile com   You can make one daily entry in your record for reasonable categories of expenses. Freefile com Examples are taxi fares, telephone calls, or other incidental travel costs. Freefile com Meals should be in a separate category. Freefile com You can include tips for meal-related services with the costs of the meals. Freefile com   Expenses of a similar nature occurring during the course of a single event are considered a single expense. Freefile com For example, if during entertainment at a cocktail lounge, you pay separately for each serving of refreshments, the total expense for the refreshments is treated as a single expense. Freefile com Car expenses. Freefile com   You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. Freefile com Minimal personal use, such as a stop for lunch on the way between two business stops, is not an interruption of business use. Freefile com Example. Freefile com You make deliveries at several different locations on a route that begins and ends at your employer's business premises and that includes a stop at the business premises between two deliveries. Freefile com You can account for these using a single record of miles driven. Freefile com Gift expenses. Freefile com   You do not always have to record the name of each recipient of a gift. Freefile com A general listing will be enough if it is evident that you are not trying to avoid the $25 annual limit on the amount you can deduct for gifts to any one person. Freefile com For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients. Freefile com Allocating total cost. Freefile com   If you can prove the total cost of travel or entertainment but you cannot prove how much it cost for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro rata basis. Freefile com To do so, you must establish the number of persons who participated in the event. Freefile com   An allocation would be needed, for example, if you did not have a business relationship with all of your guests. Freefile com See Allocating between business and nonbusiness in chapter 2. Freefile com If your return is examined. Freefile com    If your return is examined, you may have to provide additional information to the IRS. Freefile com This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed. Freefile com    THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Table 5-3. Freefile com Weekly Traveling Expense and Entertainment Record From: To: Name: Expenses Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total 1. Freefile com Travel Expenses: Airlines                                 Excess Baggage                                 Bus – Train                                 Cab and Limousine                                 Tips                                 Porter                                 2. Freefile com Meals and Lodging:  Breakfast                                 Lunch                                 Dinner                                 Hotel and Motel  (Detail in Schedule B)                                 3. Freefile com Entertainment  (Detail in Schedule C)                                 4. Freefile com Other Expenses:  Postage                                 Telephone & Telegraph                                 Stationery & Printing                                 Stenographer                                 Sample Room                                 Advertising                                 Assistant(s)                                 Trade Shows                                 5. Freefile com Car Expenses: (List all car expenses - the division between business and personal expenses may be made at the end of the year. Freefile com ) (Detail mileage in Schedule A. Freefile com ) Gas, oil, lube, wash                                 Repairs, parts                                 Tires, supplies                                 Parking fees, tolls                                 6. Freefile com Other (Identify)                                 Total                                 Note: Attach receipted bills for (1) ALL lodging and (2) any other expenses of $75. Freefile com 00 or more. Freefile com Schedule A – Car Mileage: End                 Start                 Total                 Business Mileage                 Schedule B – Lodging Hotel or Motel Name                 City                 Schedule C – Entertainment Date Item Place Amount Business Purpose Business Relationship                                             WEEKLY REIMBURSEMENTS:     Travel and transportation expenses     Other reimbursements     TOTAL   How Long To Keep Records and Receipts You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Freefile com Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. Freefile com A return filed early is considered filed on the due date. Freefile com For a more complete explanation of how long to keep records, see Publication 583, Starting a Business and Keeping Records. Freefile com You must keep records of the business use of your car for each year of the recovery period. Freefile com See More-than-50%-use test in chapter 4 under Depreciation Deduction. Freefile com Reimbursed for expenses. Freefile com   Employees who give their records and documentation to their employers and are reimbursed for their expenses generally do not have to keep copies of this information. Freefile com However, you may have to prove your expenses if any of the following conditions apply. Freefile com You claim deductions for expenses that are more than reimbursements. Freefile com Your expenses are reimbursed under a nonaccountable plan. Freefile com Your employer does not use adequate accounting procedures to verify expense accounts. Freefile com You are related to your employer as defined under Per Diem and Car Allowances , in chapter 6. Freefile com Reimbursements , adequate accounting , and nonaccountable plans are discussed in chapter 6. Freefile com Examples of Records Table 5-2 and Table 5-3 are examples of worksheets which can be used for tracking business expenses. Freefile com Prev  Up  Next   Home   More Online Publications
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Freefile com 8. Freefile com   Paying Tax Through Withholding or Estimated Tax Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Notification of Alien Status Withholding From CompensationWithholding on Wages Withholding on Pensions Withholding on Tip Income Independent Contractors Withholding From Other IncomeTax Withheld on Partnership Income Withholding on Scholarships and Fellowship Grants Income Entitled to Tax Treaty BenefitsStudents, teachers, and researchers. Freefile com Tax Withheld on Real Property Sales Social Security and Medicare TaxesStudents and Exchange Visitors Agricultural Workers Self-Employment Tax International Social Security Agreements Estimated Tax Form 1040-ES (NR)Fiscal year. Freefile com Introduction This chapter discusses how to pay your U. Freefile com S. Freefile com income tax as you earn or receive income during the year. Freefile com In general, the federal income tax is a pay as you go tax. Freefile com There are two ways to pay as you go. Freefile com Withholding. Freefile com If you are an employee, your employer probably withholds income tax from your pay. Freefile com Tax may also be withheld from certain other income—including pensions, bonuses, commissions, and gambling winnings. Freefile com In each case, the amount withheld is paid to the U. Freefile com S. Freefile com Treasury in your name. Freefile com Estimated tax. Freefile com If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Freefile com People who are in business for themselves generally will have to pay their tax this way. Freefile com You may have to pay estimated tax if you receive income such as dividends, interest, rent, and royalties. Freefile com Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well. Freefile com Topics - This chapter discusses: How to notify your employer of your alien status, Income subject to withholding of income tax, Exemptions from withholding, Social security and Medicare taxes, and Estimated tax rules. Freefile com Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 901 U. Freefile com S. Freefile com Tax Treaties Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) W-8ECI Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States W-9 Request for Taxpayer Identification Number and Certification 1040-ES (NR) U. Freefile com S. Freefile com Estimated Tax for Nonresident Alien Individuals 8233 Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual 8288-B Application for Withholding Certificate for Dispositions by Foreign Persons of U. Freefile com S. Freefile com Real Property Interests 13930 Application for Central Withholding Agreement See chapter 12 for information about getting these publications and forms. Freefile com Notification of Alien Status You must let your employer know whether you are a resident or a nonresident alien so your employer can withhold the correct amount of tax from your wages. Freefile com If you are a resident alien under the rules discussed in chapter 1, you must file Form W-9 or a similar statement with your employer. Freefile com If you are a nonresident alien under those rules, you must furnish to your employer Form 8233 or Form W-8BEN, establishing that you are a foreign person, or Form W-4, establishing that your compensation is subject to graduated withholding at the same rates as resident aliens or U. Freefile com S. Freefile com citizens. Freefile com If you are a resident alien and you receive income other than wages (such as dividends and royalties) from sources within the United States, file Form W-9 or similar statement with the withholding agent (generally, the payer of the income) so the agent will not withhold tax on the income at the 30% (or lower treaty) rate. Freefile com If you receive this type of income as a nonresident alien, file Form W-8BEN with the withholding agent so that the agent will withhold tax at the 30% (or lower treaty) rate. Freefile com However, if the income is effectively connected with a U. Freefile com S. Freefile com trade or business, file Form W-8ECI instead. Freefile com Withholding From Compensation The following discussion generally applies only to nonresident aliens. Freefile com Tax is withheld from resident aliens in the same manner as U. Freefile com S. Freefile com citizens. Freefile com Wages and other compensation paid to a nonresident alien for services performed as an employee are usually subject to graduated withholding at the same rates as resident aliens and U. Freefile com S. Freefile com citizens. Freefile com Therefore, your compensation, unless it is specifically excluded from the term “wages” by law, or is exempt from tax by treaty, is subject to graduated withholding. Freefile com Withholding on Wages If you are an employee and you receive wages subject to graduated withholding, you will be required to fill out a Form W-4. Freefile com Also fill out Form W-4 for a scholarship or fellowship grant to the extent it represents payment for past, present, or future services and for which you are not claiming a tax treaty withholding exemption on Form 8233 (discussed later under Income Entitled to Tax Treaty Benefits). Freefile com These are services you are required to perform as an employee and as a condition of receiving the scholarship or fellowship (or tuition reduction). Freefile com Nonresident aliens should fill out Form W-4 using the following instructions instead of the instructions on the Form W-4. Freefile com This is because of the restrictions on a nonresident alien's filing status, the limited number of personal exemptions a nonresident alien is allowed, and because a nonresident alien cannot claim the standard deduction. Freefile com Enter your social security number (SSN) on line 2. Freefile com Do not enter an individual taxpayer identification number (ITIN). Freefile com Check only “Single” marital status on line 3 (regardless of your actual marital status). Freefile com Claim only one allowance on line 5, unless you are a resident of Canada, Mexico, or South Korea, or a U. Freefile com S. Freefile com national. Freefile com Write “Nonresident Alien” or “NRA” on the dotted line on line 6. Freefile com You can request additional withholding on line 6 at your option. Freefile com Do not claim “Exempt” withholding status on line 7. Freefile com A U. Freefile com S. Freefile com national is an individual who, although not a U. Freefile com S. Freefile com citizen, owes his or her allegiance to the United States. Freefile com U. Freefile com S. Freefile com nationals include American Samoans, and Northern Mariana Islanders who chose to become U. Freefile com S. Freefile com nationals instead of U. Freefile com S. Freefile com citizens. Freefile com See Withholding on Scholarships and Fellowship Grants later, for how to fill out Form W-4 if you receive a U. Freefile com S. Freefile com source scholarship or fellowship grant that is not a payment for services. Freefile com Students and business apprentices from India. Freefile com   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you may claim an additional withholding allowance for the standard deduction. Freefile com You can claim an additional withholding allowance for your spouse only if your spouse will have no gross income for 2013 and cannot be claimed as a dependent on another U. Freefile com S. Freefile com taxpayer's 2013 return. Freefile com You may also claim an additional withholding allowance for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Freefile com S. Freefile com citizens. Freefile com Household employees. Freefile com   If you work as a household employee, your employer does not have to withhold income tax. Freefile com However, you may agree to voluntary income tax withholding by filing a Form W-4 with your employer. Freefile com The agreement goes into effect when your employer accepts the agreement by beginning the withholding. Freefile com You or your employer may end the agreement by letting the other know in writing. Freefile com Agricultural workers. Freefile com   If you are an agricultural worker on an H-2A visa, your employer does not have to withhold income tax. Freefile com However, your employer will withhold income tax only if you and your employer agree to withhold. Freefile com In that case, you must provide your employer with a properly completed Form W-4. Freefile com You can find more information about not having tax withheld at www. Freefile com irs. Freefile com gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. Freefile com Wages Exempt From Withholding Wages that are exempt from U. Freefile com S. Freefile com income tax under an income tax treaty are generally exempt from withholding. Freefile com For information on how to claim this exemption from withholding, see Income Entitled to Tax Treaty Benefits , later. Freefile com Wages paid to aliens who are residents of American Samoa, Canada, Mexico, Puerto Rico, or the U. Freefile com S. Freefile com Virgin Islands may be exempt from withholding. Freefile com The following paragraphs explain these exemptions. Freefile com Residents of Canada or Mexico engaged in transportation-related employment. Freefile com   Certain residents of Canada or Mexico who enter or leave the United States at frequent intervals are not subject to withholding on their wages. Freefile com These persons either: Perform duties in transportation service between the United States and Canada or Mexico, or Perform duties connected to the construction, maintenance, or operation of a waterway, viaduct, dam, or bridge crossed by, or crossing, the boundary between the United States and Canada or the boundary between the United States and Mexico. Freefile com    This employment is subject to withholding of social security and Medicare taxes unless the services are performed for a railroad. Freefile com   To qualify for the exemption from withholding during a tax year, a Canadian or Mexican resident must give the employer a statement in duplicate with name, address, and identification number, certifying that the resident: Is not a U. Freefile com S. Freefile com citizen or resident, Is a resident of Canada or Mexico, whichever applies, and Expects to perform duties previously described during the tax year in question. Freefile com   The statement can be in any form, but it must be dated and signed by the employee and must include a written declaration that it is made under the penalties of perjury. Freefile com Residents of American Samoa and Puerto Rico. Freefile com   If you are a nonresident alien employee who is a resident of American Samoa or Puerto Rico, wages for services performed in American Samoa or Puerto Rico are generally not subject to withholding unless you are an employee of the United States or any of its agencies in American Samoa or Puerto Rico. Freefile com Residents of the U. Freefile com S. Freefile com Virgin Islands. Freefile com   Nonresident aliens who are bona fide residents of the U. Freefile com S Virgin Islands are not subject to withholding of U. Freefile com S. Freefile com tax on income earned while temporarily employed in the United States. Freefile com This is because those persons pay their income tax to the U. Freefile com S. Freefile com Virgin Islands. Freefile com To avoid having tax withheld on income earned in the United States, bona fide residents of the U. Freefile com S. Freefile com Virgin Islands should write a letter, in duplicate, to their employers, stating that they are bona fide residents of the U. Freefile com S. Freefile com Virgin Islands and expect to pay tax on all income to the U. Freefile com S. Freefile com Virgin Islands. Freefile com Withholding on Pensions If you receive a pension as a result of personal services performed in the United States, the pension income is subject to the 30% (or lower treaty) rate of withholding. Freefile com You may, however, have tax withheld at graduated rates on the portion of the pension that arises from the performance of services in the United States after December 31, 1986. Freefile com You must fill out Form W-8BEN and give it to the withholding agent or payer before the income is paid or credited to you. Freefile com Withholding on Tip Income Tips you receive during the year for services performed in the United States are subject to U. Freefile com S. Freefile com income tax. Freefile com Include them in taxable income. Freefile com In addition, tips received while working for one employer, amounting to $20 or more in a month, are subject to graduated withholding. Freefile com Independent Contractors If there is no employee-employer relationship between you and the person for whom you perform services, your compensation is subject to the 30% (or lower treaty) rate of withholding. Freefile com However, if you are engaged in a trade or business in the United States during the tax year, your compensation for personal services as an independent contractor (independent personal services) may be entirely or partly exempt from withholding if you reach an agreement with the Internal Revenue Service on the amount of withholding required. Freefile com An agreement that you reach with the IRS regarding withholding from your compensation for independent personal services is effective for payments covered by the agreement after it is agreed to by all parties. Freefile com You must agree to timely file an income tax return for the current tax year. Freefile com Central withholding agreements. Freefile com   If you are a nonresident alien entertainer or athlete performing or participating in athletic events in the United States, you may be able to enter into a withholding agreement with the IRS for reduced withholding provided certain requirements are met. Freefile com Under no circumstances will such a withholding agreement reduce taxes withheld to less than the anticipated amount of income tax liability. Freefile com   File Form 13930 and the required attachments with the IRS to request a central withholding agreement. Freefile com Either you or your authorized representative can file the form. Freefile com It should be sent to the IRS at least 45 days before the tour begins or the event occurs. Freefile com Exceptions will be considered on a case by case basis. Freefile com   For more information on the CWA program, go to www. Freefile com irs. Freefile com gov/Individuals/International-Taxpayers/Central-Withholding-Agreements. Freefile com Final payment exemption. Freefile com   Your final payment of compensation during the tax year for independent personal services may be entirely or partly exempt from withholding. Freefile com This exemption is available only once during your tax year and applies to a maximum of $5,000 of compensation. Freefile com To obtain this exemption, you or your agent must give the following statements and information to the Commissioner or his delegate. Freefile com A statement by each withholding agent from whom you have received gross income effectively connected with a trade or business in the United States during the tax year, showing the amount of income paid and the tax withheld. Freefile com Each statement must be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. Freefile com A statement by the withholding agent from whom you expect to receive the final payment of compensation, showing the amount of the payment and the amount of tax that would be withheld if a final payment exemption were not granted. Freefile com This statement must also be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. Freefile com A statement by you that you do not intend to receive any other income effectively connected with a trade or business in the United States during the current tax year. Freefile com The amount of tax that has been withheld or paid under any other provision of the Internal Revenue Code or regulations for any income effectively connected with your trade or business in the United States during the current tax year. Freefile com The amount of your outstanding tax liabilities, if any, including interest and penalties, from the current tax year or prior tax periods. Freefile com Any provision of an income tax treaty under which a partial or complete exemption from withholding may be claimed, the country of your residence, and a statement of sufficient facts to justify an exemption under the treaty. Freefile com A statement signed by you, and verified by a declaration that it is made under penalties of perjury, that all the information given is true and that to your knowledge no relevant information has been omitted. Freefile com   If satisfied with the information, the IRS will determine the amount of your tentative income tax for the tax year on gross income effectively connected with your trade or business in the United States. Freefile com Ordinary and necessary business expenses can be taken into account if proven to the satisfaction of the Commissioner or his delegate. Freefile com   The Commissioner or his delegate will send you a letter, directed to the withholding agent, showing the amount of the final payment of compensation that is exempt from withholding and the amount that can be paid to you because of the exemption. Freefile com You must give two copies of the letter to the withholding agent and must also attach a copy of the letter to your income tax return for the tax year for which the exemption is effective. Freefile com Allowance for Personal Exemption Withholding on payments for independent personal services is generally based on the amount of your compensation payment minus the value of one exemption ($3,950 for 2014). Freefile com To determine the income for independent personal services performed in the United States to which the 30% (or lower treaty) rate will apply, you are allowed one personal exemption if you are not a U. Freefile com S. Freefile com national and are not a resident of Canada, Mexico, or South Korea. Freefile com For purposes of 30% withholding, the exemption is prorated at $10. Freefile com 82 a day in 2014 for the period that labor or personal services are performed in the United States. Freefile com To claim an exemption from withholding on the personal exemption amount, fill out the applicable parts of Form 8233 and give it to the withholding agent. Freefile com Example. Freefile com Eric Johannsen, who is a resident of Country X worked under a contract with a U. Freefile com S. Freefile com firm (not as an employee) in the United States for 100 days during 2014 before returning to his country. Freefile com He earned $6,000 for the services performed (not considered wages) in the United States. Freefile com Eric is married and has three dependent children. Freefile com His wife is not employed and has no income subject to U. Freefile com S. Freefile com tax. Freefile com The amount of the personal exemption to be allowed against the income for his personal services performed within the United States in 2014 is $1,082 (100 days × $10. Freefile com 82), and withholding at 30% is applied against the balance. Freefile com Thus, $1,475. Freefile com 40 in tax is withheld from Eric's earnings (30% of $4,918 ($6,000 − $1,082). Freefile com U. Freefile com S. Freefile com nationals or residents of Canada, Mexico, or South Korea. Freefile com   If you are a nonresident alien who is a resident of Canada, Mexico, or South Korea, or who is a national of the United States, you are subject to the same 30% withholding on your compensation for independent personal services performed in the United States. Freefile com However, if you are a U. Freefile com S. Freefile com national or a resident of Canada or Mexico, you are allowed the same personal exemptions as U. Freefile com S. Freefile com citizens. Freefile com For the 30% (or lower treaty) rate withholding, you can take $10. Freefile com 82 per day for each allowable exemption in 2014. Freefile com If you are a resident of South Korea, you are allowed personal exemptions for yourself and for your spouse and children who live with you in the United States at any time during the tax year. Freefile com However, the additional exemptions for your spouse and children must be further prorated as explained in chapter 5 under Exemptions . Freefile com Students and business apprentices from India. Freefile com   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you are allowed an exemption for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. Freefile com S. Freefile com taxpayer's 2014 return. Freefile com You are also allowed an exemption for each dependent not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Freefile com S. Freefile com citizens. Freefile com For the 30% (or lower treaty rate) withholding on compensation for independent personal services performed in the United States, you are allowed $10. Freefile com 82 per day for each allowable exemption in 2014. Freefile com Refund of Taxes Withheld in Error Multi-level marketing. Freefile com   If you are a distributor for a multi-level marketing company who had taxes withheld in error, file a U. Freefile com S. Freefile com income tax return (Form 1040NR, Form 1040NR-EZ, or Form 1120-F) or, if a tax return has already been filed, a claim for refund (Form 1040X or amended Form 1120-F) to recover the amount withheld in error. Freefile com You must also attach to the U. Freefile com S. Freefile com income tax return or claim for refund supporting information that includes, but is not limited to, the following items. Freefile com A copy of your Form W-2, Form 1042-S, or Form 1099 to prove the amount of taxes withheld. Freefile com A statement explaining why income reported on your Form W-2, Form 1042-S, or Form 1099 is not subject to U. Freefile com S. Freefile com taxation. Freefile com A statement listing all the dates you entered and left the United States during the taxable year. Freefile com If the compensation is multi-year compensation, the statement must list all the dates you entered and left the United States during each of the taxable years to which the compensation is attributable. Freefile com A copy of any documents or records that show the number of days you actually were present in the United States during the years listed. Freefile com A statement providing: (a) the number of days (or unit of time less than a day, if appropriate) that personal services were performed in the United States in connection with recruiting, training, and supporting your lower-tier distributors; and (b) the total number of days (or unit of time less than a day, if appropriate) that personal services were performed globally in connection with recruiting, training, and supporting your lower-tier distributors. Freefile com Any further relevant document or record supporting your claim that the taxes were withheld in error. Freefile com Withholding From Other Income Other income subject to 30% withholding generally includes fixed or determinable income such as interest (other than portfolio interest), dividends, pensions and annuities, and gains from certain sales and exchanges, discussed in chapter 4. Freefile com It also includes 85% of social security benefits paid to nonresident aliens. Freefile com Refund of taxes withheld in error on social security benefits paid to resident aliens. Freefile com   Social security benefits paid to a lawful permanent resident (green card holder) are not subject to 30% withholding. Freefile com For U. Freefile com S. Freefile com income tax purposes, green card holders continue to be resident aliens until their lawful permanent resident status under immigration laws is either taken away or is administratively or judicially determined to have been abandoned. Freefile com See Green Card Test in chapter 1. Freefile com If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. Freefile com SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld. Freefile com If SSA cannot refund the taxes withheld, you must file a Form 1040 or 1040A with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301 to determine if you are entitled to a refund. Freefile com You must also attach the following to your Form 1040 or 1040A. Freefile com A copy of Form SSA-1042S, Social Security Benefit Statement. Freefile com A copy of the “green card. Freefile com ” A signed declaration that includes the following statements: The SSA should not have withheld income tax from my social security benefits because I am a U. Freefile com S. Freefile com lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Freefile com I am filing a U. Freefile com S. Freefile com income tax return for the tax year as a resident alien reporting all of my worldwide income. Freefile com I have not claimed benefits for the tax year under an income tax treaty as the resident of a country other than the United States. Freefile com Other income not subject to withholding of 30% (or lower treaty) rate. Freefile com   The following income is not subject to withholding at the 30% (or lower treaty) rate if you file Form W-8ECI with the payer of the income. Freefile com Income (other than compensation) that is effectively connected with your U. Freefile com S. Freefile com trade or business. Freefile com Income from real property that you choose to treat as effectively connected with a U. Freefile com S. Freefile com trade or business. Freefile com See Income From Real Property in chapter 4 for details about this choice. Freefile com   Special rules for withholding on partnership income, scholarships, and fellowships are explained next. Freefile com Tax Withheld on Partnership Income If you are a foreign partner in a U. Freefile com S. Freefile com or foreign partnership, the partnership will withhold tax on your share of effectively connected taxable income (ECTI) from the partnership. Freefile com You may be able to reduce your ECTI subject to withholding by certain partner-level deductions. Freefile com Generally, you must use Form 8804-C for this purpose. Freefile com See the Instructions for Form 8804-C for more information. Freefile com The withholding rate on your share of effectively connected income is generally the highest rate of tax specified under section 1 of the Code (39. Freefile com 6% for 2014). Freefile com However, the partnership may withhold at the highest rate that applies to a particular type of income allocable to you if you gave the partnership the appropriate documentation. Freefile com Long-term capital gain is an example of a particular type of income to which the highest tax rate applies. Freefile com Claim the tax withheld as a credit on your 2014 Form 1040NR. Freefile com The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. Freefile com A partnership that is publicly traded will withhold tax on your actual distributions of effectively connected income. Freefile com In this case the partnership will give you a statement on Form 1042-S, Foreign Person's U. Freefile com S. Freefile com Source Income Subject to Withholding. Freefile com Withholding on Scholarships and Fellowship Grants There is no withholding on a qualified scholarship received by a candidate for a degree. Freefile com See chapter 3. Freefile com If you are a nonresident alien student or grantee with an “F,” “J,” “M,” or “Q” visa and you receive a U. Freefile com S. Freefile com source grant or scholarship that is not fully exempt, the withholding agent (usually the payer of the scholarship) withholds tax at 14% (or lower treaty rate) of the taxable part of the grant or scholarship that is not a payment for services. Freefile com However, if you are not a candidate for a degree and the grant does not meet certain requirements, tax will be withheld at the 30% (or lower treaty) rate. Freefile com Any part of a scholarship or fellowship grant that is a payment for services is subject to graduated withholding as discussed earlier under Withholding on Wages. Freefile com Alternate Withholding Procedure Your withholding agent may choose to use an alternate procedure by asking you to fill out Form W-4 and the Personal Allowances Worksheet (attached to Form W-4). Freefile com Use the following instructions instead of the Form W-4 instructions to complete the worksheet. Freefile com Line A. Freefile com   Enter the total of the following amounts on line A. Freefile com Personal exemption. Freefile com   Include the prorated part of your allowable personal exemption. Freefile com Figure the amount by multiplying the number of days you expect to be in the United States in 2014 by the daily exemption amount ($10. Freefile com 82). Freefile com Expenses. Freefile com   Include expenses that will be deductible on your return. Freefile com These include away-from-home expenses (meals, lodging, and transportation), certain state and local income taxes, charitable contributions, and casualty losses, discussed earlier under Itemized Deductions in chapter 5. Freefile com They also include business expenses, moving expenses, and the IRA deduction discussed under Deductions in chapter 5. Freefile com Nontaxable grant or scholarship. Freefile com   Include the part of your grant or scholarship that is not taxable under U. Freefile com S. Freefile com law or under a tax treaty. Freefile com Line B. Freefile com   Enter -0- unless the following paragraph applies to you. Freefile com   If you are a student who qualifies under Article 21(2) of the United States-India Income Tax Treaty, and you are not claiming deductions for away-from-home expenses or other itemized deductions (discussed earlier), enter the standard deduction on line B. Freefile com The standard deduction amount for 2013 is $6,100. Freefile com Lines C and D. Freefile com   Enter -0- on both lines unless the following paragraphs apply to you. Freefile com   If you are a resident of Canada, Mexico, South Korea, or a U. Freefile com S. Freefile com national, an additional daily exemption amount may be allowed for your spouse and each of your dependents. Freefile com   If you are a resident of India who is eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you can claim an additional daily exemption amount for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. Freefile com S. Freefile com taxpayer's 2014 return. Freefile com You can also claim an additional amount for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Freefile com S. Freefile com citizens. Freefile com   Enter any additional amount for your spouse on line C. Freefile com Enter any additional amount for your dependents on line D. Freefile com Lines E, F, and G. Freefile com   No entries should be made on lines E, F, and G. Freefile com Line H. Freefile com   Add the amounts on lines A through D and enter the total on line H. Freefile com Form W-4. Freefile com   Complete lines 1 through 4 of Form W-4. Freefile com Sign and date the form and give it with the Personal Allowances Worksheet to your withholding agent. Freefile com   If you file a Form W-4 to reduce or eliminate the withholding on your scholarship or grant, you must file an annual U. Freefile com S. Freefile com income tax return to be allowed the exemptions and deductions you claimed on that form. Freefile com If you are in the United States during more than one tax year, you must attach a statement to your yearly Form W-4 indicating that you have filed a U. Freefile com S. Freefile com income tax return for the previous year. Freefile com If you have not been in the United States long enough to be required to file a return, you must attach a statement to your Form W-4 saying you will file a U. Freefile com S. Freefile com income tax return when required. Freefile com After the withholding agent has accepted your Form W-4, tax will be withheld on your scholarship or grant at the graduated rates that apply to wages. Freefile com The gross amount of the income is reduced by the amount on line H of the worksheet and the withholding tax is figured on the remainder. Freefile com You will receive a Form 1042-S from the withholding agent (usually the payer of your grant) showing the gross amount of your taxable scholarship or fellowship grant less the withholding allowance amount, the tax rate, and the amount of tax withheld. Freefile com Use this form to prepare your annual U. Freefile com S. Freefile com income tax return. Freefile com Income Entitled to Tax Treaty Benefits If a tax treaty between the United States and your country provides an exemption from, or a reduced rate of, tax for certain items of income, you should notify the payor of the income (the withholding agent) of your foreign status to claim a tax treaty withholding exemption. Freefile com Generally, you do this by filing either Form W-8BEN or Form 8233 with the withholding agent. Freefile com File Form W-8BEN for income that is not personal services income. Freefile com File Form 8233 for personal services income as discussed next. Freefile com Employees and independent contractors. Freefile com   If you perform personal services as an employee or as an independent contractor and you can claim an exemption from withholding on that personal service income because of a tax treaty, give Form 8233 to each withholding agent from whom amounts will be received. Freefile com   Even if you submit Form 8233, the withholding agent may have to withhold tax from your income. Freefile com This is because the factors on which the treaty exemption is based may not be determinable until after the close of the tax year. Freefile com In this case, you must file Form 1040NR (or Form 1040NR-EZ if you qualify) to recover any overwithheld tax and to provide the IRS with proof that you are entitled to the treaty exemption. Freefile com Students, teachers, and researchers. Freefile com   Students, teachers, and researchers must attach the appropriate statement shown in Appendix A (for students) or Appendix B (for teachers and researchers) at the end of this publication to the Form 8233 and give it to the withholding agent. Freefile com For treaties not listed in the appendices, attach a statement in a format similar to those for other treaties. Freefile com   If you received a scholarship or fellowship and personal services income from the same withholding agent, use Form 8233 to claim an exemption from withholding based on a tax treaty for both types of income. Freefile com Special events and promotions. Freefile com   Withholding at the full 30% rate is required for payments made to a nonresident alien or foreign corporation for gate receipts (or television or other receipts) from rock music festivals, boxing promotions, and other entertainment or sporting events, unless the withholding agent has been specifically advised otherwise by letter from the IRS. Freefile com Form 13930 is used to request a reduction in withholding. Freefile com Withholding may be required even if the income may be exempt from taxation by provisions of a tax treaty. Freefile com One reason for this is that the partial or complete exemption is usually based on factors that cannot be determined until after the close of the tax year. Freefile com You will be required to pay U. Freefile com S. Freefile com tax, at the time of your departure from the United States, on any income for which you incorrectly claimed a treaty exemption. Freefile com For more details on treaty provisions that apply to compensation, see Publication 901. Freefile com Tax Withheld on Real Property Sales If you are a nonresident alien and you dispose of a U. Freefile com S. Freefile com real property interest, the transferee (buyer) of the property generally must withhold a tax equal to 10% of the amount realized on the disposition. Freefile com A distribution by a qualified investment entity to a nonresident alien shareholder that is treated as gain from the sale or exchange of a U. Freefile com S. Freefile com real property interest by the shareholder is subject to withholding at 35%. Freefile com Withholding is also required on certain distributions and other transactions by domestic or foreign corporations, partnerships, trusts, and estates. Freefile com These rules are covered in Publication 515. Freefile com For information on the tax treatment of dispositions of U. Freefile com S. Freefile com real property interests, see Real Property Gain or Loss in chapter 4. Freefile com If you are a partner in a domestic partnership, and the partnership disposes of a U. Freefile com S. Freefile com real property interest at a gain, the partnership will withhold tax on the amount of gain allocable to its foreign partners. Freefile com Your share of the income and tax withheld will be reported to you on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, or Form 1042-S, Foreign Person's U. Freefile com S. Freefile com Source Income Subject to Withholding (in the case of a publicly traded partnership). Freefile com Withholding is not required in the following situations. Freefile com The property is acquired by the buyer for use as a residence and the amount realized (sales price) is not more than $300,000. Freefile com The property disposed of is an interest in a domestic corporation if any class of stock of the corporation is regularly traded on an established securities market. Freefile com However, this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded corporations. Freefile com The property disposed of is an interest in a U. Freefile com S. Freefile com corporation that is not regularly traded on an established market and you (the seller) give the buyer a copy of a statement issued by the corporation certifying that the interest is not a U. Freefile com S. Freefile com real property interest. Freefile com You (the seller) give the buyer a certification stating, under penalties of perjury, that you are not a foreign person, and containing your name, U. Freefile com S. Freefile com taxpayer identification number, and home address. Freefile com You can give the certification to a qualified substitute. Freefile com The qualified substitute gives the buyer a statement, under penalties of perjury, that the certification is in the possession of the qualified substitute. Freefile com For this purpose, a qualified substitute is (a) the person (including any attorney or title company) responsible for closing the transaction, other than your agent, and (b) the buyer's agent. Freefile com The buyer receives a withholding certificate from the Internal Revenue Service. Freefile com You give the buyer written notice that you are not required to recognize any gain or loss on the transfer because of a nonrecognition provision in the Internal Revenue Code or a provision in a U. Freefile com S. Freefile com tax treaty. Freefile com The buyer must file a copy of the notice with the Ogden Service Center, P. Freefile com O. Freefile com Box 409101, Ogden, UT 84409. Freefile com You must verify the notice as true and sign it under penalties of perjury. Freefile com The notice must contain the following information. Freefile com A statement that the notice is a notice of nonrecognition under regulation section 1. Freefile com 1445-2(d)(2). Freefile com Your name, taxpayer identification number, and home address. Freefile com A statement that you are not required to recognize any gain or loss on the transfer. Freefile com A brief description of the transfer. Freefile com A brief summary of the law and facts supporting your claim that recognition of gain or loss is not required. Freefile com You may not give the buyer a written notice for any of the following transfers: the sale of your main home on which you exclude gain, a like-kind exchange that does not qualify for nonrecognition treatment in its entirety, or a deferred like-kind exchange that has not been completed at the time the buyer must file Form 8288. Freefile com Instead, a withholding certificate (described next) must be obtained. Freefile com The amount you realize on the transfer of a U. Freefile com S. Freefile com real property interest is zero. Freefile com The property is acquired by the United States, a U. Freefile com S. Freefile com state or possession, a political subdivision, or the District of Columbia. Freefile com The distribution is from a domestically controlled qualified investment entity (QIE) and is treated as a distribution of a U. Freefile com S. Freefile com real property interest only because an interest in the entity was disposed of in an applicable wash sale transaction. Freefile com For the definition of a QIE, see Qualified investment entities under Real Property Gain or Loss, earlier. Freefile com See Wash sale under Real Property Gain or Loss in chapter 4. Freefile com The certifications in (3) and (4) must be disregarded by the buyer if the buyer or qualified substitute has actual knowledge, or receives notice from a seller's or buyer's agent (or substitute), that they are false. Freefile com This also applies to the qualified substitute's statement under (4). Freefile com Withholding certificates. Freefile com   The tax required to be withheld on a disposition can be reduced or eliminated under a withholding certificate issued by the IRS. Freefile com Either you or the buyer can request a withholding certificate. Freefile com   A withholding certificate can be issued due to any of the following. Freefile com The IRS determines that reduced withholding is appropriate because either: The amount required to be withheld would be more than your maximum tax liability, or Withholding of the reduced amount would not jeopardize collection of the tax. Freefile com All of your realized gain is exempt from U. Freefile com S. Freefile com tax. Freefile com You or the buyer enters into an agreement for the payment of tax providing security for the tax liability. Freefile com   Get Publication 515 and Form 8288-B for information on procedures to request a withholding certificate. Freefile com Credit for tax withheld. Freefile com   The buyer must report and pay over the withheld tax within 20 days after the transfer using Form 8288, U. Freefile com S. Freefile com Withholding Tax Return for Dispositions by Foreign Persons of U. Freefile com S. Freefile com Real Property Interests. Freefile com This form is filed with the IRS with copies A and B of Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Freefile com S. Freefile com Real Property Interests. Freefile com Copy B of this statement will be stamped received by the IRS and returned to you (the seller) if the statement is complete and includes your taxpayer identification number (TIN). Freefile com You must file Copy B with your tax return to take credit for the tax withheld. Freefile com   A stamped copy of Form 8288-A will not be provided to you if your TIN is not included on that form. Freefile com The IRS will send you a letter requesting the TIN and providing instructions for how to get a TIN. Freefile com When you provide the IRS with a TIN, the IRS will provide you with a stamped Copy B of Form 8288-A. Freefile com Social Security and Medicare Taxes If you work as an employee in the United States, you must pay social security and Medicare taxes in most cases. Freefile com Your payments of these taxes contribute to your coverage under the U. Freefile com S. Freefile com social security system. Freefile com Social security coverage provides retirement benefits, survivors and disability benefits, and medical insurance (Medicare) benefits to individuals who meet certain eligibility requirements. Freefile com In most cases, the first $113,700 of taxable wages received in 2013 for services performed in the United States is subject to social security tax. Freefile com All taxable wages are subject to Medicare tax. Freefile com Your employer deducts these taxes from each wage payment. Freefile com Your employer must deduct these taxes even if you do not expect to qualify for social security or Medicare benefits. Freefile com You can claim a credit for excess social security tax on your income tax return if you have more than one employer and the amount deducted from your combined wages for 2013 is more than $7,049. Freefile com 40. Freefile com Use the appropriate worksheet in chapter 3 of Publication 505, Tax Withholding and Estimated Tax, to figure your credit. Freefile com If any one employer deducted more than $7,049. Freefile com 40, you cannot claim a credit for that amount. Freefile com Ask your employer to refund the excess. Freefile com If your employer does not refund the excess, you can file a claim for refund using Form 843. Freefile com In general, U. Freefile com S. Freefile com social security and Medicare taxes apply to payments of wages for services performed as an employee in the United States, regardless of the citizenship or residence of either the employee or the employer. Freefile com In limited situations, these taxes apply to wages for services performed outside the United States. Freefile com Your employer should be able to tell you if social security and Medicare taxes apply to your wages. Freefile com You cannot make voluntary payments if no taxes are due. Freefile com Additional Medicare Tax. Freefile com   Beginning in 2013, in addition to the Medicare tax, a 0. Freefile com 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income that are more than: $250,000 if married filing jointly, $125,000 if married filing separately, or $200,000 for any other filing status. Freefile com   There are no special rules for nonresident aliens for purposes of Additional Medicare Tax. Freefile com Wages, RRTA compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold. Freefile com   Your employer is responsible for withholding the 0. Freefile com 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in the calendar year. Freefile com If you intend to file a joint return and you anticipate that you and your spouse's individual wages are not going to be more than $200,000 but your combined wages and self-employment income are going to be more than $250,000, you may want to request additional withholding on Form W-4 and/or make estimated tax payments. Freefile com   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). Freefile com    See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. Freefile com For more information on Additional Medicare Tax, go to IRS. Freefile com gov and enter “Additional Medicare Tax” in the search box. Freefile com   Self-employed individuals may also be required to pay Additional Medicare Tax. Freefile com See Self-Employment Tax , later. Freefile com Students and Exchange Visitors Generally, services performed by you as a nonresident alien temporarily in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act are not covered under the social security program if the services are performed to carry out the purpose for which you were admitted to the United States. Freefile com This means that there will be no withholding of social security or Medicare taxes from the pay you receive for these services. Freefile com These types of services are very limited, and generally include only on-campus work, practical training, and economic hardship employment. Freefile com Social security and Medicare taxes will be withheld from your pay for these services if you are considered a resident alien as discussed in chapter 1, even though your nonimmigrant classification (“F,” “J,” “M,” or “Q”) remains the same. Freefile com Services performed by a spouse or minor child of nonimmigrant aliens with the classification of “F-2,” “J-2,” “M-2,” and “Q-3” are covered under social security. Freefile com Nonresident Alien Students If you are a nonresident alien temporarily admitted to the United States as a student, you generally are not permitted to work for a wage or salary or to engage in business while you are in the United States. Freefile com In some cases, a student admitted to the United States in “F-1,” “M-1,” or “J-1” status is granted permission to work. Freefile com Social security and Medicare taxes are not withheld from pay for the work unless the student is considered a resident alien. Freefile com Any student who is enrolled and regularly attending classes at a school may be exempt from social security and Medicare taxes on pay for services performed for that school. Freefile com The U. Freefile com S. Freefile com Citizenship and Immigration Services (USCIS) permits on-campus work for students in “F-1” status if it does not displace a U. Freefile com S. Freefile com resident. Freefile com On-campus work means work performed on the school's premises. Freefile com On-campus work includes work performed at an off-campus location that is educationally affiliated with the school. Freefile com On-campus work under the terms of a scholarship, fellowship, or assistantship is considered part of the academic program of a student taking a full course of study and is permitted by the USCIS. Freefile com Social security and Medicare taxes are not withheld from pay for this work unless the student is considered a resident alien. Freefile com If services performed by a nonresident alien student are not considered as performed to carry out the purpose for which the student was admitted to the United States, social security and Medicare taxes will be withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. Freefile com Exchange Visitors Exchange visitors are temporarily admitted to the United States under section 101(a)(15)(J) of the Immigration and Nationality Act. Freefile com Social security and Medicare taxes are not withheld on pay for services of an exchange visitor who has been given permission to work and who possesses or obtains a letter of authorization from the sponsor unless the exchange visitor is considered a resident alien. Freefile com If services performed by an exchange visitor are not considered as performed to carry out the purpose for which the visitor was admitted to the United States, social security and Medicare taxes are withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. Freefile com Nonresident aliens temporarily admitted to the United States as participants in international cultural exchange programs under section 101(a)(15)(Q) of the Immigration and Nationality Act may be exempt from social security and Medicare taxes. Freefile com The employer must be the petitioner through whom the alien obtained the “Q” visa. Freefile com Social security and Medicare taxes are not withheld from pay for this work unless the alien is considered a resident alien. Freefile com Refund of Taxes Withheld in Error If social security or Medicare taxes were withheld in error from pay that is not subject to these taxes, contact the employer who withheld the taxes for a refund. Freefile com If you are unable to get a full refund of the amount from your employer, file a claim for refund with the Internal Revenue Service on Form 843, Claim for Refund and Request for Abatement. Freefile com Attach the following items to Form 843. Freefile com A copy of your Form W-2 to prove the amount of social security and Medicare taxes withheld. Freefile com A copy of your visa. Freefile com Form I-94 (or other documentation showing your dates of arrival or departure). Freefile com If you have an F-1 visa, documentation showing permission to work in the U. Freefile com S. Freefile com If you have a J-1 visa, documentation showing permission to work in the U. Freefile com S. Freefile com If you are engaged in optional practical training or employment due to severe economic necessity, documentation showing permission to work in the U. Freefile com S. Freefile com A statement from your employer indicating the amount of the reimbursement your employer provided and the amount of the credit or refund your employer claimed or you authorized your employer to claim. Freefile com If you cannot obtain this statement from your employer, you must provide this information on your own statement and explain why you are not attaching a statement from your employer or on Form 8316 claiming your employer will not issue the refund. Freefile com If you were exempt from social security and Medicare tax for only part of the year, pay statements showing the tax paid during the period you were exempt. Freefile com File Form 843 (with attachments) with the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201-0038. Freefile com Do not use Form 843 to request a refund of Additional Medicare Tax. Freefile com If Additional Medicare Tax was withheld from your pay in error, you can claim a credit for any withheld Additional Medicare Tax against the total tax liability shown on your tax return by filing Form 8959 with Form 1040 or 1040NR. Freefile com If Additional Medicare Tax was withheld in error in a prior year for which you already filed Form 1040 or 1040NR, you must file Form 1040X, Amended U. Freefile com S. Freefile com Individual Income Tax Return, for the prior year in which the wages or compensation were originally received to recover the Additional Medicare Tax withheld in error. Freefile com See the Instructions for Form 1040X. Freefile com Agricultural Workers Agricultural workers temporarily admitted into the United States on H-2A visas are exempt from social security and Medicare taxes on compensation paid to them for services performed in connection with the H-2A visa. Freefile com You can find more information about not having tax withheld at www. Freefile com irs. Freefile com gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. Freefile com Self-Employment Tax Self-employment tax is the social security and Medicare taxes for individuals who are self-employed. Freefile com Nonresident aliens are not subject to self-employment tax unless an international social security agreement in effect determines that they are covered under the U. Freefile com S. Freefile com social security system. Freefile com Residents of the U. Freefile com S. Freefile com Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are considered U. Freefile com S. Freefile com residents for this purpose and are subject to the self-employment tax. Freefile com Resident aliens must pay self-employment tax under the same rules that apply to U. Freefile com S. Freefile com citizens. Freefile com However, a resident alien employed by an international organization, a foreign government, or a wholly-owned instrumentality of a foreign government is not subject to the self-employment tax on income earned in the United States. Freefile com Self-employment income you receive while you are a resident alien is subject to self-employment tax even if it was paid for services you performed as a nonresident alien. Freefile com Example. Freefile com Bill Jones is an author engaged in the business of writing books. Freefile com Bill had several books published in a foreign country while he was a citizen and resident of that country. Freefile com During 2013, Bill entered the United States as a resident alien. Freefile com After becoming a U. Freefile com S. Freefile com resident, he continued to receive royalties from his foreign publisher. Freefile com Bill reports his income and expenses on the cash basis (he reports income on his tax return when received and deducts expenses when paid). Freefile com Bill's 2013 self-employment income includes the royalties received after he became a U. Freefile com S. Freefile com resident even though the books were published while he was a nonresident alien. Freefile com This royalty income is subject to self-employment tax. Freefile com Reporting self-employment tax. Freefile com   Use Schedule SE (Form 1040) to report and figure your self-employment tax. Freefile com Then enter the tax on Form 1040, line 56, or Form 1040NR, line 54. Freefile com Attach Schedule SE to Form 1040 or Form 1040NR. Freefile com Additional Medicare Tax. Freefile com   Self-employed individuals must pay a 0. Freefile com 9% Additional Medicare Tax on self-employment income that exceeds one of the following threshold amounts (based on your filing status): Married filing jointly — $250,000; Married filing separately — $125,000; Single, Head of household, or Qualifying widow(er) — $200,000. Freefile com   If you have both wages and self-employment income, the threshold amount for applying the Additional Medicare Tax on the self-employment income is reduced (but not below zero) by the amount of wages subject to Additional Medicare Tax. Freefile com A self-employment loss should not be considered for purposes of this tax   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). Freefile com   See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. Freefile com For more information on Additional Medicare Tax, go to IRS. Freefile com gov and enter “Additional Medicare Tax” in the search box. Freefile com Deduction for employer-equivalent portion of self-employment tax. Freefile com   If you must pay self-employment tax, you can deduct a portion of the self-employment tax paid in figuring your adjusted gross income. Freefile com This deduction is figured on Schedule SE (Form 1040). Freefile com Note. Freefile com No portion of the Additional Medicare Tax is deductible for self-employment tax. Freefile com More information. Freefile com   Get Publication 334, Tax Guide for Small Business, for more information about self-employment tax. Freefile com International Social Security Agreements The United States has entered into social security agreements with foreign countries to coordinate social security coverage and taxation of workers employed for part or all of their working careers in one of the countries. Freefile com These agreements are commonly referred to as totalization agreements. Freefile com Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. Freefile com The agreements generally make sure that social security taxes (including self-employment tax) are paid only to one country. Freefile com Agreements are in effect with the following countries. Freefile com Australia. Freefile com Austria. Freefile com Belgium. Freefile com Canada. Freefile com Chile. Freefile com Czech Republic. Freefile com Denmark. Freefile com Finland. Freefile com France. Freefile com Germany. Freefile com Greece. Freefile com Ireland. Freefile com Italy. Freefile com Japan. Freefile com Korea, South. Freefile com Luxembourg. Freefile com The Netherlands. Freefile com Norway. Freefile com Poland. Freefile com Portugal. Freefile com Spain. Freefile com Sweden. Freefile com Switzerland. Freefile com The United Kingdom. Freefile com Agreements with other countries are expected to enter into force in the future. Freefile com Employees. Freefile com   Generally, under these agreements, you are subject to social security taxes only in the country where you are working. Freefile com However, if you are temporarily sent to work for the same employer in the United States and your pay would normally be subject to social security taxes in both countries, most agreements provide that you remain covered only by the social security system of the country from which you were sent. Freefile com You can get more information on any agreement by contacting the U. Freefile com S. Freefile com Social Security Administration at the address given later. Freefile com If you have access to the Internet, you can get more information at www. Freefile com socialsecurity. Freefile com gov/international. Freefile com   To establish that your pay is subject only to foreign social security taxes and is exempt from U. Freefile com S. Freefile com social security taxes (including the Medicare tax) under an agreement, you or your employer should request a certificate of coverage from the appropriate agency of the foreign country. Freefile com This will usually be the same agency to which you or your employer pays your foreign social security taxes. Freefile com The foreign agency will be able to tell you what information is needed for them to issue the certificate. Freefile com Your employer should keep a copy of the certificate because it may be needed to show why you are exempt from U. Freefile com S. Freefile com social security taxes. Freefile com Only wages paid on or after the effective date of the agreement can be exempt from U. Freefile com S. Freefile com social security taxes. Freefile com    Some of the countries with which the United States has agreements will not issue certificates of coverage. Freefile com In this case, either you or your employer should request a statement that your wages are not covered by the U. Freefile com S. Freefile com social security system. Freefile com Request the statement from the following address. Freefile com U. Freefile com S. Freefile com Social Security Administration Office of International Programs P. Freefile com O. Freefile com Box 17741 Baltimore, MD 21235-7741 Self-employed individuals. Freefile com   Under most agreements, self-employed individuals are covered by the social security system of the country where they reside. Freefile com However, under some agreements, you may be exempt from U. Freefile com S. Freefile com self-employment tax if you temporarily transfer your business activity to or from the United States. Freefile com   If you believe that your self-employment income is subject only to U. Freefile com S. Freefile com self-employment tax and is exempt from foreign social security taxes, request a certificate of coverage from the U. Freefile com S. Freefile com Social Security Administration at the address given earlier. Freefile com This certificate will establish your exemption from foreign social security taxes. Freefile com   To establish that your self-employment income is subject only to foreign social security taxes and is exempt from U. Freefile com S. Freefile com self-employment tax, request a certificate of coverage from the appropriate agency of the foreign country. Freefile com If the foreign country will not issue the certificate, you should request a statement that your income is not covered by the U. Freefile com S. Freefile com social security system. Freefile com Request it from the U. Freefile com S. Freefile com Social Security Administration at the address given earlier. Freefile com Attach a photocopy of either statement to Form 1040 each year you are exempt. Freefile com Also print “Exempt, see attached statement” on the line for self-employment tax. Freefile com Estimated Tax Form 1040-ES (NR) You may have income from which no U. Freefile com S. Freefile com income tax is withheld. Freefile com Or the amount of tax withheld may be less than the income tax you estimate you will owe at the end of the year. Freefile com If so, you may have to pay estimated tax. Freefile com Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax and you expect your withholding and certain refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 income tax return, or 100% of the tax shown on your 2013 income tax return (if your 2013 return covered all 12 months of the year). Freefile com If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above if you are not a farmer or fisherman. Freefile com Item (2) does not apply if you did not file a 2013 return. Freefile com A nonresident alien should use Form 1040-ES (NR) to figure and pay estimated tax. Freefile com If you pay by check, make it payable to the "United States Treasury. Freefile com " How to estimate your tax for 2014. Freefile com   If you filed a 2013 return on Form 1040NR or Form 1040NR-EZ and expect your income, number of exemptions, and total deductions for 2014 to be nearly the same, you should use your 2013 return as a guide to complete the Estimated Tax Worksheet in the Form 1040-ES (NR) instructions. Freefile com If you did not file a return for 2013, or if your income, exemptions, deductions, or credits will be different for 2014, you must estimate these amounts. Freefile com Figure your estimated tax liability using the Tax Rate Schedule in the 2014 Form 1040-ES (NR) instructions for your filing status. Freefile com Note. Freefile com If you expect to be a resident of Puerto Rico during the entire year, use Form 1040-ES or Formulario 1040-ES (PR). Freefile com When to pay estimated tax. Freefile com   Make your first estimated tax payment by the due date for filing the previous year's Form 1040NR or Form 1040NR-EZ. Freefile com If you have wages subject to the same withholding rules that apply to U. Freefile com S. Freefile com citizens, you must file Form 1040NR or Form 1040NR-EZ and make your first estimated tax payment by April 15, 2014. Freefile com If you do not have wages subject to withholding, file your income tax return and make your first estimated tax payment by June 16, 2014. Freefile com   If your first estimated tax payment is due April 15, 2014, you can pay your estimated tax in full at that time or in four equal installments by the dates shown next. Freefile com 1st installment April 15, 2014 2nd installment June 16, 2014 3rd installment Sept. Freefile com 15, 2014 4th installment Jan. Freefile com 15, 2015 If your first payment is not due until June 16, 2014, you can pay your estimated tax in full at that time or: ½ of your estimated tax by June 16, 2014, 1/4 of the tax by September 15, 2014, and 1/4 by January 15, 2015. Freefile com    You do not have to make the payment due January 15, 2015, if you file your 2014 Form 1040NR or 1040NR-EZ by February 2, 2015, and pay the entire balance due with your return. Freefile com Fiscal year. Freefile com   If your return is not on a calendar year basis, your due dates are the 15th day of the 4th, 6th, and 9th months of your fiscal year, and the 1st month of the following fiscal year. Freefile com If any date falls on a Saturday, Sunday, or legal holiday, use the next day that is not a Saturday, Sunday, or legal holiday. Freefile com Changes in income, deductions, or exemptions. Freefile com   Even if you are not required to make an estimated tax payment in April or June, your circumstances may change so that you will have to make estimated tax payments later. Freefile com This can happen if you receive additional income or if any of your deductions are reduced or eliminated. Freefile com If so, see the instructions for Form 1040-ES (NR) and Publication 505 for information on figuring your estimated tax. Freefile com Amended estimated tax. Freefile com   If, after you have made estimated tax payments, you find your estimated tax is substantially increased or decreased because of a change in your income or exemptions, you should adjust your remaining estimated tax payments. Freefile com To do this, see the instructions for Form 1040-ES (NR) and Publication 505. Freefile com Penalty for failure to pay estimated income tax. Freefile com   You will be subject to a penalty for underpayment of installments of estimated tax except in certain situations. Freefile com These situations are explained on Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Freefile com Prev  Up  Next   Home   More Online Publications