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Freetaxes Index A Additional Medicare Tax, Reminders, Additional Medicare Tax withholding. Freetaxes Adjustments, Reporting Adjustments to Form 941-SS, 944-SS, 944, or 943 Agricultural labor, Deposits. Freetaxes Aliens, nonresidents, Deposits. Freetaxes Assistance (see Tax help) C Calendar, Calendar Comments on publication, Comments and suggestions. Freetaxes Common-law employee, Employee status under common law. Freetaxes Corrected wage and tax statement, Correcting Forms W-2AS, W-2CM, W-2GU, W-2VI, and Form W-3SS. Freetaxes Crew leaders, Farm Crew Leaders Current period adjustments, Current Period Adjustments D Deposit How to deposit, How To Deposit Penalties, Deposit Penalties Period, Deposit Period Requirements, 8. Freetaxes Depositing Taxes Rules $100,000 next-day deposit, $100,000 Next-Day Deposit Rule Accuracy of deposits, Accuracy of Deposits Rule Schedules Monthly, Monthly Deposit Schedule Semiweekly, Semiweekly Deposit Schedule When to deposit, When To Deposit E Electronic deposits, Electronic deposit requirement. Freetaxes Electronic filing and payment, Reminders Employee, 2. Freetaxes Who Are Employees? Employer identification number (EIN), 1. Freetaxes Employer Identification Number (EIN) F Family employees, Deposits. Freetaxes Farm crew leaders, Farm Crew Leaders Farmworkers, 6. Freetaxes Social Security and Medicare Taxes for Farmworkers, Employers of farmworkers. Freetaxes Federal employees, Deposits. Freetaxes Fishing, Deposits. Freetaxes Form, Calendar, Lookback period for employers of nonfarm workers. Freetaxes 4070, 5. Freetaxes Tips 4070A, 5. Freetaxes Tips 8274, Deposits. Freetaxes 940, Calendar 941-SS, Calendar, Current Period Adjustments 941-X, Adjustments to lookback period taxes. Freetaxes 943, Calendar 943-X, Adjustments to lookback period taxes. Freetaxes 944-X, Adjustments to lookback period taxes. Freetaxes Schedule H (Form 1040), Household employers reporting social security and Medicare taxes. Freetaxes SS-4, 1. Freetaxes Employer Identification Number (EIN) SS-5, Reminders, Employee's social security card. Freetaxes SS-8, IRS help. Freetaxes W-2c, Employee's social security card. Freetaxes , Correcting Forms W-2AS, W-2CM, W-2GU, W-2VI, and Form W-3SS. Freetaxes Fringe benefits, Fringe Benefits, Deposits. Freetaxes FUTA tax, 11. Freetaxes Federal Unemployment (FUTA) Tax—U. Freetaxes S. Freetaxes Virgin Islands Employers Only G Government employees, nonfederal, Deposits. Freetaxes Group-term life insurance, Deposits. Freetaxes H Help (see Tax help) Hiring new employees, Reminders Homeworkers, Deposits. Freetaxes Hospital interns, Deposits. Freetaxes Household employers, Household employers reporting social security and Medicare taxes. Freetaxes Household workers, Household employers reporting social security and Medicare taxes. Freetaxes , Deposits. Freetaxes How to deposit, How To Deposit I Insurance agents, Deposits. Freetaxes IRS help (employee v. Freetaxes subcontractor), IRS help. Freetaxes L Lookback period Farmworkers, Lookback period for employers of farmworkers. Freetaxes Nonfarm workers, Lookback period for employers of nonfarm workers. Freetaxes M Meals and lodging, Deposits. Freetaxes Ministers, Deposits. Freetaxes Monthly deposit schedule, Monthly Deposit Schedule Moving expenses, Deposits. Freetaxes N Newspaper delivery, Deposits. Freetaxes Noncash payments, Deposits. Freetaxes Nonprofit organizations, Deposits. Freetaxes P Partners, Deposits. Freetaxes Penalties, Deposit Penalties Pension plans, Deposits. Freetaxes Prior period adjustments, Prior Period Adjustments Private delivery services, Reminders Publications (see Tax help) R Recordkeeping, Reminders Religious orders, Deposits. Freetaxes Retirement and pension plans, Deposits. Freetaxes S Salespersons, Deposits. Freetaxes Scholarships and fellowships, Deposits. Freetaxes Semiweekly deposit schedule, Semiweekly Deposit Schedule Severance pay, Deposits. Freetaxes Sick pay, Sick pay. Freetaxes , Sick pay payments. Freetaxes , Deposits. Freetaxes Social security number (SSN), 3. Freetaxes Employee's Social Security Number (SSN) Statutory employee, Statutory employees. Freetaxes Statutory nonemployee, Statutory nonemployees. Freetaxes Students, Deposits. Freetaxes Suggestions for publication, Comments and suggestions. Freetaxes Supplemental unemployment compensation benefits, Deposits. Freetaxes T Tax help, How To Get Tax Help Tax Help, Tax help. Freetaxes Taxes paid by employer, Employee's portion of taxes paid by employer. Freetaxes Tips, 5. Freetaxes Tips, Deposits. Freetaxes Travel and business expenses, Travel and business expenses. Freetaxes Trust fund recovery penalty, Trust fund recovery penalty. Freetaxes W Wage and Tax Statement, 10. Freetaxes Wage and Tax Statements Prev Up Home More Online Publications
Understanding your CP88 Notice
We are holding your refund because you have not filed one or more tax returns and we believe you will owe tax.
What you need to do
- File your personal tax return immediately or explain to us why you don't need to file.
- Use the response form on your notice to explain:
- why you're filing late
- why you don't have to file
- that you've already filed
You may want to...
- Review what happens when you don't file a tax return:
- Review your records and make sure you filed all your prior returns. Get copies of prior year tax returns and products.
- Download copies of the following materials (if they were not included with your notice):
- Call 1-800-TAX-FORM (1-800-829-3676) to order forms and publications.
- Check to see that you have enough money withheld from your paycheck to pay your taxes. The IRS withholding calculator can help.
Learn more about your payment options if you owe additional taxes on your return.
- Learn more about payment plans and installment agreements.
- Learn more about Offers in Compromise.
- Complete and send us a Form 2848, Power of Attorney and Declaration of Representative to authorize someone (such as an accountant) to contact us on your behalf.
Answers to Common Questions
What should I do if I disagree with the notice?
Call us at the toll-free number on the top right corner of your notice. Please have your paperwork ready when you call. If you prefer, you can write to us using the notice's Response form. Please enclose it in the envelope we've provided.
What should I do if I've just filed my tax return?
You don't have to do anything if you filed your tax return(s) within the last eight weeks.
What should I do if I didn't file my tax return or it's been more than eight weeks since I filed it?
Complete the response form from your notice. Check the name, Social Security number (or Taxpayer Identification Number), and tax year on your notice. Make sure they match the name, number, and year on the return. Mail us a copy of the tax return. Sign and date it. Send it with the response form.
What happens if I can't pay the full amount I owe when I file my return?
You can make a payment plan with us when you can't pay the full amount you owe. If you owe tax on any return(s) you file, we will use your refund to help pay it.
When will my refund be released?
We can release your refund when we have received all past due returns, or explanations showing you did not have to file for those years.
Tips for next year
File your return on time, even if you will owe taxes. If necessary, you can make a payment plan to pay what you owe.
Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.
If you have dependent children, you may be able to claim a tax credit for them. Publication 972, Child Tax Credit, has information about this credit.
Page Last Reviewed or Updated: 07-Mar-2014
Printable samples of this notice (PDF)
Tax publications you may find useful
How to get help
- Call the 1-800 number listed on the top right corner of your notice.
- Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
- See if you qualify for help from a Low Income Taxpayer Clinic.
Freetaxes Publication 15 - Main Content Table of Contents 1. Freetaxes Employer Identification Number (EIN) 2. Freetaxes Who Are Employees?Relief provisions. Freetaxes Business Owned and Operated by Spouses 3. Freetaxes Family Employees 4. Freetaxes Employee's Social Security Number (SSN)Registering for SSNVS. Freetaxes 5. Freetaxes Wages and Other CompensationAccountable plan. Freetaxes Nonaccountable plan. Freetaxes Per diem or other fixed allowance. Freetaxes 50% test. Freetaxes Health Savings Accounts and medical savings accounts. Freetaxes Nontaxable fringe benefits. Freetaxes When fringe benefits are treated as paid. Freetaxes Valuation of fringe benefits. Freetaxes Withholding on fringe benefits. Freetaxes Depositing taxes on fringe benefits. Freetaxes 6. Freetaxes TipsOrdering rule. Freetaxes 7. Freetaxes Supplemental Wages 8. Freetaxes Payroll Period 9. Freetaxes Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Freetaxes Required Notice to Employees About the Earned Income Credit (EIC) 11. Freetaxes Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Freetaxes Filing Form 941 or Form 944 13. Freetaxes Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Freetaxes Federal Unemployment (FUTA) TaxSuccessor employer. Freetaxes Household employees. Freetaxes When to deposit. Freetaxes Household employees. Freetaxes Electronic filing by reporting agents. Freetaxes 16. Freetaxes How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Freetaxes Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Freetaxes The EIN is a nine-digit number the IRS issues. Freetaxes The digits are arranged as follows: 00-0000000. Freetaxes It is used to identify the tax accounts of employers and certain others who have no employees. Freetaxes Use your EIN on all of the items you send to the IRS and SSA. Freetaxes For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Freetaxes If you do not have an EIN, you may apply for one online. Freetaxes Go to the IRS. Freetaxes gov and click on the Apply for an EIN Online link under Tools. Freetaxes 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. Freetaxes Do not use an SSN in place of an EIN. Freetaxes You should have only one EIN. Freetaxes 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). Freetaxes Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Freetaxes The IRS will tell you which number to use. Freetaxes If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Freetaxes 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. Freetaxes 2. Freetaxes Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Freetaxes See Publication 15-A for details on statutory employees and nonemployees. Freetaxes Employee status under common law. Freetaxes 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. Freetaxes This is so even when you give the employee freedom of action. Freetaxes What matters is that you have the right to control the details of how the services are performed. Freetaxes See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Freetaxes Generally, people in business for themselves are not employees. Freetaxes For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Freetaxes However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Freetaxes If an employer-employee relationship exists, it does not matter what it is called. Freetaxes The employee may be called an agent or independent contractor. Freetaxes It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Freetaxes Statutory employees. Freetaxes 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. Freetaxes 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. Freetaxes An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Freetaxes A full-time life insurance salesperson who sells primarily for one company. Freetaxes 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. Freetaxes 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. Freetaxes The orders must be for merchandise for resale or supplies for use in the customer's business. Freetaxes The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Freetaxes Statutory nonemployees. Freetaxes Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Freetaxes They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Freetaxes H-2A agricultural workers. Freetaxes On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Freetaxes Treating employees as nonemployees. Freetaxes 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. Freetaxes 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. Freetaxes The applicable rates depend on whether you filed required Forms 1099. Freetaxes 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. Freetaxes You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Freetaxes You continue to owe the full employer share of social security and Medicare taxes. Freetaxes The employee remains liable for the employee share of social security and Medicare taxes. Freetaxes See Internal Revenue Code section 3509 for details. Freetaxes Also see the Instructions for Form 941-X. Freetaxes 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. Freetaxes Section 3509 is not available for reclassifying statutory employees. Freetaxes See Statutory employees , earlier in this section. Freetaxes If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Freetaxes 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Freetaxes For Medicare taxes; employer rate of 1. Freetaxes 45% plus 20% of the employee rate of 1. Freetaxes 45%, for a total rate of 1. Freetaxes 74% of wages. Freetaxes For Additional Medicare Tax; 0. Freetaxes 18% (20% of the employee rate of 0. Freetaxes 9%) of wages subject to Additional Medicare Tax. Freetaxes For income tax withholding, the rate is 1. Freetaxes 5% of wages. Freetaxes If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Freetaxes 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Freetaxes For Medicare taxes; employer rate of 1. Freetaxes 45% plus 40% of the employee rate of 1. Freetaxes 45%, for a total rate of 2. Freetaxes 03% of wages. Freetaxes For Additional Medicare Tax; 0. Freetaxes 36% (40% of the employee rate of 0. Freetaxes 9%) of wages subject to Additional Medicare Tax. Freetaxes For income tax withholding, the rate is 3. Freetaxes 0% of wages. Freetaxes Relief provisions. Freetaxes 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. Freetaxes 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. Freetaxes You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Freetaxes See Publication 1976, Do You Qualify for Relief Under Section 530. Freetaxes IRS help. Freetaxes 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. Freetaxes Voluntary Classification Settlement Program (VCSP). Freetaxes 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. Freetaxes To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Freetaxes For more information visit IRS. Freetaxes gov and enter “VCSP” in the search box. Freetaxes 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. Freetaxes See Publication 541, Partnerships, for more details. Freetaxes The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Freetaxes Exception—Qualified joint venture. Freetaxes 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. Freetaxes 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). Freetaxes 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. Freetaxes Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Freetaxes Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Freetaxes 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. Freetaxes Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Freetaxes 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. Freetaxes Note. Freetaxes If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Freetaxes For more information on qualified joint ventures, visit IRS. Freetaxes gov and enter “qualified joint venture” in the search box. Freetaxes Exception—Community income. Freetaxes 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. Freetaxes S. Freetaxes possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Freetaxes You may still make an election to be taxed as a qualified joint venture instead of a partnership. Freetaxes See Exception—Qualified joint venture , earlier. Freetaxes 3. Freetaxes Family Employees Child employed by parents. Freetaxes 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. Freetaxes 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. Freetaxes However, see Covered services of a child or spouse , later in this section. Freetaxes 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. Freetaxes 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. Freetaxes One spouse employed by another. Freetaxes 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. Freetaxes 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. Freetaxes Covered services of a child or spouse. Freetaxes 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. Freetaxes Parent employed by son or daughter. Freetaxes When the employer is a son or daughter employing his or her parent the following rules apply. Freetaxes 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. Freetaxes 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. Freetaxes 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. Freetaxes Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Freetaxes 4. Freetaxes 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. Freetaxes This requirement also applies to resident and nonresident alien employees. Freetaxes You should ask your employee to show you his or her social security card. Freetaxes The employee may show the card if it is available. Freetaxes Do not accept a social security card that says “Not valid for employment. Freetaxes ” A social security number issued with this legend does not permit employment. Freetaxes You may, but are not required to, photocopy the social security card if the employee provides it. Freetaxes 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. Freetaxes See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Freetaxes Applying for a social security card. Freetaxes 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. Freetaxes You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Freetaxes socialsecurity. Freetaxes gov/online/ss-5. Freetaxes html. Freetaxes The employee must complete and sign Form SS-5; it cannot be filed by the employer. Freetaxes 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. Freetaxes Applying for a social security number. Freetaxes 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. Freetaxes If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Freetaxes 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. Freetaxes Furnish copies B, C, and 2 of Form W-2c to the employee. Freetaxes 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. Freetaxes For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Freetaxes socialsecurity. Freetaxes gov/employer. Freetaxes Advise your employee to correct the SSN on his or her original Form W-2. Freetaxes Correctly record the employee's name and SSN. Freetaxes Record the name and number of each employee as they are shown on the employee's social security card. Freetaxes 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. Freetaxes 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. Freetaxes 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. Freetaxes 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. Freetaxes IRS individual taxpayer identification numbers (ITINs) for aliens. Freetaxes Do not accept an ITIN in place of an SSN for employee identification or for work. Freetaxes An ITIN is only available to resident and nonresident aliens who are not eligible for U. Freetaxes S. Freetaxes employment and need identification for other tax purposes. Freetaxes 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). Freetaxes An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Freetaxes 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. Freetaxes Do not use an ITIN in place of an SSN on Form W-2. Freetaxes Verification of social security numbers. Freetaxes 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. Freetaxes Visit www. Freetaxes socialsecurity. Freetaxes gov/employer/ssnv. Freetaxes htm for more information. Freetaxes Registering for SSNVS. Freetaxes You must register online and receive authorization from your employer to use SSNVS. Freetaxes To register, visit SSA's website at www. Freetaxes ssa. Freetaxes gov/employer and click on the Business Services Online link. Freetaxes Follow the registration instructions to obtain a user identification (ID) and password. Freetaxes You will need to provide the following information about yourself and your company. Freetaxes Name. Freetaxes SSN. Freetaxes Date of birth. Freetaxes Type of employer. Freetaxes EIN. Freetaxes Company name, address, and telephone number. Freetaxes Email address. Freetaxes When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Freetaxes You must enter the activation code online to use SSNVS. Freetaxes 5. Freetaxes Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Freetaxes The pay may be in cash or in other forms. Freetaxes It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Freetaxes It does not matter how you measure or make the payments. Freetaxes 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. Freetaxes Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Freetaxes More information. Freetaxes See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Freetaxes Also, see section 15 for exceptions to the general rules for wages. Freetaxes Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Freetaxes 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. Freetaxes Employee business expense reimbursements. Freetaxes A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Freetaxes How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Freetaxes If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Freetaxes These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Freetaxes Accountable plan. Freetaxes To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Freetaxes They must have paid or incurred deductible expenses while performing services as your employees. Freetaxes 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. Freetaxes They must substantiate these expenses to you within a reasonable period of time. Freetaxes They must return any amounts in excess of substantiated expenses within a reasonable period of time. Freetaxes Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Freetaxes 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. Freetaxes 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. Freetaxes A reasonable period of time depends on the facts and circumstances. Freetaxes 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. Freetaxes 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. Freetaxes Nonaccountable plan. Freetaxes 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. Freetaxes 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. Freetaxes See section 7 for more information on supplemental wages. Freetaxes Per diem or other fixed allowance. Freetaxes You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Freetaxes In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Freetaxes The 2013 standard mileage rate for auto expenses was 56. Freetaxes 5 cents per mile. Freetaxes The rate for 2014 is 56 cents per mile. Freetaxes The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Freetaxes 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). Freetaxes If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Freetaxes This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Freetaxes Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Freetaxes ” Wages not paid in money. Freetaxes 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. Freetaxes ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Freetaxes 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. Freetaxes 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. Freetaxes Withhold income tax on these payments only if you and the employee agree to do so. Freetaxes 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. Freetaxes Moving expenses. Freetaxes 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. Freetaxes Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Freetaxes For more information on moving expenses, see Publication 521, Moving Expenses. Freetaxes Meals and lodging. Freetaxes 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. Freetaxes 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. Freetaxes “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. Freetaxes 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. Freetaxes However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Freetaxes A written statement that the meals or lodging are for your convenience is not sufficient. Freetaxes 50% test. Freetaxes 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. Freetaxes 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. Freetaxes For more information, see Publication 15-B. Freetaxes Health insurance plans. Freetaxes 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. Freetaxes Generally, this exclusion also applies to qualified long-term care insurance contracts. Freetaxes 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). Freetaxes 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. Freetaxes See Announcement 92-16 for more information. Freetaxes You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Freetaxes Health Savings Accounts and medical savings accounts. Freetaxes 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. Freetaxes To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Freetaxes 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. Freetaxes 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. Freetaxes For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Freetaxes Medical care reimbursements. Freetaxes 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. Freetaxes See Publication 15-B for an exception for highly compensated employees. Freetaxes Differential wage payments. Freetaxes 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. Freetaxes Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Freetaxes Employers should report differential wage payments in box 1 of Form W-2. Freetaxes For more information about the tax treatment of differential wage payments, visit IRS. Freetaxes gov and enter “employees in a combat zone” in the search box. Freetaxes Fringe benefits. Freetaxes You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Freetaxes The benefits are subject to income tax withholding and employment taxes. Freetaxes 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. Freetaxes 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. Freetaxes There are other special rules you and your employees may use to value certain fringe benefits. Freetaxes See Publication 15-B for more information. Freetaxes Nontaxable fringe benefits. Freetaxes Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Freetaxes See Publication 15-B for details. Freetaxes The following are some examples of nontaxable fringe benefits. Freetaxes Services provided to your employees at no additional cost to you. Freetaxes Qualified employee discounts. Freetaxes Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Freetaxes Examples include a company car for business use and subscriptions to business magazines. Freetaxes 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). Freetaxes Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Freetaxes Qualified moving expense reimbursement. Freetaxes See Moving expenses , earlier in this section, for details. Freetaxes The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Freetaxes Qualified tuition reduction an educational organization provides to its employees for education. Freetaxes For more information, see Publication 970, Tax Benefits for Education. Freetaxes Employer-provided cell phones provided primarily for a noncompensatory business reason. Freetaxes 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. Freetaxes No-additional-cost services. Freetaxes Qualified employee discounts. Freetaxes Meals provided at an employer operated eating facility. Freetaxes Reduced tuition for education. Freetaxes For more information, including the definition of a highly compensated employee, see Publication 15-B. Freetaxes When fringe benefits are treated as paid. Freetaxes 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. Freetaxes You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Freetaxes You do not have to make this choice for all employees. Freetaxes 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. Freetaxes See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Freetaxes Valuation of fringe benefits. Freetaxes Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Freetaxes Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Freetaxes Withholding on fringe benefits. Freetaxes 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. Freetaxes However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Freetaxes You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Freetaxes You must, however, withhold social security and Medicare taxes on the use of the vehicle. Freetaxes See Publication 15-B for more information on this election. Freetaxes Depositing taxes on fringe benefits. Freetaxes Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Freetaxes To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Freetaxes 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. Freetaxes See Valuation of fringe benefits , earlier. Freetaxes If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Freetaxes See section 11 for information on deposit penalties. Freetaxes 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. Freetaxes However, you must recover the income taxes before April 1 of the following year. Freetaxes Sick pay. Freetaxes 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. Freetaxes These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Freetaxes In either case, these payments are subject to social security, Medicare, and FUTA taxes. Freetaxes 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. Freetaxes The payments are always subject to federal income tax. Freetaxes See Publication 15-A for more information. Freetaxes 6. Freetaxes Tips Tips your employee receives from customers are generally subject to withholding. Freetaxes Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Freetaxes 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. Freetaxes Both directly and indirectly tipped employees must report tips to you. Freetaxes No report is required for months when tips are less than $20. Freetaxes Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Freetaxes 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. Freetaxes 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. Freetaxes You are permitted to establish a system for electronic tip reporting by employees. Freetaxes See Regulations section 31. Freetaxes 6053-1(d). Freetaxes Collecting taxes on tips. Freetaxes You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Freetaxes 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. Freetaxes If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Freetaxes You can collect these taxes from the employee's wages or from other funds he or she makes available. Freetaxes See Tips treated as supplemental wages in section 7 for more information. Freetaxes 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. Freetaxes You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Freetaxes You are responsible for the employer Medicare tax for the whole year on all wages and tips. Freetaxes File Form 941 or Form 944 to report withholding and employment taxes on tips. Freetaxes Ordering rule. Freetaxes 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. Freetaxes If there are not enough funds available, withhold taxes in the following order. Freetaxes Withhold on regular wages and other compensation. Freetaxes Withhold social security and Medicare taxes on tips. Freetaxes Withhold income tax on tips. Freetaxes Reporting tips. Freetaxes 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). Freetaxes Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Freetaxes Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Freetaxes ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Freetaxes See section 13 and the General Instructions for Forms W-2 and W-3. Freetaxes 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. Freetaxes See Revenue Ruling 2012-18, 2012-26 I. Freetaxes R. Freetaxes B. Freetaxes 1032, available at www. Freetaxes irs. Freetaxes gov/irb/2012-26_IRB/ar07. Freetaxes html. Freetaxes Allocated tips. Freetaxes If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Freetaxes However, do not withhold income, social security, or Medicare taxes on allocated tips. Freetaxes 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. Freetaxes The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Freetaxes 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. Freetaxes For information on filing Form 8027 electronically with the IRS, see Publication 1239. Freetaxes Tip Rate Determination and Education Program. Freetaxes Employers may participate in the Tip Rate Determination and Education Program. Freetaxes 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. Freetaxes The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Freetaxes A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Freetaxes To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Freetaxes Additionally, visit IRS. Freetaxes gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Freetaxes 7. Freetaxes Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Freetaxes 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. Freetaxes Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Freetaxes How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Freetaxes See Regulations section 31. Freetaxes 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Freetaxes Also see Revenue Ruling 2008-29, 2008-24 I. Freetaxes R. Freetaxes B. Freetaxes 1149, available at www. Freetaxes irs. Freetaxes gov/irb/2008-24_IRB/ar08. Freetaxes html. Freetaxes Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Freetaxes Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Freetaxes 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. Freetaxes 6% (or the highest rate of income tax for the year). Freetaxes Withhold using the 39. Freetaxes 6% rate without regard to the employee's Form W-4. Freetaxes In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Freetaxes For more information, see Treasury Decision 9276, 2006-37 I. Freetaxes R. Freetaxes B. Freetaxes 423, available at www. Freetaxes irs. Freetaxes gov/irb/2006-37_IRB/ar09. Freetaxes html. Freetaxes Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Freetaxes 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. Freetaxes Supplemental wages combined with regular wages. Freetaxes 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. Freetaxes Supplemental wages identified separately from regular wages. Freetaxes 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. Freetaxes 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. Freetaxes Withhold a flat 25% (no other percentage allowed). Freetaxes If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Freetaxes 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. Freetaxes Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Freetaxes Subtract the tax withheld from the regular wages. Freetaxes Withhold the remaining tax from the supplemental wages. Freetaxes 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. Freetaxes 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. Freetaxes This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Freetaxes Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Freetaxes Example 1. Freetaxes You pay John Peters a base salary on the 1st of each month. Freetaxes He is single and claims one withholding allowance. Freetaxes In January he is paid $1,000. Freetaxes Using the wage bracket tables, you withhold $50 from this amount. Freetaxes 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. Freetaxes You figure the withholding based on the total of $3,000. Freetaxes The correct withholding from the tables is $338. Freetaxes Example 2. Freetaxes You pay Sharon Warren a base salary on the 1st of each month. Freetaxes She is single and claims one allowance. Freetaxes Her May 1 pay is $2,000. Freetaxes Using the wage bracket tables, you withhold $188. Freetaxes On May 14 she receives a bonus of $1,000. Freetaxes 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). Freetaxes Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Freetaxes Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Freetaxes Withhold $150 from the bonus payment. Freetaxes Example 3. Freetaxes The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Freetaxes You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Freetaxes Example 4. Freetaxes The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Freetaxes 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). Freetaxes Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Freetaxes 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). Freetaxes Withhold $443 from the second bonus payment. Freetaxes Tips treated as supplemental wages. Freetaxes Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Freetaxes If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Freetaxes If you have not withheld income tax from the regular wages, add the tips to the regular wages. Freetaxes Then withhold income tax on the total. Freetaxes 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. Freetaxes Vacation pay. Freetaxes Vacation pay is subject to withholding as if it were a regular wage payment. Freetaxes When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Freetaxes 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. Freetaxes 8. Freetaxes Payroll Period Your payroll period is a period of service for which you usually pay wages. Freetaxes When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Freetaxes No regular payroll period. Freetaxes When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Freetaxes Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Freetaxes 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. Freetaxes Employee paid for period less than 1 week. Freetaxes 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. Freetaxes If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Freetaxes You then figure withholding based on the daily or miscellaneous period. Freetaxes 9. Freetaxes Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Freetaxes To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Freetaxes 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. Freetaxes Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Freetaxes irs. Freetaxes gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Freetaxes Ask all new employees to give you a signed Form W-4 when they start work. Freetaxes Make the form effective with the first wage payment. Freetaxes 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. Freetaxes Form in Spanish. Freetaxes 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. Freetaxes For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Freetaxes The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Freetaxes Electronic system to receive Form W-4. Freetaxes You may establish a system to electronically receive Forms W-4 from your employees. Freetaxes See Regulations section 31. Freetaxes 3402(f)(5)-1(c) for more information. Freetaxes Effective date of Form W-4. Freetaxes A Form W-4 remains in effect until the employee gives you a new one. Freetaxes 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. Freetaxes 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. Freetaxes 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. Freetaxes A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Freetaxes Successor employer. Freetaxes 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. Freetaxes See Revenue Procedure 2004-53, 2004-34 I. Freetaxes R. Freetaxes B. Freetaxes 320, available at www. Freetaxes irs. Freetaxes gov/irb/2004-34_IRB/ar13. Freetaxes html. Freetaxes Completing Form W-4. Freetaxes The amount of any federal income tax withholding must be based on marital status and withholding allowances. Freetaxes Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Freetaxes 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. Freetaxes Employees may claim fewer withholding allowances than they are entitled to claim. Freetaxes 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. Freetaxes See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Freetaxes Along with Form W-4, you may wish to order Publication 505 for use by your employees. Freetaxes Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Freetaxes 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. Freetaxes Exemption from federal income tax withholding. Freetaxes 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. Freetaxes See the Form W-4 instructions for more information. Freetaxes However, the wages are still subject to social security and Medicare taxes. Freetaxes See also Invalid Forms W-4 , later in this section. Freetaxes A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Freetaxes 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. Freetaxes 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. Freetaxes 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. Freetaxes Withholding income taxes on the wages of nonresident alien employees. Freetaxes In general, you must withhold federal income taxes on the wages of nonresident alien employees. Freetaxes However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Freetaxes Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Freetaxes Withholding adjustment for nonresident alien employees. Freetaxes 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. Freetaxes Nonresident alien students from India and business apprentices from India are not subject to this procedure. Freetaxes Instructions. Freetaxes 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. Freetaxes Step 1. Freetaxes 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. Freetaxes Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only Payroll Period Add Additional Weekly $ 43. Freetaxes 30 Biweekly 86. Freetaxes 50 Semimonthly 93. Freetaxes 80 Monthly 187. Freetaxes 50 Quarterly 562. Freetaxes 50 Semiannually 1,125. Freetaxes 00 Annually 2,250. Freetaxes 00 Daily or Miscellaneous (each day of the payroll period) 8. Freetaxes 70 Step 2. Freetaxes Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Freetaxes Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Freetaxes Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Freetaxes 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. Freetaxes 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. Freetaxes The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Freetaxes 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. Freetaxes 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. Freetaxes This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Freetaxes Example. Freetaxes An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Freetaxes 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). Freetaxes 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. Freetaxes 50 from the chart under Step 1 ($586. Freetaxes 50 total). Freetaxes The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Freetaxes 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. Freetaxes The $86. Freetaxes 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. Freetaxes Also, the $86. Freetaxes 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. Freetaxes Supplemental wage payment. Freetaxes This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Freetaxes 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. Freetaxes Nonresident alien employee's Form W-4. Freetaxes 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. Freetaxes 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. Freetaxes 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. Freetaxes Form 8233. Freetaxes 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. Freetaxes See Publication 515 for details. Freetaxes IRS review of requested Forms W-4. Freetaxes When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Freetaxes You may also be directed to send certain Forms W-4 to the IRS. Freetaxes 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. Freetaxes 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. Freetaxes 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. Freetaxes R. Freetaxes B. Freetaxes 455, which is available at www. Freetaxes irs. Freetaxes gov/irb/2007-35_IRB/ar10. Freetaxes html. Freetaxes When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Freetaxes 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). Freetaxes 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