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Tax Filing

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Tax Filing

Tax filing Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. Tax filing Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. Tax filing Method 2. Tax filing How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. Tax filing In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Tax filing You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. Tax filing Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. Tax filing If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Tax filing These wages must be included on line 7 of Form 1040. Tax filing See Form 8919 for more information. Tax filing Childcare providers. Tax filing   If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Tax filing If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Tax filing You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Tax filing Babysitting. Tax filing   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Tax filing Bankruptcy. Tax filing   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. Tax filing Your W-2 will show your total wages and withheld income tax for the year. Tax filing On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. Tax filing Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. Tax filing If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. Tax filing   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. Tax filing For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. Tax filing   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. Tax filing The statement must show the allocation and describe the method used to make the allocation. Tax filing For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. Tax filing R. Tax filing B. Tax filing 596, available at www. Tax filing irs. Tax filing gov/irb/2006-40_IRB/ar12. Tax filing html. Tax filing Miscellaneous Compensation This section discusses many types of employee compensation. Tax filing The subjects are arranged in alphabetical order. Tax filing Advance commissions and other earnings. Tax filing   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Tax filing    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Tax filing If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. Tax filing See Repayments , later. Tax filing Allowances and reimbursements. Tax filing    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Tax filing If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Tax filing Back pay awards. Tax filing   Include in income amounts you are awarded in a settlement or judgment for back pay. Tax filing These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Tax filing They should be reported to you by your employer on Form W-2. Tax filing Bonuses and awards. Tax filing    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Tax filing These include prizes such as vacation trips for meeting sales goals. Tax filing If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Tax filing However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Tax filing Employee achievement award. Tax filing   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Tax filing However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Tax filing Your employer can tell you whether your award is a qualified plan award. Tax filing Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Tax filing   However, the exclusion does not apply to the following awards. Tax filing A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Tax filing A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Tax filing Example. Tax filing Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Tax filing Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Tax filing However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. Tax filing Differential wage payments. Tax filing   This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. Tax filing These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Tax filing The payments are reported as wages on Form W-2. Tax filing Government cost-of-living allowances. Tax filing   Most payments received by U. Tax filing S. Tax filing Government civilian employees for working abroad are taxable. Tax filing However, certain cost-of-living allowances are tax free. Tax filing Publication 516, U. Tax filing S. Tax filing Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Tax filing Nonqualified deferred compensation plans. Tax filing   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Tax filing This amount is shown on Form W-2, box 12, using code Y. Tax filing This amount is not included in your income. Tax filing   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Tax filing This amount is included in your wages shown on Form W-2, box 1. Tax filing It is also shown on Form W-2, box 12, using code Z. Tax filing Nonqualified deferred compensation plans of nonqualified entities. Tax filing   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. Tax filing For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. Tax filing A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. Tax filing Note received for services. Tax filing   If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Tax filing When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Tax filing Do not include that part again in your income. Tax filing Include the rest of the payment in your income in the year of payment. Tax filing   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Tax filing Severance pay. Tax filing   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Tax filing Accrued leave payment. Tax filing   If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Tax filing   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Tax filing You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Tax filing Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. Tax filing Outplacement services. Tax filing   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Tax filing    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Tax filing Sick pay. Tax filing   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Tax filing In addition, you must include in your income sick pay benefits received from any of the following payers. Tax filing A welfare fund. Tax filing A state sickness or disability fund. Tax filing An association of employers or employees. Tax filing An insurance company, if your employer paid for the plan. Tax filing However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Tax filing For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. Tax filing Social security and Medicare taxes paid by employer. Tax filing   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Tax filing The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Tax filing However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Tax filing Stock appreciation rights. Tax filing   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Tax filing When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Tax filing You include the cash payment in income in the year you use the right. Tax filing Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Tax filing Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Tax filing See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. Tax filing Recipient of fringe benefit. Tax filing   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. Tax filing You are considered to be the recipient even if it is given to another person, such as a member of your family. Tax filing An example is a car your employer gives to your spouse for services you perform. Tax filing The car is considered to have been provided to you and not to your spouse. Tax filing   You do not have to be an employee of the provider to be a recipient of a fringe benefit. Tax filing If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. Tax filing Provider of benefit. Tax filing   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. Tax filing The provider can be a client or customer of an independent contractor. Tax filing Accounting period. Tax filing   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Tax filing Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Tax filing The general rule: benefits are reported for a full calendar year (January 1–December 31). Tax filing The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Tax filing For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Tax filing Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Tax filing   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Tax filing Form W-2. Tax filing   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Tax filing Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Tax filing However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Tax filing Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Tax filing Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . Tax filing For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Tax filing Long-term care coverage. Tax filing   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Tax filing However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Tax filing This amount will be reported as wages in box 1 of your Form W-2. Tax filing Archer MSA contributions. Tax filing    Contributions by your employer to your Archer MSA generally are not included in your income. Tax filing Their total will be reported in box 12 of Form W-2, with code R. Tax filing You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Tax filing File the form with your return. Tax filing Health flexible spending arrangement (health FSA). Tax filing   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Tax filing   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Tax filing The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Tax filing For more information, see Notice 2012-40, 2012-26 I. Tax filing R. Tax filing B. Tax filing 1046, available at www. Tax filing irs. Tax filing gov/irb/2012-26 IRB/ar09. Tax filing html. Tax filing Health reimbursement arrangement (HRA). Tax filing   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Tax filing Health savings accounts (HSA). Tax filing   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Tax filing Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Tax filing Contributions made by your employer are not included in your income. Tax filing Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Tax filing Distributions not used for qualified medical expenses are included in your income. Tax filing See Publication 969 for the requirements of an HSA. Tax filing   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Tax filing The contributions are treated as a distribution of money and are not included in the partner's gross income. Tax filing Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Tax filing In both situations, the partner can deduct the contribution made to the partner's HSA. Tax filing   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Tax filing The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Tax filing Qualified HSA funding distribution. Tax filing   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Tax filing See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. Tax filing Failure to maintain eligibility. Tax filing   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Tax filing If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Tax filing This income is also subject to an additional 10% tax. Tax filing Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Tax filing See Instructions for Form 8839, Qualified Adoption Expenses, for more information. Tax filing Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Tax filing They also are included as social security and Medicare wages in boxes 3 and 5. Tax filing However, they are not included as wages in box 1. Tax filing To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Tax filing File the form with your return. Tax filing Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. Tax filing The gym must be used primarily by employees, their spouses, and their dependent children. Tax filing If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. Tax filing De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Tax filing In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Tax filing Also see Employee Discounts , later. Tax filing Holiday gifts. Tax filing   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Tax filing However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Tax filing Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Tax filing Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. Tax filing The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Tax filing Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. Tax filing Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. Tax filing To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. Tax filing See the Instructions for Form 2441 for more information. Tax filing Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Tax filing For more information, see Publication 970. Tax filing Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. Tax filing The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. Tax filing However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). Tax filing The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. Tax filing For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. Tax filing (Ask your employer for this percentage. Tax filing ) For a discount on services, 20%. Tax filing Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. Tax filing If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). Tax filing Qualified retirement planning services paid for you by your employer may be excluded from your income. Tax filing For more information, see Retirement Planning Services , later. Tax filing Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Tax filing However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Tax filing For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. Tax filing If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Tax filing Also, it is shown separately in box 12 with code C. Tax filing Group-term life insurance. Tax filing   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Tax filing Permanent benefits. Tax filing   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Tax filing Your employer should be able to tell you the amount to include in your income. Tax filing Accidental death benefits. Tax filing   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Tax filing Former employer. Tax filing   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Tax filing Also, it is shown separately in box 12 with code C. Tax filing Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Tax filing You must pay these taxes with your income tax return. Tax filing Include them on line 60, Form 1040, and follow the instructions forline 60. Tax filing For more information, see the Instructions for Form 1040. Tax filing Two or more employers. Tax filing   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Tax filing If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Tax filing You must figure how much to include in your income. Tax filing Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Tax filing Figuring the taxable cost. Tax filing    Use the following worksheet to figure the amount to include in your income. Tax filing   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. Tax filing However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . Tax filing Worksheet 1. Tax filing Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Tax filing Enter the total amount of your insurance coverage from your employer(s) 1. Tax filing   2. Tax filing Limit on exclusion for employer-provided group-term life insurance coverage 2. Tax filing 50,000 3. Tax filing Subtract line 2 from line 1 3. Tax filing   4. Tax filing Divide line 3 by $1,000. Tax filing Figure to the nearest tenth 4. Tax filing   5. Tax filing Go to Table 1. Tax filing Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Tax filing   6. Tax filing Multiply line 4 by line 5 6. Tax filing     7. Tax filing Enter the number of full months of coverage at this cost 7. Tax filing   8. Tax filing Multiply line 6 by line 7 8. Tax filing   9. Tax filing Enter the premiums you paid per month 9. Tax filing       10. Tax filing Enter the number of months you paid the  premiums 10. Tax filing       11. Tax filing Multiply line 9 by line 10. Tax filing 11. Tax filing   12. Tax filing Subtract line 11 from line 8. Tax filing Include this amount in your income as wages 12. Tax filing   Table 1. Tax filing Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . Tax filing 05     25 through 29 . Tax filing 06     30 through 34 . Tax filing 08     35 through 39 . Tax filing 09     40 through 44 . Tax filing 10     45 through 49 . Tax filing 15     50 through 54 . Tax filing 23     55 through 59 . Tax filing 43     60 through 64 . Tax filing 66     65 through 69 1. Tax filing 27     70 and older 2. Tax filing 06   Example. Tax filing You are 51 years old and work for employers A and B. Tax filing Both employers provide group-term life insurance coverage for you for the entire year. Tax filing Your coverage is $35,000 with employer A and $45,000 with employer B. Tax filing You pay premiums of $4. Tax filing 15 a month under the employer B group plan. Tax filing You figure the amount to include in your income as follows. Tax filing   Worksheet 1. Tax filing Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. Tax filing Enter the total amount of your insurance coverage from your employer(s) 1. Tax filing 80,000 2. Tax filing Limit on exclusion for employer-provided group-term life insurance coverage 2. Tax filing 50,000 3. Tax filing Subtract line 2 from line 1 3. Tax filing 30,000 4. Tax filing Divide line 3 by $1,000. Tax filing Figure to the nearest tenth 4. Tax filing 30. Tax filing 0 5. Tax filing Go to Table 1. Tax filing Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Tax filing . Tax filing 23 6. Tax filing Multiply line 4 by line 5 6. Tax filing 6. Tax filing 90 7. Tax filing Enter the number of full months of coverage at this cost. Tax filing 7. Tax filing 12 8. Tax filing Multiply line 6 by line 7 8. Tax filing 82. Tax filing 80 9. Tax filing Enter the premiums you paid per month 9. Tax filing 4. Tax filing 15     10. Tax filing Enter the number of months you paid the premiums 10. Tax filing 12     11. Tax filing Multiply line 9 by line 10. Tax filing 11. Tax filing 49. Tax filing 80 12. Tax filing Subtract line 11 from line 8. Tax filing Include this amount in your income as wages 12. Tax filing 33. Tax filing 00 The total amount to include in income for the cost of excess group-term life insurance is $33. Tax filing Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. Tax filing You must add it to the wages shown on your Forms W-2 and include the total on your return. Tax filing Entire cost excluded. Tax filing   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Tax filing You are permanently and totally disabled and have ended your employment. Tax filing Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Tax filing A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Tax filing (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Tax filing ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Tax filing Entire cost taxed. Tax filing   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. Tax filing The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Tax filing You are a key employee and your employer's plan discriminates in favor of key employees. Tax filing Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Tax filing The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. Tax filing The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. Tax filing (You must accept it in order to be able to properly perform your duties. Tax filing ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. Tax filing See De Minimis (Minimal) Benefits , earlier. Tax filing Faculty lodging. Tax filing   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. Tax filing However, the lodging must be qualified campus lodging, and you must pay an adequate rent. Tax filing Academic health center. Tax filing   This is an organization that meets the following conditions. Tax filing Its principal purpose or function is to provide medical or hospital care or medical education or research. Tax filing It receives payments for graduate medical education under the Social Security Act. Tax filing One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. Tax filing Qualified campus lodging. Tax filing   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. Tax filing The lodging must be located on or near a campus of the educational institution or academic health center. Tax filing Adequate rent. Tax filing   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. Tax filing If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. Tax filing   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. Tax filing Example. Tax filing Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. Tax filing The house is appraised at $200,000. Tax filing The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. Tax filing Carl pays an annual rent of $11,000. Tax filing Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). Tax filing If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). Tax filing Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. Tax filing See Publication 521 for more information. Tax filing No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). Tax filing In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. Tax filing Example. Tax filing You are employed as a flight attendant for a company that owns both an airline and a hotel chain. Tax filing Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. Tax filing The value of the personal flight is not included in your income. Tax filing However, the value of the hotel room is included in your income because you do not work in the hotel business. Tax filing Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Tax filing Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Tax filing You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Tax filing Also, see Financial Counseling Fees , earlier. Tax filing Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Tax filing A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Tax filing Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Tax filing However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Tax filing Exclusion limit. Tax filing   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Tax filing   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Tax filing   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Tax filing   If the benefits have a value that is more than these limits, the excess must be included in your income. Tax filing You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Tax filing Commuter highway vehicle. Tax filing   This is a highway vehicle that seats at least six adults (not including the driver). Tax filing At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Tax filing Transit pass. Tax filing   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Tax filing Qualified parking. Tax filing   This is parking provided to an employee at or near the employer's place of business. Tax filing It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Tax filing It does not include parking at or near the employee's home. Tax filing Qualified bicycle commuting. Tax filing   This is reimbursement based on the number of qualified bicycle commuting months for the year. Tax filing A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Tax filing The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Tax filing Tuition Reduction You can exclude a qualified tuition reduction from your income. Tax filing This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. Tax filing For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. Tax filing Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. Tax filing For more information, see Publication 970. Tax filing Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. Tax filing Example. Tax filing You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. Tax filing The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. Tax filing Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. Tax filing For an exception, see Group-Term Life Insurance , earlier. Tax filing General valuation rule. Tax filing   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. Tax filing If you pay fair market value for a fringe benefit, no amount is included in your income. Tax filing Fair market value. Tax filing   The fair market value of a fringe benefit is determined by all the facts and circumstances. Tax filing It is the amount you would have to pay a third party to buy or lease the benefit. Tax filing This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. Tax filing Employer-provided vehicles. Tax filing   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. Tax filing   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. Tax filing An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. Tax filing The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. Tax filing Flights on employer-provided aircraft. Tax filing   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. Tax filing   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. Tax filing The division must be based on all the facts, including which employee or employees control the use of the aircraft. Tax filing Special valuation rules. Tax filing   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. Tax filing If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. Tax filing You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. Tax filing   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. Tax filing The special valuation rules are the following. Tax filing The automobile lease rule. Tax filing The vehicle cents-per-mile rule. Tax filing The commuting rule. Tax filing The unsafe conditions commuting rule. Tax filing The employer-operated eating-facility rule. Tax filing   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Tax filing    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. Tax filing 61-21(g) and 1. Tax filing 61-21(h) of the regulations. Tax filing Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Tax filing (Your employer can tell you whether your retirement plan is qualified. Tax filing ) However, the cost of life insurance coverage included in the plan may have to be included. Tax filing See Group-Term Life Insurance , earlier, under Fringe Benefits. Tax filing If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Tax filing However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Tax filing For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. Tax filing S. Tax filing Civil Service Retirement Benefits, if you are a federal employee or retiree). Tax filing Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Tax filing The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Tax filing An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Tax filing However, it is included in wages subject to social security and Medicare taxes. Tax filing Elective deferrals include elective contributions to the following retirement plans. Tax filing Cash or deferred arrangements (section 401(k) plans). Tax filing The Thrift Savings Plan for federal employees. Tax filing Salary reduction simplified employee pension plans (SARSEP). Tax filing Savings incentive match plans for employees (SIMPLE plans). Tax filing Tax-sheltered annuity plans (403(b) plans). Tax filing Section 501(c)(18)(D) plans. Tax filing (But see Reporting by employer , later. Tax filing ) Section 457 plans. Tax filing Qualified automatic contribution arrangements. Tax filing   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Tax filing You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Tax filing The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Tax filing   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Tax filing Overall limit on deferrals. Tax filing   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. Tax filing The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. Tax filing Amounts deferred under specific plan limits are part of the overall limit on deferrals. Tax filing   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Tax filing However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Tax filing Catch-up contributions. Tax filing   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. Tax filing For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. Tax filing   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. Tax filing SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. Tax filing Section 457 plans, see Limit for deferrals under section 457 plans , later. Tax filing Limit for deferrals under SIMPLE plans. Tax filing   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. Tax filing Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. Tax filing Limit for tax-sheltered annuities. Tax filing   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. Tax filing However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. Tax filing $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. Tax filing   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. Tax filing   For more information, see Publication 571. Tax filing Limit for deferral under section 501(c)(18) plans. Tax filing   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. Tax filing Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. Tax filing Limit for deferrals under section 457 plans. Tax filing   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. Tax filing However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. Tax filing See Increased limit , later. Tax filing Includible compensation. Tax filing   This is the pay you received for the year from the employer who maintained the section 457 plan. Tax filing In most cases, it includes all the following payments. Tax filing Wages and salaries. Tax filing Fees for professional services. Tax filing The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. Tax filing Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. Tax filing Commissions and tips. Tax filing Fringe benefits. Tax filing Bonuses. Tax filing Employer contributions (elective deferrals) to: The section 457 plan. Tax filing Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. Tax filing A salary reduction simplified employee pension (SARSEP). Tax filing A tax-sheltered annuity (section 403(b) plan). Tax filing A savings incentive match plan for employees (SIMPLE plan). Tax filing A section 125 cafeteria plan. Tax filing   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. Tax filing Your wages as defined for income tax withholding purposes. Tax filing Your wages as reported in box 1 of Form W-2. Tax filing Your wages that are subject to social security withholding (including elective deferrals). Tax filing Increased limit. Tax filing   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). Tax filing Catch-up contributions. Tax filing   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. Tax filing If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. Tax filing However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. Tax filing Designated Roth contributions. Tax filing   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Tax filing Designated Roth contributions are treated as elective deferrals, except that they are included in income. Tax filing Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. Tax filing   Qualified distributions from a Roth plan are not included in income. Tax filing In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. Tax filing Reporting by employer. Tax filing   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. Tax filing Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. Tax filing Section 501(c)(18)(D) contributions. Tax filing   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. Tax filing The amount you contributed should be identified with code “H” in box 12. Tax filing You may deduct the amount deferred subject to the limits that apply. Tax filing Include your deduction in the total on Form 1040, line 36. Tax filing Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. Tax filing Designated Roth contributions. Tax filing    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. Tax filing Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. Tax filing Excess deferrals. Tax filing   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. Tax filing If the plan permits, the excess amount will be distributed to you. Tax filing If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. Tax filing You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. Tax filing The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. Tax filing   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. Tax filing File Form 1040 to add the excess deferral amount to your wages on line 7. Tax filing Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. Tax filing Excess not distributed. Tax filing   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. Tax filing Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. Tax filing Excess distributed to you. Tax filing   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. Tax filing If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. Tax filing Any income on the excess deferral taken out is taxable in the tax year in which you take it out. Tax filing If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. Tax filing    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Tax filing Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. Tax filing If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. Tax filing Add the excess deferral amount to your wages on your 2013 tax return. Tax filing If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. Tax filing Do not add this amount to your wages on your 2013 return. Tax filing If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. Tax filing If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. Tax filing S. Tax filing Individual Income Tax Return. Tax filing If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. Tax filing If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. Tax filing Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. Tax filing Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Tax filing Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. Tax filing ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Tax filing It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Tax filing Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. Tax filing If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. Tax filing You must include the excess contributions in your income as wages on Form 1040, line 7. Tax filing You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. Tax filing If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. Tax filing The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. Tax filing You should receive a Form 1099-R for the year the excess contributions are distributed to you. Tax filing Add the distribution to your wages for that year. Tax filing Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Tax filing It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Tax filing Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. Tax filing Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. Tax filing A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. Tax filing A corrective payment consisting of your after-tax contributions is not taxable. Tax filing If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. Tax filing Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. Tax filing Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. Tax filing Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Tax filing It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Tax filing Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. Tax filing The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. Tax filing Your employer can tell you which kind of option you hold. Tax filing Nonstatutory Stock Options Grant of option. Tax filing   If you are granted a nonstatutory stock option, you may have income when you receive the option. Tax filing The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. Tax filing The fair market value of an option can be readily determined if it is actively traded on an established market. Tax filing    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. Tax filing You can transfer the option. Tax filing You can exercise the option immediately in full. Tax filing The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. Tax filing The fair market value of the option privilege can be readily determined. Tax filing The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. Tax filing For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. Tax filing The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. Tax filing If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. Tax filing For more information on the excise tax, see Internal Revenue Code section 4985. Tax filing Option with readily determinable value. Tax filing   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. Tax filing See Restricted Property , later, for rules on how much income to include and when to include it. Tax filing However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. Tax filing Option without readily determinable value. Tax filing   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. Tax filing    Exercise or transfer of option. Tax filing   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. Tax filing Option with readily determinable value. Tax filing   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. Tax filing Option without readily determinable value. Tax filing   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope
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Bonneville Power Administration

The Bonneville Power Administration creates and delivers a reliable power supply to the Pacific Northwest.

Contact the Agency or Department

Website: Bonneville Power Administration

Address: 905 NE 11th Ave.
Portland, OR 97232

Phone Number: (503) 230-3000

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The Tax Filing

Tax filing Publication 51 - Main Content Table of Contents 1. Tax filing Taxpayer Identification NumbersWhen you receive your EIN. Tax filing Registering for SSNVS. Tax filing 2. Tax filing Who Are Employees?Crew Leaders Business Owned and Operated by Spouses 3. Tax filing Wages and Other Compensation 4. Tax filing Social Security and Medicare TaxesThe $150 Test or the $2,500 Test Social Security and Medicare Tax Withholding 5. Tax filing Federal Income Tax WithholdingImplementation of lock-in letter. Tax filing Seasonal employees and employees not currently performing services. Tax filing Termination and re-hire of employees. Tax filing How To Figure Federal Income Tax Withholding 6. Tax filing Required Notice to Employees About Earned Income Credit (EIC) 7. Tax filing Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties Employers of Both Farm and Nonfarm Workers 8. Tax filing Form 943 9. Tax filing Reporting Adjustments on Form 943Current Year Adjustments Prior Year Adjustments 10. Tax filing Federal Unemployment (FUTA) Tax 11. Tax filing Reconciling Wage Reporting Forms 13. Tax filing Federal Income Tax Withholding MethodsWage Bracket Method Percentage Method Alternative Methods of Federal Income Tax Withholding How To Get Tax Help 1. Tax filing Taxpayer Identification Numbers If you are required to withhold any federal income, social security, or Medicare taxes, you will need an employer identification number (EIN) for yourself. Tax filing Also, you will need the SSN of each employee and the name of each employee as shown on the employee's social security card. Tax filing Employer identification number (EIN). Tax filing   An employer identification number (EIN) is a nine-digit number that the IRS issues. Tax filing The digits are arranged as follows: 00-0000000. Tax filing It is used to identify the tax accounts of employers and certain others who have no employees. Tax filing Use your EIN on all of the items that you send to the IRS and SSA. Tax filing   If you do not have an EIN, you may apply for one online. Tax filing Visit IRS. Tax filing gov and click on the Apply for an EIN Online link under Tools. Tax filing 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. Tax filing Do not use a SSN in place of an EIN. Tax filing   If you do not have an EIN by the time a return is due, write “Applied For” and the date you applied for it in the space shown for the number. Tax filing If you took over another employer's business, do not use that employer's EIN. Tax filing   You should have only one EIN. Tax filing If you have more than one, and are not sure which one to use, call the toll-free Business and Specialty Tax Line at 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Tax filing Provide the EINs that you have, the name and address to which each number was assigned, and the address of your principal place of business. Tax filing The IRS will tell you which EIN to use. Tax filing   For more information, see Publication 1635 or Publication 583. Tax filing When you receive your EIN. Tax filing   If you are a new employer that indicated a federal tax obligation when requesting an EIN, you will be pre-enrolled in the Electronic Federal Tax Payment System (EFTPS). Tax filing You will receive information in your Employer Identification Number (EIN) Package about Express Enrollment and an additional mailing containing your EFTPS personal identification number (PIN) and instructions for activating your PIN. Tax filing Call the toll-free number located in your “How to Activate Your Enrollment” brochure to activate your enrollment and begin making your employment tax deposits. Tax filing If you outsource any of your payroll and related tax duties to a third party payer, such as a payroll service provider or reporting agent, be sure to tell them about your EFTPS enrollment. Tax filing Social security number (SSN). Tax filing   An employee's social security number (SSN) consists of nine digits arranged as follows: 000-00-0000. Tax filing You must obtain each employee's name and SSN as shown on the employee's social security card because you must enter them on Form W-2. Tax filing Do not accept a social security card that says “Not valid for employment. Tax filing ” A social security number issued with this legend does not permit employment. Tax filing You may, but are not required to, photocopy the social security card if the employee provides it. Tax filing If you do not show the employee's correct name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Tax filing See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs. Tax filing Applying for a social security card. Tax filing   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 to SSA. Tax filing You can get Form SS-5 at SSA offices, by calling 1-800-772-1213 or 1-800-325-0778 (TTY), or from the SSA website at www. Tax filing socialsecurity. Tax filing gov/online/ss-5. Tax filing html. Tax filing The employee must complete and sign Form SS-5; it cannot be filed by the employer. Tax filing 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. Tax filing Applying for a social security number. Tax filing   If you file Form W-2 on paper and your employee has applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Tax filing If you are filing electronically, enter all zeros (000-00-0000) in the social security number field. Tax filing 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. Tax filing Furnish Copies B, C, and 2 of Form W-2c to the employee. Tax filing Up to 25 Forms W-2c per Form W-3c, Transmittal of Corrected Wage and Tax Statements, may be filed per session over the Internet, with no limit on the number of sessions. Tax filing For more information, visit SSA's Employer W-2 Filing Instructions & Information webpage at www. Tax filing socialsecurity. Tax filing gov/employer. Tax filing Advise your employee to correct the SSN on his or her original Form W-2. Tax filing Correctly record the employee's name and SSN. Tax filing   Record the name and number of each employee as they are shown on the employee's social security card. Tax filing 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. Tax filing 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. Tax filing   If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported on the most recently filed Form W-2. Tax filing It is not necessary to correct other years if the previous name and SSN were used for years before the most recent Form W-2. Tax filing IRS individual taxpayer identification numbers (ITINs) for aliens. Tax filing   Do not accept an ITIN in place of an SSN for employee identification or for work. Tax filing An ITIN is issued for use by resident and nonresident aliens who need identification for tax purposes, but who are not eligible for U. Tax filing S. Tax filing employment. Tax filing The ITIN is a nine-digit number formatted like an SSN (for example, NNN-NN-NNNN). Tax filing However, it begins with the number “9” and has either a “7” or “8” as the fourth digit (for example, 9NN-7N-NNNN or 9NN-8N-NNNN). Tax filing    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Tax filing 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 in this section. Tax filing Do not use an ITIN in place of an SSN on Form W-2. Tax filing Verification of social security numbers. Tax filing   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 employee names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive results the next business day. Tax filing Visit www. Tax filing socialsecurity. Tax filing gov/employer/ssnv. Tax filing htm for more information. Tax filing Registering for SSNVS. Tax filing   You must register online and receive authorization from your employer to use SSNVS. Tax filing To register, visit SSA's website at www. Tax filing socialsecurity. Tax filing gov/employer and click on the Business Services Online link. Tax filing Follow the registration instructions to obtain a user identification (ID) and password. Tax filing You will need to provide the following information about yourself and your company. Tax filing Name. Tax filing SSN. Tax filing Date of birth. Tax filing Type of employer. Tax filing EIN. Tax filing Company name, address, and telephone number. Tax filing Email address. Tax filing When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Tax filing You must enter the activation code online to use SSNVS. Tax filing 2. Tax filing Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Tax filing See Publication 15-A for details on statutory employees and nonemployees. Tax filing Employee status under common law. Tax filing   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. Tax filing This is so even when you give the employee freedom of action. Tax filing What matters is that you have the right to control the details of how the services are performed. Tax filing See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Tax filing If an employer-employee relationship exists, it does not matter what it is called. Tax filing The employee may be called an agent or independent contractor. Tax filing It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Tax filing You are responsible for withholding and paying employment taxes for your employees. Tax filing You are also required to file employment tax returns. Tax filing These requirements do not apply to amounts that you pay to independent contractors. Tax filing The rules discussed in this publication apply only to workers who are your employees. Tax filing In general, you are an employer of farmworkers if your employees: Raise or harvest agricultural or horticultural products on your farm (including the raising and feeding of livestock); Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and equipment; Provide services relating to salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor); Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity); or Do work for you related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. Tax filing For this purpose, the term “farm” includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, as well as plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards. Tax filing Farmwork does not include reselling activities that do not involve any substantial activity of raising agricultural or horticultural commodities, such as a retail store or a greenhouse used primarily for display or storage. Tax filing The table in section 12, How Do Employment Taxes Apply to Farmwork , distinguishes between farm and nonfarm activities, and also addresses rules that apply in special situations. Tax filing Crew Leaders If you are a crew leader, you are an employer of farmworkers. Tax filing A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. Tax filing If there is no written agreement between you and the farm operator stating that you are his or her employee and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader. Tax filing For FUTA tax rules, see section 10. Tax filing Business Owned and Operated by Spouses If you and your spouse jointly own and operate a farm or nonfarm business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Tax filing See Publication 541, Partnerships, for more details. Tax filing The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Tax filing Exception—Qualified joint venture. Tax filing   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. Tax filing 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). Tax filing   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. Tax filing Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Tax filing   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Tax filing 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. Tax filing Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Tax filing 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. Tax filing    Note. Tax filing If your spouse is your employee, not your partner, you must pay social security and Medicare taxes for him or her. Tax filing   For more information on qualified joint ventures, visit IRS. Tax filing gov and enter “qualified joint venture” in the search box. Tax filing Exception—Community income. Tax filing   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. Tax filing S. Tax filing possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Tax filing You may still make an election to be taxed as a qualified joint venture instead of a partnership. Tax filing See Exception—Qualified joint venture , earlier in this section. Tax filing 3. Tax filing Wages and Other Compensation Cash wages that you pay to employees for farmwork are generally subject to social security tax and Medicare tax. Tax filing You may also be required to withhold, deposit, and report Additional Medicare Tax. Tax filing See section 4 for more information. Tax filing If the wages are subject to social security and Medicare taxes, they are also subject to federal income tax withholding. Tax filing You may also be liable for FUTA tax, which is not withheld by you or paid by the employee. Tax filing FUTA tax is discussed in section 10. Tax filing Cash wages include checks, money orders, etc. Tax filing Do not count as cash wages the value of food, lodging, and other noncash items. Tax filing For more information on what payments are considered taxable wages, see Publication 15 (Circular E). Tax filing Commodity wages. Tax filing   Commodity wages are not cash and are not subject to social security and Medicare taxes or federal income tax withholding. Tax filing However, noncash payments, including commodity wages, are treated as cash wages (see above) if the substance of the transaction is a cash payment. Tax filing These noncash payments are subject to social security and Medicare taxes and federal income tax withholding. Tax filing Other compensation. Tax filing   Publications 15-A and 15-B discuss other forms of compensation that may be taxable. Tax filing Family members. Tax filing   Generally, the wages that you pay to family members who are your employees are subject to social security and Medicare taxes, federal income tax withholding, and FUTA tax. Tax filing However, certain exemptions may apply for your child, spouse, or parent. Tax filing See the table, How Do Employment Taxes Apply to Farmwork , in section 12. Tax filing Household employees. Tax filing   The wages of an employee who performs household services, such as a maid, babysitter, gardener, or cook, in your home are not subject to social security and Medicare taxes if you pay that employee cash wages of less than $1,900 in 2014. Tax filing   Social security and Medicare taxes do not apply to cash wages for housework in your private home if it was done by your spouse or your child under age 21. Tax filing Nor do the taxes apply to housework done by your parent unless: You have a child living in your home who is under age 18 or has a physical or mental condition that requires care by an adult for at least 4 continuous weeks in a calendar quarter, and You are a widow or widower, or divorced and not remarried, or have a spouse in the home who, because of a physical or mental condition, cannot care for your child for at least 4 continuous weeks in the quarter. Tax filing   For more information, see Publication 926, Household Employer's Tax Guide. Tax filing    Wages for household work may not be a deductible farm expense. Tax filing See Publication 225, Farmer's Tax Guide. Tax filing Share farmers. Tax filing   You do not have to withhold or pay social security and Medicare taxes on amounts paid to share farmers under share-farming arrangements. Tax filing Compensation paid to H-2A visa holders. Tax filing   Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2 but do not report it as social security wages (box 3) or Medicare wages (box 5) on Form W-2 because compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes. Tax filing On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Tax filing   An employer is not required to withhold federal income tax from compensation it pays an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. Tax filing In that case, the worker must give the employer a completed Form W-4. Tax filing Federal income tax withheld should be reported in box 2 of Form W-2. Tax filing These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. Tax filing For rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. Tax filing 4. Tax filing Social Security and Medicare Taxes Generally, you must withhold social security and Medicare taxes on all cash wage payments that you make to your employees. Tax filing You may also be required to withhold Additional Medicare Tax. Tax filing For more information, see Additional Medicare Tax withholding , later. Tax filing The $150 Test or the $2,500 Test All cash wages that you pay to an employee during the year for farmwork are subject to social security and Medicare taxes and federal income tax withholding if either of the two tests below is met. Tax filing You pay cash wages to an employee of $150 or more in a year for farmwork (count all cash wages paid on a time, piecework, or other basis). Tax filing The $150 test applies separately to each farmworker that you employ. Tax filing If you employ a family of workers, each member is treated separately. Tax filing Do not count wages paid by other employers. Tax filing The total that you pay for farmwork (cash and noncash) to all your employees is $2,500 or more during the year. Tax filing Exceptions. Tax filing   The $150 and $2,500 tests do not apply to wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes, or federal income tax withholding, even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker: Is employed in agriculture as a hand-harvest laborer, Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment, Commutes daily from his or her permanent home to the farm, and Had been employed in agriculture less than 13 weeks in the preceding calendar year. Tax filing   Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes. Tax filing Social Security and Medicare Tax Withholding The social security tax rate is 6. Tax filing 2%, for both the employee and employer, on the first $117,000 paid to each employee. Tax filing You must withhold at this rate from each employee and pay a matching amount. Tax filing The Medicare tax rate is 1. Tax filing 45% each for the employee and employer on all wages. Tax filing You must withhold at this rate from each employee and pay a matching amount. Tax filing There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. Tax filing Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. Tax filing For details, see Publication 15-A. Tax filing Additional Medicare Tax withholding. Tax filing   In addition to withholding Medicare tax at 1. Tax filing 45%, you must withhold a 0. Tax filing 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Tax filing You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Tax filing Additional Medicare Tax is only imposed on the employee. Tax filing There is no employer share of Additional Medicare Tax. Tax filing All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Tax filing   For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E). Tax filing For more information on Additional Medicare Tax, visit IRS. Tax filing gov and enter “Additional Medicare Tax” in the search box. Tax filing Employee share paid by employer. Tax filing   If you would rather pay a household or agricultural employee's share of the social security and Medicare taxes without withholding them from his or her wages, you may do so. Tax filing If you do not withhold the taxes, however, you must still pay them. Tax filing Any employee social security and Medicare taxes that you pay is additional income to the employee. Tax filing Include it in box 1 of the employee's Form W-2, but do not count it as social security and Medicare wages and do not include it in boxes 3 and 5. Tax filing Also, do not count the additional income as wages for FUTA tax purposes. Tax filing Different rules apply to employer payments of social security and Medicare taxes for non-household and non-agricultural employees. Tax filing See section 7 of Publication 15-A. Tax filing Withholding social security and Medicare taxes on nonresident alien employees. Tax filing   In general, if you pay wages to nonresident alien employees, you must withhold social security and Medicare taxes as you would for a U. Tax filing S. Tax filing citizen or resident alien. Tax filing However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Tax filing Also see Compensation paid to H-2A visa holders in section 3. Tax filing Religious exemption. Tax filing    An exemption from social security and Medicare taxes is available to members of a recognized religious sect opposed to public insurance. Tax filing This exemption is available only if both the employee and the employer are members of the sect. Tax filing   For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Tax filing 5. Tax filing Federal Income Tax Withholding Farmers and crew leaders must withhold federal income tax from the wages of farmworkers if the wages are subject to social security and Medicare taxes. Tax filing The amount to withhold is figured on gross wages before taking out social security and Medicare taxes, union dues, insurance, etc. Tax filing You may use one of several methods to determine the amount of federal income tax withholding. Tax filing They are discussed in section 13. Tax filing Form W-4. Tax filing   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Tax filing 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. Tax filing Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Tax filing irs. Tax filing gov/individuals for help in determining how many withholding allowances to claim on their Form W-4. Tax filing   Ask each new employee to give you a signed Form W-4 when starting work. Tax filing Make the form effective with the first wage payment. Tax filing If a new employee does not give you a completed Form W-4, withhold tax as if he or she is single, with no withholding allowances. Tax filing Forms in Spanish. Tax filing   You can provide Formulario W-4(SP) in place of Form W-4 to your Spanish-speaking employees. Tax filing For more information, see Publicación 17(SP). Tax filing Effective date of Form W-4. Tax filing   A Form W-4 remains in effect until the employee gives you a new one. Tax filing When you receive a new Form W-4, do not adjust withholding for pay periods before the effective date of the new form. Tax filing Do not adjust withholding retroactively. Tax filing If an employee gives you a replacement 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. Tax filing 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. Tax filing A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Tax filing Completing Form W-4. Tax filing   The amount of federal income tax withholding is based on marital status and withholding allowances. Tax filing Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Tax filing However, the 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. Tax filing   Employees may claim fewer withholding allowances than they are entitled to claim. Tax filing They may do this to ensure that they have enough withholding or to offset other sources of taxable income that are not subject to withholding. Tax filing   See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Tax filing Along with Form W-4, you may wish to order Publication 505 for use by your employees. Tax filing    Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Tax filing If an employee wants additional withholding, he or she 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. Tax filing Exemption from federal income tax withholding. Tax filing   Generally, an employee may claim exemption from federal income tax withholding because he or she had no federal income tax liability last year and expects none this year. Tax filing See the Form W-4 instructions for more information. Tax filing However, the wages are still subject to social security and Medicare taxes. Tax filing   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Tax filing 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. Tax filing If the employee does not give you a new Form W-4 by February 15, withhold tax based on the last valid Form W-4 you have for the employee that did not claim an exemption from withholding or, if one does not exist, withhold as if he or she is single with zero withholding allowances. Tax filing If the employee provides a new Form W-4 claiming an exemption from withholding on February 16 or later, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. Tax filing Withholding income taxes on the wages of nonresident alien employees. Tax filing   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Tax filing However, see Publication 515 for exceptions to this general rule. Tax filing Also see Compensation paid to H-2A visa workers in section 3. Tax filing Withholding adjustment for nonresident alien employees. Tax filing   A special procedure applies for figuring the amount of income tax to withhold from wages of nonresident alien employees performing services within the United States for wages paid in 2014. Tax filing This procedure requires a special chart to be used with the withholding tables to determine the amount to withhold from the wages of the nonresident alien employee. Tax filing See Withholding adjustment for nonresident alien employees in section 9 of Publication 15 (Circular E). Tax filing Nonresident alien employee's Form W-4. Tax filing   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 Korea, 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. Tax filing   If you maintain an electronic Form W-4 system, you should provide a field for nonresident alien employees to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Tax filing    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. Tax filing Form 8233. Tax filing   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. Tax filing See Publication 515 for details. Tax filing IRS review of requested Forms W-4. Tax filing   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Tax filing You may also be directed to send certain Forms W-4 to the IRS. Tax filing 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. Tax filing 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. Tax filing The IRS may also require you to submit copies of Form W-4 to the IRS as directed by a revenue procedure or notice published in the Internal Revenue Bulletin. Tax filing When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Tax filing   After submitting a copy of the 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). Tax filing However, if the IRS later notifies you in writing that the employee is not entitled to claim a complete exemption from withholding or more than the maximum number of withholding allowances specified by the IRS in the written notice, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the notice (commonly referred to as a “lock-in letter”). Tax filing Initial lock-in letter. Tax filing   The IRS uses information reported on Form W-2 to identify employees with withholding compliance problems. Tax filing In some cases, where a serious under-withholding problem is found to exist for a particular employee, the IRS may issue a lock-in letter to the employer specifying the maximum number of withholding allowances and marital status permitted for a specific employee. Tax filing You will also receive a copy for the employee that identifies the maximum number of withholding allowances permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate number of withholding allowances. Tax filing If the employee is employed by you as of the date of the notice, you must furnish the employee copy to the employee within 10 business days of receipt. Tax filing You may follow any reasonable business practice to furnish the employee copy to the employee. Tax filing Implementation of lock-in letter. Tax filing   When you receive the notice specifying the maximum number of withholding allowances and marital status permitted, you may not withhold immediately on the basis of the notice. Tax filing You must begin withholding tax on the basis of the notice for any wages paid after the date specified in the notice. Tax filing The delay between your receipt of the notice and the date to begin the withholding on the basis of the notice permits the employee to contact the IRS. Tax filing Seasonal employees and employees not currently performing services. Tax filing   If you receive a notice for an employee who is not currently performing services for you, you are still required to furnish the employee copy to the employee and withhold based on the notice if any of the following apply. Tax filing You are paying wages for the employee's prior services and the wages are subject to income tax withholding on or after the date specified in the notice. Tax filing You reasonably expect the employee to resume services within 12 months of the date of the notice. Tax filing The employee is on a bona fide leave of absence that does not exceed 12 months or the employee has a right to reemployment after the leave of absence. Tax filing Termination and re-hire of employees. Tax filing   If you are required to furnish and withhold based on the notice and the employment relationship is terminated after the date of the notice, you must continue to withhold based on the notice if you continue to pay any wages subject to income tax withholding. Tax filing You must also withhold based on the notice or modification notice (explained next) if the employee resumes the employment relationship with you within 12 months after the termination of the employment relationship. Tax filing Modification notice. Tax filing   After issuing the notice specifying the maximum number of withholding allowances and marital status permitted, the IRS may issue a subsequent notice (modification notice) that modifies the original notice. Tax filing The modification notice may change the marital status and/or the number of withholding allowances permitted. Tax filing You must withhold federal income tax based on the effective date specified in the modification notice. Tax filing New Form W-4 after IRS notice. Tax filing   After the IRS issues a notice or modification notice, if the employee provides you with a new Form W-4 claiming complete exemption from withholding or claims a marital status, a number of withholding allowances, and any additional withholding that results in less withholding than would result under the IRS notice or modification notice, you must disregard the new Form W-4. Tax filing You are required to withhold on the basis of the notice or modification notice unless the IRS subsequently notifies you to withhold based on the new Form W-4. Tax filing If the employee wants to put a new Form W-4 into effect that results in less withholding than required, the employee must contact the IRS. Tax filing   If, after you receive an IRS notice or modification notice, your employee provides you with a new Form W-4 that does not claim exemption from federal income tax withholding and claims a marital status, a number of withholding allowances, and any additional withholding that results in more withholding than would result under the notice or modification notice, you must withhold tax on the basis of that new Form W-4. Tax filing Otherwise, disregard any subsequent Forms W-4 provided by the employee and withhold based on the IRS notice or modification notice. Tax filing Substitute Forms W-4. Tax filing   You are encouraged to have your employees use the official version of Form W-4 to claim withholding allowances or exemption from withholding. Tax filing Call the IRS at 1-800-TAX-FORM (1-800-829-3676) or visit IRS. Tax filing gov to obtain copies of Form W-4. Tax filing   You may use a substitute version of Form W-4 to meet your business needs. Tax filing However, your substitute Form W-4 must contain language that is identical to the official Form W-4 and your form must meet all current IRS rules for substitute forms. Tax filing At the time that you provide your substitute form to the employee, you must provide him or her with all tables, instructions, and worksheets from the current Form W-4. Tax filing   You cannot accept a substitute Form W-4 developed by an employee, and the employee submitting such form will be treated as failing to furnish a Form W-4. Tax filing However, continue to use any valid Forms W-4 developed by your employees that you accepted before October 11, 2007. Tax filing Invalid Forms W-4. Tax filing   Any unauthorized change or addition to Form W-4 makes it invalid. Tax filing This includes taking out any language by which the employee certifies that the form is correct. Tax filing A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way that it is false. Tax filing An employee who submits a false Form W-4 may be subject to a $500 penalty. Tax filing You may treat a Form W-4 as invalid if the employee wrote “exempt” on line 7 and also entered a number on line 5 or an amount on line 6. Tax filing   When you get an invalid Form W-4, do not use it to figure federal income tax withholding. Tax filing Tell the employee that it is invalid and ask for another one. Tax filing If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. Tax filing However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before. Tax filing   For additional information about these rules, see Treasury Decision 9337, 2007-35 I. Tax filing R. Tax filing B. Tax filing 455, available at www. Tax filing irs. Tax filing gov/irb/2007-35_IRB/ar10. Tax filing html. Tax filing Amounts exempt from levy on wages, salary, and other income. Tax filing   If you receive a Notice of Levy on Wages, Salary, and Other Income—Forms 668-W(ACS), 668-W(c)(DO), or 668-W(ICS), you must withhold amounts as described in the instructions for these forms. Tax filing Publication 1494, Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income—Forms 668-W(ACS), 668-W(c)(DO), and 668-W(ICS), shows the exempt amount. Tax filing If a levy issued in a prior year is still in effect and the taxpayer submits a new Statement of Exemptions and Filing Status, use the current year Publication 1494 to compute the exempt amount. Tax filing How To Figure Federal Income Tax Withholding There are several ways to figure federal income tax withholding. Tax filing Wage bracket tables. Tax filing See section 13 for directions on how to use the tables. Tax filing Percentage method. Tax filing See section 13 for directions on how to use the percentage method. Tax filing Alternative formula tables for percentage method withholding. Tax filing See Publication 15-A. Tax filing Wage bracket percentage method withholding tables. Tax filing See Publication 15-A. Tax filing Other alternative methods. Tax filing See Publication 15-A. Tax filing Employers with automated payroll systems will find the two alternative formula tables and the two alternative wage bracket percentage method tables in Publication 15-A useful. Tax filing If an employee wants additional federal tax withheld, have the employee show the extra amount on Form W-4. Tax filing Supplemental wages. Tax filing   Supplemental wages are wage payments to an employee that are not regular wages. Tax filing They include, but are not limited to, bonuses, commissions, overtime pay, accumulated sick leave, severance pay, awards, prizes, back pay and retroactive pay increases for current employees, and payments for nondeductible moving expenses. Tax filing Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Tax filing   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total was a single payment for a regular payroll period. Tax filing   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 federal income tax from your employee's regular wages. Tax filing If you withheld federal 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. Tax filing Withhold a flat 25% (no other percentage allowed). Tax filing If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Tax filing 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. Tax filing Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Tax filing Subtract the tax withheld from the regular wages. Tax filing Withhold the remaining tax from the supplemental wages. Tax filing 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 previous supplemental wage payments, and withhold the remaining tax from the current payment of supplemental wages. Tax filing If you did not withhold federal income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b above. Tax filing This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Tax filing    Separate rules apply to any supplemental wages exceeding $1 million that you pay to an individual during the year. Tax filing See section 7 in Publication 15 (Circular E) for details. Tax filing   Regardless of the method that you use to withhold federal income tax on supplemental wages, they are generally subject to social security, Medicare, and FUTA taxes. Tax filing 6. Tax filing Required Notice to Employees About Earned Income Credit (EIC) You must notify employees who have no federal income tax withheld that they may be able to claim a tax refund because of the EIC. Tax filing Although you do not have to notify employees who claim exemption from withholding on Form W-4 about the EIC, you are encouraged to notify any employees whose wages for 2013 were less than $46,227 ($51,567 if married filing jointly) that they may be eligible to claim the credit for 2013. Tax filing This is because eligible employees may get a refund of the amount of EIC that is more than the tax that they owe. Tax filing You will meet the notification requirement if you issue to the employee Form W-2 with the EIC notice on the back of Copy B, or a substitute Form W-2 with the same statement. Tax filing You may also meet the requirement by providing Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), or your own statement that contains the same wording. Tax filing If a substitute Form W-2 is given to the employee on time but does not have the required statement, you must notify the employee within 1 week of the date that the substitute Form W-2 is given. Tax filing If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement by the date that Form W-2 is required to be given. Tax filing If Form W-2 is not required, you must notify the employee by February 7, 2014. Tax filing 7. Tax filing Depositing Taxes Generally, you must deposit both the employer and employee shares of social security and Medicare taxes and federal income tax withheld. Tax filing You must use electronic funds transfer to make all federal tax deposits. Tax filing See How To Deposit , later in this section. Tax filing The credit against employment taxes for COBRA premium assistance payments is treated as a deposit of taxes on the first day of your return period. Tax filing For more information, see COBRA premium assistance credit under Introduction. Tax filing Payment with return. Tax filing   You may make payments with Forms 943 or 945 instead of depositing if one of the following applies. Tax filing You report less than a $2,500 tax liability for the year (Form 943, line 11; Form 945, line 3) and you pay in full with a return that is filed on time. Tax filing However, if you are unsure that you will report less than $2,500, deposit under the rules explained in this section so that you will not be subject to failure-to-deposit penalties. Tax filing You are a monthly schedule depositor and make a payment in accordance with the Accuracy of Deposits Rule discussed later in this section. Tax filing This payment may be $2,500 or more. Tax filing Only monthly schedule depositors, defined later, are allowed to make an Accuracy of Deposits Rule payment with the return. Tax filing Semiweekly schedule depositors must timely deposit the amount. Tax filing See Accuracy of Deposits Rule and How To Deposit, later in this section. Tax filing When To Deposit If you employ both farm and nonfarm workers, do not combine the taxes reportable on Forms 941 or 944 with Form 943 to decide whether to make a deposit. Tax filing See Employers of Both Farm and Nonfarm Workers, later in this section. Tax filing The rules for determining when to deposit Form 943 taxes are discussed below. Tax filing See section 10 for the separate rules that apply to FUTA tax. Tax filing Under these rules, you are classified as either a monthly schedule depositor or a semiweekly schedule depositor. Tax filing The terms “monthly schedule depositor” and “semiweekly schedule depositor” do not refer to how often your business pays its employees or how often you are required to make deposits. Tax filing The terms identify which set of rules you must follow when you incur a tax liability (for example, when you have a payday). Tax filing The deposit schedule that you must use for a calendar year is determined from the tax liability reported on your Form 943, line 9, for the lookback period, discussed next. Tax filing If you reported $50,000 or less of Form 943 taxes for the lookback period, you are a monthly schedule depositor. Tax filing If you reported more than $50,000 of Form 943 taxes for the lookback period, you are a semiweekly schedule depositor. Tax filing Lookback period. Tax filing   The lookback period is the second calendar year preceding the current calendar year. Tax filing For example, the lookback period for 2014 is 2012. Tax filing Example of deposit schedule based on lookback period. Tax filing Rose Co. Tax filing reported taxes on Form 943 as follows. Tax filing 2012 — $48,000 2013 — $60,000 Rose Co. Tax filing is a monthly schedule depositor for 2014 because its taxes for the lookback period ($48,000 for calendar year 2012) were not more than $50,000. Tax filing However, for 2015, Rose Co. Tax filing is a semiweekly schedule depositor because the total taxes before adjustment for its lookback period ($60,000 for calendar year 2013) exceeded $50,000. Tax filing Adjustments to lookback period taxes. Tax filing   To determine your taxes for the lookback period, use only the tax that you reported on the original return (Form 943, line 9). Tax filing Do not include adjustments shown on Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund. Tax filing Example of adjustments. Tax filing An employer originally reported total tax of $45,000 for the lookback period in 2012. Tax filing The employer discovered during March 2014 that the tax reported for the lookback period was understated by $10,000 and corrected this error by filing Form 943-X. Tax filing The total tax reported in the lookback period is still $45,000. Tax filing The $10,000 adjustment is also not treated as part of the 2014 taxes. Tax filing Deposit period. Tax filing   The term “deposit period” refers to the period during which tax liabilities are accumulated for each required deposit due date. Tax filing For monthly schedule depositors, the deposit period is a calendar month. Tax filing The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday. Tax filing Monthly Deposit Schedule If the tax liability reported on Form 943, line 9, for the lookback period is $50,000 or less, you are a monthly schedule depositor for the current year. Tax filing You must deposit Form 943 taxes on payments made during a calendar month by the 15th day of the following month. Tax filing Monthly schedule example. Tax filing   Red Co. Tax filing is a seasonal employer and a monthly schedule depositor. Tax filing It pays wages each Friday. Tax filing It paid wages during August 2014, but did not pay any wages during September. Tax filing Red Co. Tax filing must deposit the combined tax liabilities for the August paydays by September 15. Tax filing Red Co. Tax filing does not have a deposit requirement for September (that is, due by October 15, 2014) because no wages were paid in September; therefore, it did not have a tax liability for September. Tax filing New employers. Tax filing   For agricultural employers, your tax liability for any year in the lookback period before the date you started or acquired your business is considered to be zero. Tax filing Therefore, you are a monthly schedule depositor for the first and second calendar years of your agricultural business (but see the $100,000 Next-Day Deposit Rule , later in this section). Tax filing Semiweekly Deposit Schedule You are a semiweekly schedule depositor for a calendar year if the tax liability on Form 943, line 9, during your lookback period was more than $50,000. Tax filing Under the semiweekly deposit schedule, deposit Form 943 taxes for payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. Tax filing Deposit amounts accumulated for payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. Tax filing Semiweekly depositors are not required to deposit twice a week if their payments were in the same semiweekly period unless the $100,000 Next-Day Deposit Rule (discussed later in this section) applies. Tax filing For example, if you made a payment on both Wednesday and Friday and incurred taxes of $10,000 for each pay date, deposit the $20,000 by the following Wednesday. Tax filing If you made no additional payments on Saturday through Tuesday, no deposit is due on Friday. Tax filing Semiweekly schedule depositors must complete Form 943-A, Agricultural Employer's Record of Federal Tax Liability, and submit it with Form 943. Tax filing Semiweekly Deposit Schedule IF the payday falls on a. Tax filing . Tax filing . Tax filing THEN deposit taxes by the following. Tax filing . Tax filing . Tax filing Wednesday, Thursday, and/or Friday Wednesday Saturday, Sunday, Monday, and/or Tuesday Friday Semiweekly schedule example. Tax filing   Green, Inc. Tax filing , is a semiweekly schedule depositor and pays wages once each month on the last Friday of the month. Tax filing Green, Inc. Tax filing , will deposit only once a month, but the deposit will be made under the semiweekly deposit schedule as follows. Tax filing Green, Inc. Tax filing 's tax liability for the April 25, 2014 (Friday), wage payment must be deposited by April 30, 2014 (Wednesday). Tax filing Semiweekly deposit period spanning two quarters. Tax filing   If you have more than one pay date during a semiweekly period and the pay dates fall in different calendar quarters, you will need to make separate deposits for the separate liabilities. Tax filing For example, if you have a pay date on Monday, March 31, 2014 (first quarter), and another pay date on Tuesday, April 1, 2014 (second quarter), two separate deposits will be required even though the pay dates fall within the same semiweekly period. Tax filing Both deposits will be due Friday, April 4, 2014 (3 business days from the end of the semiweekly deposit period). Tax filing Deposits on Business Days Only If a deposit is required to be made on a day that is not a business day, the deposit is considered timely if it is made by the close of the next business day. Tax filing A business day is any day other than a Saturday, Sunday, or legal holiday. Tax filing For example, if a deposit is required to be made on Friday and Friday is a legal holiday, the deposit is considered timely if it is made by the following Monday (if Monday is a business day). Tax filing Semiweekly schedule depositors   will always have 3 business days to make a deposit. Tax filing That is, if any of the 3 weekdays after the end of a semiweekly period is a legal holiday, you will have an additional day for each day that is a legal holiday to make the deposit. Tax filing For example, if a semiweekly schedule depositor accumulated taxes on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday (this allows 3 business days to make the deposit). Tax filing Legal holiday. Tax filing   The term “legal holiday” means any legal holiday in the District of Columbia. Tax filing Legal holidays for 2014 are listed below. Tax filing January 1— New Year's Day January 20— Birthday of Martin Luther King, Jr. Tax filing February 17— Washington's Birthday April 16— District of Columbia Emancipation Day May 26— Memorial Day July 4— Independence Day September 1— Labor Day October 13— Columbus Day November 11— Veterans' Day November 27— Thanksgiving Day December 25— Christmas Day $100,000 Next-Day Deposit Rule If you accumulate $100,000 or more of Form 943 taxes (that is, taxes reported on Form 943, line 11) on any day during a deposit period, you must deposit the tax by the close of the next business day, whether you are a monthly or a semiweekly schedule depositor. Tax filing For purposes of the $100,000 rule, do not continue accumulating a tax liability after the end of a deposit period. Tax filing For example, if a semiweekly schedule depositor has accumulated a liability of $95,000 on a Tuesday (of a Saturday-through-Tuesday deposit period) and accumulated a $10,000 liability on Wednesday, the $100,000 next-day deposit rule does not apply because the $10,000 is accumulated in the next deposit period. Tax filing Thus, $95,000 must be deposited by Friday and $10,000 must be deposited by the following Wednesday. Tax filing However, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. Tax filing For example, Fir Co. Tax filing is a semiweekly schedule depositor. Tax filing On Monday, Fir Co. Tax filing accumulates taxes of $110,000 and must deposit this amount on Tuesday, the next business day. Tax filing On Tuesday, Fir Co. Tax filing accumulates additional taxes of $30,000. Tax filing Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. Tax filing does not have to deposit the $30,000 until Friday (following the semiweekly deposit schedule). Tax filing If you are a monthly schedule depositor and you accumulate a $100,000 tax liability on any day, you become a semiweekly schedule depositor on the next day and remain so for at least the rest of the calendar year and for the following calendar year. Tax filing Example of the $100,000 next-day deposit rule. Tax filing   Elm, Inc. Tax filing , started its business on May 1, 2014. Tax filing Because Elm, Inc. Tax filing , is a new employer, the taxes for its lookback period are considered to be zero; therefore, Elm, Inc. Tax filing , is a monthly schedule depositor. Tax filing On May 8, Elm, Inc. Tax filing , paid wages for the first time and accumulated taxes of $50,000. Tax filing On May 9 (Friday), Elm, Inc. Tax filing , paid wages and accumulated taxes of $60,000, for a total of $110,000. Tax filing Because Elm, Inc. Tax filing , accumulated $110,000 on May 9, it must deposit $110,000 by May 12 (Monday), the next business day. Tax filing Elm, Inc. Tax filing , became a semiweekly schedule depositor on May 10. Tax filing It will be a semiweekly schedule depositor for the remainder of 2014 and for 2015. Tax filing Accuracy of Deposits Rule You are required to deposit 100% of your tax liability on or before the deposit due date. Tax filing However, penalties will not be applied for depositing less than 100% if both of the following conditions are met. Tax filing Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited. Tax filing The deposit shortfall is paid or deposited by the shortfall makeup date as described below. Tax filing Makeup Date for Deposit Shortfall:    Monthly Schedule Depositor—Deposit the shortfall or pay it with your return by the due date of your Form 943. Tax filing You may pay the shortfall with your Form 943 even if the amount is $2,500 or more. Tax filing Semiweekly Schedule Depositor—Deposit by the earlier of (a) the first Wednesday or Friday (whichever comes first) that falls on or after the 15th of the month following the month in which the shortfall occurred, or (b) the due date for Form 943. Tax filing For example, if a semiweekly schedule depositor has a deposit shortfall during February 2014, the shortfall makeup date is March 19, 2014 (Wednesday). Tax filing How To Deposit You must deposit employment taxes by electronic funds transfer. Tax filing See Payment with return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited. Tax filing Electronic deposit requirement. Tax filing   You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Tax filing Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). Tax filing If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Tax filing   EFTPS is a free service provided by the Department of Treasury. Tax filing To get more information or to enroll in EFTPS, call 1-800-555-4477 (business), 1-800-316-6541 (individual), or 1-800-733-4829 (TDD). Tax filing You can also visit the EFTPS website at www. Tax filing eftps. Tax filing gov. Tax filing Additional information about EFTPS is also available in Publication 966. Tax filing New employers that have a federal tax obligation will be pre-enrolled in EFTPS. Tax filing Call the toll-free number located in your Employer Identification Number (EIN) Package to activate your enrollment and begin making your tax deposit payments. Tax filing See When you receive your EIN in section 1 for more information. Tax filing Deposit record. Tax filing   For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. Tax filing The number can be used as a receipt or to trace the payment. Tax filing Depositing on time. Tax filing   For deposits made by EFTPS to be on time, you must initiate the deposit by 8 p. Tax filing m. Tax filing Eastern time the day before the date a deposit is due. Tax filing If you use a third party to make a deposit on your behalf, they may have different cutoff times. Tax filing Same-day payment option. Tax filing   If you fail to initiate a deposit transaction on EFTPS by 8 p. Tax filing m. Tax filing Eastern time the day before the date a deposit is due, you can still make your deposit on time by using the Federal Tax Application (FTA). Tax filing To use the same-day payment method, you will need to make arrangements with your financial institution ahead of time. Tax filing Please check with your financial institution regarding availability, deadlines, and costs. Tax filing Your financial institution may charge you a fee for payments made this way. Tax filing To learn more about the information you will need to provide to your financial institution to make a same-day wire payment, visit www. Tax filing eftps. Tax filing gov to download the Same-Day Payment Worksheet. Tax filing Deposit Penalties Penalties may apply if you do not make required deposits on time or if you make deposits for less than the required amount. Tax filing The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. Tax filing IRS may also waive deposit penalties if you inadvertently fail to deposit in the first quarter that a deposit is due, or the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return. Tax filing For amounts not properly deposited or not deposited on time, the penalty rates are shown next. Tax filing Penalty Charged for. Tax filing . Tax filing . Tax filing 2% Deposits made 1 to 5 days late. Tax filing 5% Deposits made 6 to 15 days late. Tax filing 10% Deposits made 16 or more days late. Tax filing Also applies to amounts paid within 10 days of the date of the first notice the IRS sent asking for the tax due. Tax filing 10% Amounts (that should have been deposited) paid directly to the IRS or paid with your tax return. Tax filing See Payment with return , earlier in this section, for exceptions. Tax filing 15% Amounts still unpaid more than 10 days after the date of the first notice that the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier. Tax filing Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. Tax filing Order in which deposits are applied. Tax filing   Deposits generally are applied to the most recent tax liability within the year. Tax filing If you receive a failure-to-deposit penalty notice, you may designate how your deposits are to be applied in order to minimize the amount of the penalty, if you do so within 90 days of the date of the notice. Tax filing Follow the instructions on the penalty notice that you received. Tax filing For examples on how the IRS will apply deposits and more information on designating deposits, see Revenue Procedure 2001-58. Tax filing You can find Revenue Procedure 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www. Tax filing irs. Tax filing gov/pub/irs-irbs/irb01-50. Tax filing pdf. Tax filing Example. Tax filing Cedar, Inc. Tax filing , is required to make a deposit of $1,000 on July 15 and $1,500 on August 15. Tax filing It does not make the deposit on July 15. Tax filing On August 15, Cedar, Inc. Tax filing , deposits $2,000. Tax filing Under the deposits rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the August 15 deposit and the remaining $500 is applied to the July deposit. Tax filing Accordingly, $500 of the July 15 liability remains undeposited. Tax filing The penalty on this underdeposit will apply as explained above. Tax filing Trust fund recovery penalty. Tax filing   If federal income, social security, or Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Tax filing The penalty is the full amount of the unpaid trust fund tax. Tax filing This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business. Tax filing   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. Tax filing   A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. Tax filing A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds. Tax filing    Willfully means voluntarily, consciously, and intentionally. Tax filing A responsible person acts willfully if the person knows that the required actions of collecting, accounting for or paying over trust fund taxes are not taking place, or recklessly disregards obvious and known risks to the government's right to receive trust fund taxes. Tax filing “Average” failure-to-deposit penalty. Tax filing   IRS may assess an “averaged” failure-to-deposit penalty of 2% to 10% if you are a monthly schedule depositor and did not properly complete Form 943, line 17, when your tax liability shown on Form 943, line 11, was $2,500 or more. Tax filing IRS may also assess this penalty of 2% to 10% if you are a semiweekly schedule depositor and your tax liability shown on Form 943, line 11, was $2,500 or more and you did any of the following. Tax filing Completed Form 943, line 17, instead of Form 943-A. Tax filing Failed to attach a properly completed Form 943-A. Tax filing Completed Form 943-A incorrectly, for example, by entering tax deposits instead of tax liabilities in the numbered spaces. Tax filing   IRS figures the penalty by allocating your tax liability on Form 943, line 11, equally throughout the tax period. Tax filing Your deposits and payments may not be counted as timely because IRS does not know the actual dates of your tax liabilities. Tax filing   You can avoid the penalty by reviewing your return before filing it. Tax filing Follow these steps before filing your Form 943. Tax filing If you are a monthly schedule depositor, report your tax liabilities (not your deposits) in the monthly entry spaces on Form 943, line 17. Tax filing If you are a semiweekly schedule depositor, report your tax liabilities (not your deposits) on Form 943-A in the lines that represent the dates you paid your employees. Tax filing Verify that your total liability shown on Form 943, line 17, or Form 943-A, line M, equals your tax liability shown on Form 943, line 11. Tax filing Do not show negative amounts on Form 943, line 17, or Form 943-A. Tax filing For prior period errors discovered after December 31, 2008, do not adjust your tax liabilities reported on Form 943, line 17, or on Form 943-A. Tax filing Employers of Both Farm and Nonfarm Workers If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers (Form 943 taxes) separately from employment taxes for the nonfarm workers (Form 941 and 944 taxes). Tax filing Form 943 taxes and Form 941/944 taxes are not combined for purposes of applying any of the deposit schedule rules. Tax filing If a deposit is due, deposi