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Us Government Form 1040x

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Us Government Form 1040x

Us government form 1040x 5. Us government form 1040x   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. Us government form 1040x Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. Us government form 1040x   If you are a U. Us government form 1040x S. Us government form 1040x citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. Us government form 1040x S. Us government form 1040x law. Us government form 1040x This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. Us government form 1040x This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Us government form 1040x If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. Us government form 1040x For details, see Publication 54, Tax Guide for U. Us government form 1040x S. Us government form 1040x Citizens and Resident Aliens Abroad. Us government form 1040x Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. Us government form 1040x The following topics are included. Us government form 1040x Bonuses and awards. Us government form 1040x Special rules for certain employees. Us government form 1040x Sickness and injury benefits. Us government form 1040x The chapter explains what income is included in the employee's gross income and what is not included. Us government form 1040x Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. Us government form 1040x Form W-2. Us government form 1040x    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. Us government form 1040x Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. Us government form 1040x   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. Us government form 1040x These wages must be included on line 7 of Form 1040. Us government form 1040x See Form 8919 for more information. Us government form 1040x Childcare providers. Us government form 1040x    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. Us government form 1040x 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. Us government form 1040x 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. Us government form 1040x Babysitting. Us government form 1040x   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Us government form 1040x Miscellaneous Compensation This section discusses different types of employee compensation. Us government form 1040x Advance commissions and other earnings. Us government form 1040x   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. Us government form 1040x    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. Us government form 1040x If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. Us government form 1040x See Repayments in chapter 12. Us government form 1040x Allowances and reimbursements. Us government form 1040x    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. Us government form 1040x If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Us government form 1040x Back pay awards. Us government form 1040x    Include in income amounts you are awarded in a settlement or judgment for back pay. Us government form 1040x These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Us government form 1040x They should be reported to you by your employer on Form W-2. Us government form 1040x Bonuses and awards. Us government form 1040x   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Us government form 1040x These include prizes such as vacation trips for meeting sales goals. Us government form 1040x 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. Us government form 1040x 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. Us government form 1040x Employee achievement award. Us government form 1040x   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. Us government form 1040x 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. Us government form 1040x Your employer can tell you whether your award is a qualified plan award. Us government form 1040x 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. Us government form 1040x   However, the exclusion does not apply to the following awards: 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. Us government form 1040x 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. Us government form 1040x Example. Us government form 1040x 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. Us government form 1040x Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Us government form 1040x 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. Us government form 1040x Differential wage payments. Us government form 1040x   This is any payment made to you by an employer for any period during which you are, 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 you would have received from the employer during that period. Us government form 1040x These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Us government form 1040x The payments are reported as wages on Form W-2. Us government form 1040x Government cost-of-living allowances. Us government form 1040x   Most payments received by U. Us government form 1040x S. Us government form 1040x Government civilian employees for working abroad are taxable. Us government form 1040x However, certain cost-of-living allowances are tax free. Us government form 1040x Publication 516, U. Us government form 1040x S. Us government form 1040x Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Us government form 1040x Nonqualified deferred compensation plans. Us government form 1040x   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Us government form 1040x This amount is shown on Form W-2, box 12, using code Y. Us government form 1040x This amount is not included in your income. Us government form 1040x   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. Us government form 1040x This amount is included in your wages shown on Form W-2, box 1. Us government form 1040x It is also shown on Form W-2, box 12, using code Z. Us government form 1040x Note received for services. Us government form 1040x    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. Us government form 1040x 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. Us government form 1040x Do not include that part again in your income. Us government form 1040x Include the rest of the payment in your income in the year of payment. Us government form 1040x   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. Us government form 1040x Severance pay. Us government form 1040x   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Us government form 1040x Accrued leave payment. Us government form 1040x    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. Us government form 1040x   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. Us government form 1040x You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Us government form 1040x 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 the return and the wages on your Forms W-2. Us government form 1040x Outplacement services. Us government form 1040x   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. Us government form 1040x    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). Us government form 1040x Sick pay. Us government form 1040x   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Us government form 1040x In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. Us government form 1040x A state sickness or disability fund. Us government form 1040x An association of employers or employees. Us government form 1040x An insurance company, if your employer paid for the plan. Us government form 1040x However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Us government form 1040x For more information, see Publication 525. Us government form 1040x Social security and Medicare taxes paid by employer. Us government form 1040x   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. Us government form 1040x The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Us government form 1040x However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Us government form 1040x Stock appreciation rights. Us government form 1040x   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Us government form 1040x 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. Us government form 1040x You include the cash payment in your income in the year you use the right. Us government form 1040x 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. Us government form 1040x 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. Us government form 1040x Accounting period. Us government form 1040x   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Us government form 1040x Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Us government form 1040x The general rule: benefits are reported for a full calendar year (January 1–December 31). Us government form 1040x 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. Us government form 1040x 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. Us government form 1040x  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. Us government form 1040x   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). Us government form 1040x Form W-2. Us government form 1040x   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. Us government form 1040x Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Us government form 1040x 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). Us government form 1040x 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. Us government form 1040x Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . Us government form 1040x 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. Us government form 1040x Long-term care coverage. Us government form 1040x    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Us government form 1040x However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Us government form 1040x This amount will be reported as wages in box 1 of your Form W-2. Us government form 1040x   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. Us government form 1040x Archer MSA contributions. Us government form 1040x    Contributions by your employer to your Archer MSA generally are not included in your income. Us government form 1040x Their total will be reported in box 12 of Form W-2 with code R. Us government form 1040x You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Us government form 1040x File the form with your return. Us government form 1040x Health flexible spending arrangement (health FSA). Us government form 1040x   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. Us government form 1040x Note. Us government form 1040x Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Us government form 1040x The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Us government form 1040x For more information, see Notice 2012-40, 2012-26 I. Us government form 1040x R. Us government form 1040x B. Us government form 1040x 1046, available at www. Us government form 1040x irs. Us government form 1040x gov/irb/2012-26 IRB/ar09. Us government form 1040x html. Us government form 1040x Health reimbursement arrangement (HRA). Us government form 1040x   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. Us government form 1040x Health savings accounts (HSA). Us government form 1040x   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Us government form 1040x Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Us government form 1040x Contributions made by your employer are not included in your income. Us government form 1040x Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Us government form 1040x Distributions not used for qualified medical expenses are included in your income. Us government form 1040x See Publication 969 for the requirements of an HSA. Us government form 1040x   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Us government form 1040x The contributions are treated as a distribution of money and are not included in the partner's gross income. Us government form 1040x 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. Us government form 1040x In both situations, the partner can deduct the contribution made to the partner's HSA. Us government form 1040x   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. Us government form 1040x The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Us government form 1040x Qualified HSA funding distribution. Us government form 1040x   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. Us government form 1040x See Publication 590 for the requirements for these qualified HSA funding distributions. Us government form 1040x Failure to maintain eligibility. Us government form 1040x   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. Us government form 1040x 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. Us government form 1040x This income is also subject to an additional 10% tax. Us government form 1040x 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. Us government form 1040x See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Us government form 1040x Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Us government form 1040x They also are included as social security and Medicare wages in boxes 3 and 5. Us government form 1040x However, they are not included as wages in box 1. Us government form 1040x To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Us government form 1040x File the form with your return. Us government form 1040x 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. Us government form 1040x 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. Us government form 1040x Holiday gifts. Us government form 1040x   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. Us government form 1040x 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. Us government form 1040x Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Us government form 1040x For more information, see Publication 970, Tax Benefits for Education. Us government form 1040x 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. Us government form 1040x 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. Us government form 1040x For exceptions, see Entire cost excluded , and Entire cost taxed , later. Us government form 1040x 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. Us government form 1040x Also, it is shown separately in box 12 with code C. Us government form 1040x Group-term life insurance. Us government form 1040x   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. Us government form 1040x Permanent benefits. Us government form 1040x   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. Us government form 1040x Your employer should be able to tell you the amount to include in your income. Us government form 1040x Accidental death benefits. Us government form 1040x   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. Us government form 1040x Former employer. Us government form 1040x   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. Us government form 1040x Also, it is shown separately in box 12 with code C. Us government form 1040x Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Us government form 1040x You must pay these taxes with your income tax return. Us government form 1040x Include them on line 60, Form 1040, and follow the instructions for line 60. Us government form 1040x For more information, see the Instructions for Form 1040. Us government form 1040x Two or more employers. Us government form 1040x   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. Us government form 1040x 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. Us government form 1040x You must figure how much to include in your income. Us government form 1040x 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. Us government form 1040x Figuring the taxable cost. Us government form 1040x   Use the following worksheet to figure the amount to include in your income. Us government form 1040x     Worksheet 5-1. Us government form 1040x Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Us government form 1040x Enter the total amount of your insurance coverage from your employer(s) 1. Us government form 1040x   2. Us government form 1040x Limit on exclusion for employer-provided group-term life insurance coverage 2. Us government form 1040x 50,000 3. Us government form 1040x Subtract line 2 from line 1 3. Us government form 1040x   4. Us government form 1040x Divide line 3 by $1,000. Us government form 1040x Figure to the nearest tenth 4. Us government form 1040x   5. Us government form 1040x Go to Table 5-1. Us government form 1040x 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. Us government form 1040x   6. Us government form 1040x Multiply line 4 by line 5 6. Us government form 1040x   7. Us government form 1040x Enter the number of full months of coverage at this cost. Us government form 1040x 7. Us government form 1040x   8. Us government form 1040x Multiply line 6 by line 7 8. Us government form 1040x   9. Us government form 1040x Enter the premiums you paid per month 9. Us government form 1040x       10. Us government form 1040x Enter the number of months you paid the premiums 10. Us government form 1040x       11. Us government form 1040x Multiply line 9 by line 10. Us government form 1040x 11. Us government form 1040x   12. Us government form 1040x Subtract line 11 from line 8. Us government form 1040x Include this amount in your income as wages 12. Us government form 1040x      Table 5-1. Us government form 1040x Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. Us government form 1040x 05 25 through 29 . Us government form 1040x 06 30 through 34 . Us government form 1040x 08 35 through 39 . Us government form 1040x 09 40 through 44 . Us government form 1040x 10 45 through 49 . Us government form 1040x 15 50 through 54 . Us government form 1040x 23 55 through 59 . Us government form 1040x 43 60 through 64 . Us government form 1040x 66 65 through 69 1. Us government form 1040x 27 70 and older 2. Us government form 1040x 06 Example. Us government form 1040x You are 51 years old and work for employers A and B. Us government form 1040x Both employers provide group-term life insurance coverage for you for the entire year. Us government form 1040x Your coverage is $35,000 with employer A and $45,000 with employer B. Us government form 1040x You pay premiums of $4. Us government form 1040x 15 a month under the employer B group plan. Us government form 1040x You figure the amount to include in your income as shown in Worksheet 5-1. Us government form 1040x Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. Us government form 1040x Worksheet 5-1. Us government form 1040x Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. Us government form 1040x Enter the total amount of your insurance coverage from your employer(s) 1. Us government form 1040x 80,000 2. Us government form 1040x Limit on exclusion for employer-provided group-term life insurance coverage 2. Us government form 1040x 50,000 3. Us government form 1040x Subtract line 2 from line 1 3. Us government form 1040x 30,000 4. Us government form 1040x Divide line 3 by $1,000. Us government form 1040x Figure to the nearest tenth 4. Us government form 1040x 30. Us government form 1040x 0 5. Us government form 1040x Go to Table 5-1. Us government form 1040x 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. Us government form 1040x . Us government form 1040x 23 6. Us government form 1040x Multiply line 4 by line 5 6. Us government form 1040x 6. Us government form 1040x 90 7. Us government form 1040x Enter the number of full months of coverage at this cost. Us government form 1040x 7. Us government form 1040x 12 8. Us government form 1040x Multiply line 6 by line 7 8. Us government form 1040x 82. Us government form 1040x 80 9. Us government form 1040x Enter the premiums you paid per month 9. Us government form 1040x 4. Us government form 1040x 15     10. Us government form 1040x Enter the number of months you paid the premiums 10. Us government form 1040x 12     11. Us government form 1040x Multiply line 9 by line 10. Us government form 1040x 11. Us government form 1040x 49. Us government form 1040x 80 12. Us government form 1040x Subtract line 11 from line 8. Us government form 1040x Include this amount in your income as wages 12. Us government form 1040x 33. Us government form 1040x 00 Entire cost excluded. Us government form 1040x   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Us government form 1040x You are permanently and totally disabled and have ended your employment. Us government form 1040x Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Us government form 1040x A charitable organization (defined in chapter 24) 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. Us government form 1040x (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Us government form 1040x ) 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. Us government form 1040x Entire cost taxed. Us government form 1040x   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Us government form 1040x You are a key employee and your employer's plan discriminates in favor of key employees. Us government form 1040x 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. Us government form 1040x 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. Us government form 1040x You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Us government form 1040x Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Us government form 1040x 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. Us government form 1040x Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Us government form 1040x 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. Us government form 1040x Exclusion limit. Us government form 1040x   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Us government form 1040x   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Us government form 1040x   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Us government form 1040x   If the benefits have a value that is more than these limits, the excess must be included in your income. Us government form 1040x You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Us government form 1040x Commuter highway vehicle. Us government form 1040x   This is a highway vehicle that seats at least six adults (not including the driver). Us government form 1040x 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). Us government form 1040x Transit pass. Us government form 1040x   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. Us government form 1040x Qualified parking. Us government form 1040x   This is parking provided to an employee at or near the employer's place of business. Us government form 1040x 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. Us government form 1040x It does not include parking at or near the employee's home. Us government form 1040x Qualified bicycle commuting. Us government form 1040x   This is reimbursement based on the number of qualified bicycle commuting months for the year. Us government form 1040x 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. Us government form 1040x The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Us government form 1040x Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Us government form 1040x (Your employer can tell you whether your retirement plan is qualified. Us government form 1040x ) However, the cost of life insurance coverage included in the plan may have to be included. Us government form 1040x See Group-Term Life Insurance , earlier, under Fringe Benefits. Us government form 1040x 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. Us government form 1040x 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. Us government form 1040x For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. Us government form 1040x S. Us government form 1040x Civil Service Retirement Benefits, if you are a federal employee or retiree). Us government form 1040x Elective deferrals. Us government form 1040x   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. Us government form 1040x The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Us government form 1040x An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Us government form 1040x However, it is included in wages subject to social security and Medicare taxes. Us government form 1040x   Elective deferrals include elective contributions to the following retirement plans. Us government form 1040x Cash or deferred arrangements (section 401(k) plans). Us government form 1040x The Thrift Savings Plan for federal employees. Us government form 1040x Salary reduction simplified employee pension plans (SARSEP). Us government form 1040x Savings incentive match plans for employees (SIMPLE plans). Us government form 1040x Tax-sheltered annuity plans (403(b) plans). Us government form 1040x Section 501(c)(18)(D) plans. Us government form 1040x Section 457 plans. Us government form 1040x Qualified automatic contribution arrangements. Us government form 1040x   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. Us government form 1040x You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Us government form 1040x 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. Us government form 1040x   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. Us government form 1040x Overall limit on deferrals. Us government form 1040x   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) and (5) above. Us government form 1040x The limit for SIMPLE plans is $12,000. Us government form 1040x The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. Us government form 1040x The limit for section 457 plans is the lesser of your includible compensation or $17,500. Us government form 1040x Amounts deferred under specific plan limits are part of the overall limit on deferrals. Us government form 1040x Designated Roth contributions. Us government form 1040x   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. Us government form 1040x Designated Roth contributions are treated as elective deferrals, except that they are included in income. Us government form 1040x Excess deferrals. Us government form 1040x   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Us government form 1040x However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Us government form 1040x   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. Us government form 1040x See Publication 525 for a discussion of the tax treatment of excess deferrals. Us government form 1040x Catch-up contributions. Us government form 1040x   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. Us government form 1040x Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, 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. Us government form 1040x However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. Us government form 1040x Your employer can tell you which kind of option you hold. Us government form 1040x For more information, see Publication 525. Us government form 1040x Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. Us government form 1040x However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. Us government form 1040x (You can choose to include the value of the property in your income in the year it is transferred to you. Us government form 1040x ) For more information, see Restricted Property in Publication 525. Us government form 1040x Dividends received on restricted stock. Us government form 1040x   Dividends you receive on restricted stock are treated as compensation and not as dividend income. Us government form 1040x Your employer should include these payments on your Form W-2. Us government form 1040x Stock you chose to include in income. Us government form 1040x   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. Us government form 1040x Report them on your return as dividends. Us government form 1040x For a discussion of dividends, see chapter 8. Us government form 1040x    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. Us government form 1040x Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. Us government form 1040x Clergy Generally, if you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Us government form 1040x , in addition to your salary. Us government form 1040x If the offering is made to the religious institution, it is not taxable to you. Us government form 1040x If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. Us government form 1040x However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Us government form 1040x See chapter 24. Us government form 1040x Pension. Us government form 1040x    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. Us government form 1040x It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Us government form 1040x Housing. Us government form 1040x    Special rules for housing apply to members of the clergy. Us government form 1040x Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. Us government form 1040x However, the exclusion cannot be more than the reasonable pay for your service. Us government form 1040x If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. Us government form 1040x The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. Us government form 1040x However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. Us government form 1040x For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Us government form 1040x Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. Us government form 1040x Services performed for the order. Us government form 1040x   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. Us government form 1040x   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. Us government form 1040x Any wages you earn as an agent of an order that you turn over to the order are not included in your income. Us government form 1040x Example. Us government form 1040x You are a member of a church order and have taken a vow of poverty. Us government form 1040x You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. Us government form 1040x You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. Us government form 1040x However, you remain under the general direction and control of the order. Us government form 1040x You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. Us government form 1040x Services performed outside the order. Us government form 1040x   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. Us government form 1040x They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. Us government form 1040x If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. Us government form 1040x Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. Us government form 1040x Example. Us government form 1040x Mark Brown is a member of a religious order and has taken a vow of poverty. Us government form 1040x He renounces all claims to his earnings and turns over his earnings to the order. Us government form 1040x Mark is a schoolteacher. Us government form 1040x He was instructed by the superiors of the order to get a job with a private tax-exempt school. Us government form 1040x Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. Us government form 1040x Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. Us government form 1040x The wages Mark earns working for the school are included in his income. Us government form 1040x Foreign Employer Special rules apply if you work for a foreign employer. Us government form 1040x U. Us government form 1040x S. Us government form 1040x citizen. Us government form 1040x   If you are a U. Us government form 1040x S. Us government form 1040x citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. Us government form 1040x Social security and Medicare taxes. Us government form 1040x   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. Us government form 1040x However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. Us government form 1040x This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. Us government form 1040x Employees of international organizations or foreign governments. Us government form 1040x   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Us government form 1040x   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. Us government form 1040x You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Us government form 1040x Your work is like the work done by employees of the United States in foreign countries. Us government form 1040x The foreign government gives an equal exemption to employees of the United States in its country. Us government form 1040x Waiver of alien status. Us government form 1040x   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. Us government form 1040x See Foreign Employer in Publication 525. Us government form 1040x Employment abroad. Us government form 1040x   For information on the tax treatment of income earned abroad, see Publication 54. Us government form 1040x Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. Us government form 1040x Allowances generally are not taxed. Us government form 1040x For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. Us government form 1040x Differential wage payments. Us government form 1040x   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. Us government form 1040x These wages are subject to income tax withholding and are reported on a Form W-2. Us government form 1040x See the discussion under Miscellaneous Compensation , earlier. Us government form 1040x Military retirement pay. Us government form 1040x   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Us government form 1040x Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. Us government form 1040x   For more detailed discussion of survivor annuities, see chapter 10. Us government form 1040x Disability. Us government form 1040x   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. Us government form 1040x Veterans' benefits. Us government form 1040x   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). Us government form 1040x The following amounts paid to veterans or their families are not taxable. Us government form 1040x Education, training, and subsistence allowances. Us government form 1040x Disability compensation and pension payments for disabilities paid either to veterans or their families. Us government form 1040x Grants for homes designed for wheelchair living. Us government form 1040x Grants for motor vehicles for veterans who lost their sight or the use of their limbs. Us government form 1040x Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. Us government form 1040x Interest on insurance dividends you leave on deposit with the VA. Us government form 1040x Benefits under a dependent-care assistance program. Us government form 1040x The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. Us government form 1040x Payments made under the compensated work therapy program. Us government form 1040x Any bonus payment by a state or political subdivision because of service in a combat zone. Us government form 1040x Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. Us government form 1040x Peace Corps. Us government form 1040x   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. Us government form 1040x Taxable allowances. Us government form 1040x   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. Us government form 1040x Living allowances designated by the Director of the Peace Corps as basic compensation. Us government form 1040x These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. Us government form 1040x Leave allowances. Us government form 1040x Readjustment allowances or termination payments. Us government form 1040x These are considered received by you when credited to your account. Us government form 1040x Example. Us government form 1040x Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. Us government form 1040x Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. Us government form 1040x Volunteers in Service to America (VISTA). Us government form 1040x   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. Us government form 1040x National Senior Services Corps programs. Us government form 1040x   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. Us government form 1040x Retired Senior Volunteer Program (RSVP). Us government form 1040x Foster Grandparent Program. Us government form 1040x Senior Companion Program. Us government form 1040x Service Corps of Retired Executives (SCORE). Us government form 1040x   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. Us government form 1040x Volunteer tax counseling. Us government form 1040x   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). Us government form 1040x   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. Us government form 1040x See chapter 24. Us government form 1040x Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. Us government form 1040x In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Us government form 1040x If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Us government form 1040x However, certain payments may not be taxable to you. Us government form 1040x Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. Us government form 1040x In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. Us government form 1040x Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. Us government form 1040x Cost paid by you. Us government form 1040x   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Us government form 1040x If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Us government form 1040x See Reimbursement in a later year in chapter 21. Us government form 1040x Cafeteria plans. Us government form 1040x   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. Us government form 1040x If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. Us government form 1040x Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Us government form 1040x You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. Us government form 1040x Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Us government form 1040x You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Us government form 1040x For information on this credit and the definition of permanent and total disability, see chapter 33. Us government form 1040x Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Us government form 1040x Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Us government form 1040x The rules for reporting pensions are explained in How To Report in chapter 10. Us government form 1040x For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. Us government form 1040x Retirement and profit-sharing plans. Us government form 1040x   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Us government form 1040x The payments must be reported as a pension or annuity. Us government form 1040x For more information on pensions, see chapter 10. Us government form 1040x Accrued leave payment. Us government form 1040x   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Us government form 1040x The payment is not a disability payment. Us government form 1040x Include it in your income in the tax year you receive it. Us government form 1040x Military and Government Disability Pensions Certain military and government disability pensions are not taxable. Us government form 1040x Service-connected disability. Us government form 1040x   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. Us government form 1040x The armed forces of any country. Us government form 1040x The National Oceanic and Atmospheric Administration. Us government form 1040x The Public Health Service. Us government form 1040x The Foreign Service. Us government form 1040x Conditions for exclusion. Us government form 1040x   Do not include the disability payments in your income if any of the following conditions apply. Us government form 1040x You were entitled to receive a disability payment before September 25, 1975. Us government form 1040x You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. Us government form 1040x You receive the disability payments for a combat-related injury. Us government form 1040x This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. Us government form 1040x You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. Us government form 1040x Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. Us government form 1040x Pension based on years of service. Us government form 1040x   If you receive a disability pension based on years of service, in most cases you must include it in your income. Us government form 1040x However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. Us government form 1040x You must include the rest of your pension in your income. Us government form 1040x Retroactive VA determination. Us government form 1040x   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. Us government form 1040x You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. Us government form 1040x You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. Us government form 1040x The letter must show the amount withheld and the effective date of the benefit. Us government form 1040x   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. Us government form 1040x However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. Us government form 1040x Special statute of limitations. Us government form 1040x   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. Us government form 1040x However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. Us government form 1040x This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. Us government form 1040x Example. Us government form 1040x You retired in 2007 and receive a pension based on your years of service. Us government form 1040x On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. Us government form 1040x Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. Us government form 1040x However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. Us government form 1040x You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. Us government form 1040x Terrorist attack or military action. Us government form 1040x   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. Us government form 1040x Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. Us government form 1040x Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. Us government form 1040x To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. Us government form 1040x A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. Us government form 1040x The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Us government form 1040x Qualified long-term care services. Us government form 1040x   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. Us government form 1040x Chronically ill individual. Us government form 1040x   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. Us government form 1040x Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Us government form 1040x An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Us government form 1040x Limit on exclusion. Us government form 1040x   You generally can exclude from gross income up to $320 a day for 2013. Us government form 1040x See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. Us government form 1040x Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Us government form 1040x The exemption also applies to your survivors. Us government form 1040x The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Us government form 1040x If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Us government form 1040x For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Us government form 1040x Return to work. Us government form 1040x    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Us government form 1040x Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Us government form 1040x Railroad sick pay. Us government form 1040x    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. Us government form 1040x However, do not include them in your income if they are for an on-the-job injury. Us government form 1040x   If you received income because of a disability, see Disability Pensions , earlier. Us government form 1040x Federal Employees' Compensation Act (FECA). Us government form 1040x   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Us government form 1040x However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Us government form 1040x Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. Us government form 1040x Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Us government form 1040x    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Us government form 1040x For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. Us government form 1040x    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. Us government form 1040x It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). Us government form 1040x If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. Us government form 1040x Do not deduct it separately. Us government form 1040x Other compensation. Us government form 1040x   Many other amounts you receive as compensation for sickness or injury are not taxable. Us government form 1040x These include the following amounts. Us government form 1040x Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. Us government form 1040x Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Us government form 1040x Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Us government form 1040x Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. Us government form 1040x This compensation must be based only on the injury and not on the period of your absence from work. Us government form 1040x These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Us government form 1040x Reimbursement for medical care. Us government form 1040x    A reimbursement for medical care is generally not taxable. Us government form 1040x However, it may reduce your medical expense deduction. Us government form 1040x For more information, see chapter 21. Us government form 1040x Prev  Up  Next   Home   More Online Publications
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Form 1040, U.S. Individual Income Tax Return (PDF)
Annual income tax return filed by citizens or residents of the United States
Related: Instructions for Form 1040 (PDF)  Tax Tables (PDF)

Additional forms and schedules for filing Form 1040  

Form 1040A, U.S. Individual Income Tax Return (PDF)
Shorter version of Form 1040 allows you to report limited types of income and to claim certain adjustments. You cannot itemize deductions if you file Form 1040-A
Related: Instructions for Form 1040A (PDF)

Form 1040-ES, Estimated Tax for Individuals (PDF)
Figure and pay your estimated tax on income that is not subject to withholding (for example, earnings from self-employment, interest, dividends, rents, alimony, etc.)
Related: Instructions for Form 1040-ES (PDF)

Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents (PDF)
Simplest individual income tax return form to fill out. If you file Form 1040EZ, you cannot itemize deductions or claim any adjustments to income or tax credits (other than the earned income credit).
Related: Instructions for 1040EZ (PDF)

Need help choosing the right 1040 for your situation? Use the Interactive Tax Assistant (ITA) or read Which Form - 1040, 1040-A, or 1040-EZ?

Form W-4, Employee's Withholding Allowance Certificate (PDF)
Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when your personal or financial situation changes.
Related: Withholding Calculator

Form W-9, Request for Taxpayer Identification Number (TIN) and Certification (PDF)
Provide your correct SSN or other TIN to the person who is required to file an information return with the IRS to report, for example, income paid to you, real estate transactions, mortgage interest you paid, acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA.
Related: Instructions for the Requestor of Form W-9 (PDF)  

Publication 15 (Circular E), Employer's Tax Guide (PDF)
Explains your tax responsibilities as an employer. It also includes tax tables that you need to figure the taxes to withhold from each employee.
Related: Read Pub 15 Online

Publication 17, Your Federal Income Tax (PDF)
Explains the general rules for filing a federal income tax return. It supplements the information contained in your tax form instruction booklet. It explains the tax law to make sure you pay only the tax you owe and no more.
Related: Read Pub 17 Online

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Page Last Reviewed or Updated: 28-Jan-2014

The Us Government Form 1040x

Us government form 1040x Publication 15-A - Main Content Table of Contents 1. Us government form 1040x Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Us government form 1040x Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Us government form 1040x Employees of Exempt OrganizationsSocial security and Medicare taxes. Us government form 1040x FUTA tax. Us government form 1040x 4. Us government form 1040x Religious Exemptions and Special Rules for MinistersForm W-2. Us government form 1040x Self-employed. Us government form 1040x Employees. Us government form 1040x 5. Us government form 1040x Wages and Other CompensationRelocating for Temporary Work Assignments Employee Achievement Awards Scholarship and Fellowship Payments Outplacement Services Withholding for Idle Time Back Pay Supplemental Unemployment Benefits Golden Parachute Payments Interest-Free and Below-Market-Interest-Rate Loans Leave Sharing Plans Nonqualified Deferred Compensation Plans Tax-Sheltered Annuities Contributions to a Simplified Employee Pension (SEP) SIMPLE Retirement Plans 6. Us government form 1040x Sick Pay ReportingSick Pay Payments That Are Not Sick Pay Sick Pay Plan Third-Party Payers of Sick Pay Social Security, Medicare, and FUTA Taxes on Sick Pay Income Tax Withholding on Sick Pay Depositing and Reporting Example of Figuring and Reporting Sick Pay 7. Us government form 1040x Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Us government form 1040x Pensions and AnnuitiesFederal Income Tax Withholding 9. Us government form 1040x Alternative Methods for Figuring WithholdingTerm of continuous employment. Us government form 1040x Formula Tables for Percentage Method Withholding (for Automated Payroll Systems) Wage Bracket Percentage Method Tables (for Automated Payroll Systems) Combined Federal Income Tax, Employee Social Security Tax, and Employee Medicare Tax Withholding Tables 10. Us government form 1040x Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Us government form 1040x Who Are Employees? Before you can know how to treat payments that you make to workers for services, you must first know the business relationship that exists between you and the person performing the services. Us government form 1040x The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Us government form 1040x This discussion explains these four categories. Us government form 1040x A later discussion, Employee or Independent Contractor in section 2, points out the differences between an independent contractor and an employee and gives examples from various types of occupations. Us government form 1040x If an individual who works for you is not an employee under the common-law rules (see section 2), you generally do not have to withhold federal income tax from that individual's pay. Us government form 1040x However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Us government form 1040x See Publication 15 (Circular E) for information on backup withholding. Us government form 1040x Independent Contractors People such as doctors, veterinarians, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. Us government form 1040x However, whether such people are employees or independent contractors depends on the facts in each case. Us government form 1040x The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Us government form 1040x Common-Law Employees Under common-law rules, anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. Us government form 1040x This is so even when you give the employee freedom of action. Us government form 1040x What matters is that you have the right to control the details of how the services are performed. Us government form 1040x For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. Us government form 1040x If you have an employer-employee relationship, it makes no difference how it is labeled. Us government form 1040x The substance of the relationship, not the label, governs the worker's status. Us government form 1040x It does not matter whether the individual is employed full time or part time. Us government form 1040x For employment tax purposes, no distinction is made between classes of employees. Us government form 1040x Superintendents, managers, and other supervisory personnel are all employees. Us government form 1040x An officer of a corporation is generally an employee; however, an officer who performs no services or only minor services, and neither receives nor is entitled to receive any pay, is not considered an employee. Us government form 1040x A director of a corporation is not an employee with respect to services performed as a director. Us government form 1040x You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. Us government form 1040x However, the wages of certain employees may be exempt from one or more of these taxes. Us government form 1040x See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Us government form 1040x Leased employees. Us government form 1040x   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Us government form 1040x For example, a temporary staffing service may provide the services of secretaries, nurses, and other similarly trained workers to its clients on a temporary basis. Us government form 1040x   The staffing service enters into contracts with the clients under which the clients specify the services to be provided and a fee is paid to the staffing service for each individual furnished. Us government form 1040x The staffing service has the right to control and direct the worker's services for the client, including the right to discharge or reassign the worker. Us government form 1040x The staffing service hires the workers, controls the payment of their wages, provides them with unemployment insurance and other benefits, and is the employer for employment tax purposes. Us government form 1040x For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. Us government form 1040x Additional information. Us government form 1040x   For more information about the treatment of special types of employment, the treatment of special types of payments, and similar subjects, see Publication 15 (Circular E) or Publication 51 (Circular A), Agricultural Employer's Tax Guide. Us government form 1040x Statutory Employees If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute, (also known as “statutory employees”) for certain employment tax purposes. Us government form 1040x This would happen if they fall within any one of the following four categories and meet the three conditions described next under Social security and Medicare taxes . Us government form 1040x A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission. Us government form 1040x A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company. Us government form 1040x An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. Us government form 1040x A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. Us government form 1040x The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Us government form 1040x The work performed for you must be the salesperson's principal business activity. Us government form 1040x See Salesperson in section 2. Us government form 1040x Social security and Medicare taxes. Us government form 1040x   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Us government form 1040x The service contract states or implies that substantially all the services are to be performed personally by them. Us government form 1040x They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation, such as a car or truck). Us government form 1040x The services are performed on a continuing basis for the same payer. Us government form 1040x Federal unemployment (FUTA) tax. Us government form 1040x   For FUTA tax (the unemployment tax paid under the Federal Unemployment Tax Act), the term “employee” means the same as it does for social security and Medicare taxes, except that it does not include statutory employees defined above in categories 2 and 3. Us government form 1040x Any individual who is a statutory employee described above under category 1 or 4 is also an employee for FUTA tax purposes and subject to FUTA tax. Us government form 1040x Income tax. Us government form 1040x   Do not withhold federal income tax from the wages of statutory employees. Us government form 1040x Reporting payments to statutory employees. Us government form 1040x   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Us government form 1040x Show your payments to the employee as “other compensation” in box 1. Us government form 1040x Also, show social security wages in box 3, social security tax withheld in box 4, Medicare wages in box 5, and Medicare tax withheld in box 6. Us government form 1040x The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Us government form 1040x He or she reports earnings as a statutory employee on line 1 of Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Us government form 1040x A statutory employee's business expenses are deductible on Schedule C (Form 1040) or C-EZ (Form 1040) and are not subject to the reduction by 2% of his or her adjusted gross income that applies to common-law employees. Us government form 1040x H-2A agricultural workers. Us government form 1040x   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Us government form 1040x Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Us government form 1040x Direct sellers and licensed real estate agents are treated as self-employed for all federal tax purposes, including income and employment taxes, if: Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and Their services are performed under a written contract providing that they will not be treated as employees for federal tax purposes. Us government form 1040x Direct sellers. Us government form 1040x   Direct sellers include persons falling within any of the following three groups. Us government form 1040x Persons engaged in selling (or soliciting the sale of) consumer products in the home or place of business other than in a permanent retail establishment. Us government form 1040x Persons engaged in selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis prescribed by regulations, for resale in the home or at a place of business other than in a permanent retail establishment. Us government form 1040x Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution). Us government form 1040x   Direct selling includes activities of individuals who attempt to increase direct sales activities of their direct sellers and who earn income based on the productivity of their direct sellers. Us government form 1040x Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Us government form 1040x Licensed real estate agents. Us government form 1040x   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Us government form 1040x Companion sitters. Us government form 1040x   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Us government form 1040x A person engaged in the trade or business of putting the sitters in touch with individuals who wish to employ them (that is, a companion sitting placement service) will not be treated as the employer of the sitters if that person does not receive or pay the salary or wages of the sitters and is compensated by the sitters or the persons who employ them on a fee basis. Us government form 1040x Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Us government form 1040x Misclassification of Employees Consequences of treating an employee as an independent contractor. Us government form 1040x   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you are liable for employment taxes for that worker and the relief provision, discussed next, will not apply. Us government form 1040x See section 2 in Publication 15 (Circular E) for more information. Us government form 1040x Relief provision. Us government form 1040x   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Us government form 1040x To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Us government form 1040x You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Us government form 1040x Technical service specialists. Us government form 1040x   This relief provision does not apply for a technical services specialist you provide to another business under an arrangement between you and the other business. Us government form 1040x A technical service specialist is an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work. Us government form 1040x   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. Us government form 1040x The common-law rules control whether the specialist is treated as an employee or an independent contractor. Us government form 1040x However, if you directly contract with a technical service specialist to provide services for your business and not for another business, you may still be entitled to the relief provision. Us government form 1040x Test proctors and room supervisors. Us government form 1040x   The consistent treatment requirement does not apply to services performed after December 31, 2006, by an individual as a test proctor or room supervisor assisting in the administration of college entrance or placement examinations if the individual: Is performing the services for a section 501(c) organization exempt from tax under section 501(a) of the code, and Is not otherwise treated as an employee of the organization for employment taxes. Us government form 1040x Voluntary Classification Settlement Program (VCSP). Us government form 1040x   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Us government form 1040x To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Us government form 1040x For more information, visit IRS. Us government form 1040x gov and enter “VCSP” in the search box. Us government form 1040x 2. Us government form 1040x Employee or Independent Contractor? An employer must generally withhold federal income taxes, withhold and pay over social security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Us government form 1040x An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Us government form 1040x Common-Law Rules To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. Us government form 1040x In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Us government form 1040x Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Us government form 1040x These facts are discussed next. Us government form 1040x Behavioral control. Us government form 1040x   Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: Instructions that the business gives to the worker. Us government form 1040x   An employee is generally subject to the business' instructions about when, where, and how to work. Us government form 1040x All of the following are examples of types of instructions about how to do work. Us government form 1040x When and where to do the work. Us government form 1040x What tools or equipment to use. Us government form 1040x What workers to hire or to assist with the work. Us government form 1040x Where to purchase supplies and services. Us government form 1040x What work must be performed by a specified  individual. Us government form 1040x What order or sequence to follow. Us government form 1040x   The amount of instruction needed varies among different jobs. Us government form 1040x Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. Us government form 1040x A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Us government form 1040x The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. Us government form 1040x Training that the business gives to the worker. Us government form 1040x   An employee may be trained to perform services in a particular manner. Us government form 1040x Independent contractors ordinarily use their own methods. Us government form 1040x Financial control. Us government form 1040x   Facts that show whether the business has a right to control the business aspects of the worker's job include: The extent to which the worker has unreimbursed business expenses. Us government form 1040x   Independent contractors are more likely to have unreimbursed expenses than are employees. Us government form 1040x Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Us government form 1040x However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Us government form 1040x The extent of the worker's investment. Us government form 1040x   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Us government form 1040x However, a significant investment is not necessary for independent contractor status. Us government form 1040x The extent to which the worker makes his or her services available to the relevant market. Us government form 1040x   An independent contractor is generally free to seek out business opportunities. Us government form 1040x Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Us government form 1040x How the business pays the worker. Us government form 1040x   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Us government form 1040x This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Us government form 1040x An independent contractor is often paid a flat fee or on a time and materials basis for the job. Us government form 1040x However, it is common in some professions, such as law, to pay independent contractors hourly. Us government form 1040x The extent to which the worker can realize a profit or loss. Us government form 1040x   An independent contractor can make a profit or loss. Us government form 1040x Type of relationship. Us government form 1040x   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Us government form 1040x Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Us government form 1040x The permanency of the relationship. Us government form 1040x If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship. Us government form 1040x The extent to which services performed by the worker are a key aspect of the regular business of the company. Us government form 1040x If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. Us government form 1040x For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. Us government form 1040x This would indicate an employer-employee relationship. Us government form 1040x IRS help. Us government form 1040x   If you want the IRS to determine whether or not a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. Us government form 1040x Industry Examples The following examples may help you properly classify your workers. Us government form 1040x Building and Construction Industry Example 1. Us government form 1040x Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Us government form 1040x She did not advance funds to help him carry on the work. Us government form 1040x She makes direct payments to the suppliers for all necessary materials. Us government form 1040x She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Us government form 1040x She pays them an hourly rate and exercises almost constant supervision over the work. Us government form 1040x Jerry is not free to transfer his assistants to other jobs. Us government form 1040x He may not work on other jobs while working for Wilma. Us government form 1040x He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Us government form 1040x He and his assistants perform personal services for hourly wages. Us government form 1040x Jerry Jones and his assistants are employees of Wilma White. Us government form 1040x Example 2. Us government form 1040x Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Us government form 1040x He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Us government form 1040x The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Us government form 1040x He does not have a place of business or hold himself out to perform similar services for others. Us government form 1040x Either party can end the services at any time. Us government form 1040x Milton Manning is an employee of the corporation. Us government form 1040x Example 3. Us government form 1040x Wallace Black agreed with the Sawdust Co. Us government form 1040x to supply the construction labor for a group of houses. Us government form 1040x The company agreed to pay all construction costs. Us government form 1040x However, he supplies all the tools and equipment. Us government form 1040x He performs personal services as a carpenter and mechanic for an hourly wage. Us government form 1040x He also acts as superintendent and foreman and engages other individuals to assist him. Us government form 1040x The company has the right to select, approve, or discharge any helper. Us government form 1040x A company representative makes frequent inspections of the construction site. Us government form 1040x When a house is finished, Wallace is paid a certain percentage of its costs. Us government form 1040x He is not responsible for faults, defects of construction, or wasteful operation. Us government form 1040x At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Us government form 1040x The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Us government form 1040x Wallace Black and his assistants are employees of the Sawdust Co. Us government form 1040x Example 4. Us government form 1040x Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Us government form 1040x A signed contract established a flat amount for the services rendered by Bill Plum. Us government form 1040x Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Us government form 1040x He hires his own roofers who are treated as employees for federal employment tax purposes. Us government form 1040x If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Us government form 1040x Bill Plum, doing business as Plum Roofing, is an independent contractor. Us government form 1040x Example 5. Us government form 1040x Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Us government form 1040x She is to receive $1,280 every 2 weeks for the next 10 weeks. Us government form 1040x This is not considered payment by the hour. Us government form 1040x Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Us government form 1040x She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Us government form 1040x Vera is an independent contractor. Us government form 1040x Trucking Industry Example. Us government form 1040x Rose Trucking contracts to deliver material for Forest, Inc. Us government form 1040x , at $140 per ton. Us government form 1040x Rose Trucking is not paid for any articles that are not delivered. Us government form 1040x At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Us government form 1040x All operating expenses, including insurance coverage, are paid by Jan Rose. Us government form 1040x All equipment is owned or rented by Jan and she is responsible for all maintenance. Us government form 1040x None of the drivers are provided by Forest, Inc. Us government form 1040x Jan Rose, operating as Rose Trucking, is an independent contractor. Us government form 1040x Computer Industry Example. Us government form 1040x Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Us government form 1040x , downsizes. Us government form 1040x Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Us government form 1040x It is not clear how long that it will take to complete the project, and Steve is not guaranteed any minimum payment for the hours spent on the program. Us government form 1040x Megabyte provides Steve with no instructions beyond the specifications for the product itself. Us government form 1040x Steve and Megabyte have a written contract, which provides that Steve is considered to be an independent contractor, is required to pay federal and state taxes, and receives no benefits from Megabyte. Us government form 1040x Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Us government form 1040x Steve works at home and is not expected or allowed to attend meetings of the software development group. Us government form 1040x Steve is an independent contractor. Us government form 1040x Automobile Industry Example 1. Us government form 1040x Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Us government form 1040x She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Us government form 1040x She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Us government form 1040x Lists of prospective customers belong to the dealer. Us government form 1040x She is required to develop leads and report results to the sales manager. Us government form 1040x Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Us government form 1040x She is paid a commission and is eligible for prizes and bonuses offered by Bob. Us government form 1040x Bob also pays the cost of health insurance and group-term life insurance for Donna. Us government form 1040x Donna is an employee of Bob Blue. Us government form 1040x Example 2. Us government form 1040x Sam Sparks performs auto repair services in the repair department of an auto sales company. Us government form 1040x He works regular hours and is paid on a percentage basis. Us government form 1040x He has no investment in the repair department. Us government form 1040x The sales company supplies all facilities, repair parts, and supplies; issues instructions on the amounts to be charged, parts to be used, and the time for completion of each job; and checks all estimates and repair orders. Us government form 1040x Sam is an employee of the sales company. Us government form 1040x Example 3. Us government form 1040x An auto sales agency furnishes space for Helen Bach to perform auto repair services. Us government form 1040x She provides her own tools, equipment, and supplies. Us government form 1040x She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. Us government form 1040x She hires and discharges her own helpers, determines her own and her helpers' working hours, quotes prices for repair work, makes all necessary adjustments, assumes all losses from uncollectible accounts, and receives, as compensation for her services, a large percentage of the gross collections from the auto repair shop. Us government form 1040x Helen is an independent contractor and the helpers are her employees. Us government form 1040x Attorney Example. Us government form 1040x Donna Yuma is a sole practitioner who rents office space and pays for the following items: telephone, computer, on-line legal research linkup, fax machine, and photocopier. Us government form 1040x Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Us government form 1040x Donna has a part-time receptionist who also does the bookkeeping. Us government form 1040x She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Us government form 1040x For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Us government form 1040x Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Us government form 1040x The bills include charges for long distance calls, on-line research time, fax charges, photocopies, postage, and travel, costs for which the corporations have agreed to reimburse her. Us government form 1040x Donna is an independent contractor. Us government form 1040x Taxicab Driver Example. Us government form 1040x Tom Spruce rents a cab from Taft Cab Co. Us government form 1040x for $150 per day. Us government form 1040x He pays the costs of maintaining and operating the cab. Us government form 1040x Tom Spruce keeps all fares that he receives from customers. Us government form 1040x Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. Us government form 1040x Tom Spruce is an independent contractor. Us government form 1040x Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Us government form 1040x If a salesperson who works for you does not meet the tests for a common-law employee, discussed earlier in this section, you do not have to withhold federal income tax from his or her pay (see Statutory Employees in section 1). Us government form 1040x However, even if a salesperson is not an employee under the usual common-law rules for income tax withholding, his or her pay may still be subject to social security, Medicare, and FUTA taxes as a statutory employee. Us government form 1040x To determine whether a salesperson is an employee for social security, Medicare, and FUTA tax purposes, the salesperson must meet all eight elements of the statutory employee test. Us government form 1040x A salesperson is a statutory employee for social security, Medicare, and FUTA tax purposes if he or she: Works full time for one person or company except, possibly, for sideline sales activities on behalf of some other person, Sells on behalf of, and turns his or her orders over to, the person or company for which he or she works, Sells to wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments, Sells merchandise for resale, or supplies for use in the customer's business, Agrees to do substantially all of this work personally, Has no substantial investment in the facilities used to do the work, other than in facilities for transportation, Maintains a continuing relationship with the person or company for which he or she works, and Is not an employee under common-law rules. Us government form 1040x 3. Us government form 1040x Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Us government form 1040x Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. Us government form 1040x However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Us government form 1040x Section 501(c)(3) organizations. Us government form 1040x   Nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code include any community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Us government form 1040x These organizations are usually corporations and are exempt from federal income tax under section 501(a). Us government form 1040x Social security and Medicare taxes. Us government form 1040x   Wages paid to employees of section 501(c)(3) organizations are subject to social security and Medicare taxes unless one of the following situations applies. Us government form 1040x The organization pays an employee less than $100 in a calendar year. Us government form 1040x The organization is a church or church-controlled organization opposed for religious reasons to the payment of social security and Medicare taxes and has filed Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes, to elect exemption from social security and Medicare taxes. Us government form 1040x The organization must have filed for exemption before the first date on which a quarterly employment tax return (Form 941) or annual employment tax return (Form 944) would otherwise be due. Us government form 1040x   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes must pay self-employment tax if the employee is paid $108. Us government form 1040x 28 or more in a year. Us government form 1040x However, an employee who is a member of a qualified religious sect can apply for an exemption from the self-employment tax by filing Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Us government form 1040x See Members of recognized religious sects opposed to insurance in section 4. Us government form 1040x FUTA tax. Us government form 1040x   An organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from FUTA tax. Us government form 1040x This exemption cannot be waived. Us government form 1040x Do not file Form 940 to report wages paid by these organizations or pay the tax. Us government form 1040x Note. Us government form 1040x An organization wholly owned by a state or its political subdivision should contact the appropriate state official for information about reporting and getting social security and Medicare coverage for its employees. Us government form 1040x Other than section 501(c)(3) organizations. Us government form 1040x   Nonprofit organizations that are not section 501(c)(3) organizations may also be exempt from federal income tax under section 501(a) or section 521. Us government form 1040x However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. Us government form 1040x Two special rules for social security, Medicare, and FUTA taxes apply. Us government form 1040x If an employee is paid less than $100 during a calendar year, his or her wages are not subject to social security and Medicare taxes. Us government form 1040x If an employee is paid less than $50 in a calendar quarter, his or her wages are not subject to FUTA tax for the quarter. Us government form 1040x The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Us government form 1040x 4. Us government form 1040x Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Us government form 1040x An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. Us government form 1040x For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Us government form 1040x Ministers. Us government form 1040x   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Us government form 1040x They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances and sacraments according to the prescribed tenets and practices of that religious organization. Us government form 1040x   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Us government form 1040x The common-law rules discussed in section 1 and section 2 should be applied to determine whether a minister is your employee or is self-employed. Us government form 1040x Whether the minister is an employee or self-employed, the earnings of a minister are not subject to federal income, social security, and Medicare tax withholding. Us government form 1040x However, even if the minister is a common law employee, the earnings as reported on the minister's Form 1040 are subject to self-employment tax and federal income tax. Us government form 1040x You do not withhold these taxes from wages earned by a minister, but if the minister is your employee, you may agree with the minister to voluntarily withhold tax to cover the minister's liability for self-employment tax and federal income tax. Us government form 1040x For more information, see Publication 517. Us government form 1040x Form W-2. Us government form 1040x   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Us government form 1040x Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Us government form 1040x Do not include a parsonage allowance (excludable housing allowance) in this amount. Us government form 1040x You may report a designated parsonage or rental allowance (housing allowance) and a utilities allowance, or the rental value of housing provided in a separate statement or in box 14 on Form W-2. Us government form 1040x Do not show on Form W-2, Form 941, or Form 944 any amount as social security or Medicare wages, or any withholding for social security or Medicare taxes. Us government form 1040x If you withheld federal income tax from the minister under a voluntary agreement, this amount should be shown in box 2 on Form W-2 as federal income tax withheld. Us government form 1040x For more information on ministers, see Publication 517. Us government form 1040x Exemptions for ministers and others. Us government form 1040x   Certain ordained ministers, Christian Science practitioners, and members of religious orders who have not taken a vow of poverty may apply to exempt their earnings from self-employment tax on religious grounds. Us government form 1040x The application must be based on conscientious opposition because of personal considerations to public insurance that makes payments in the event of death, disability, old age, or retirement, or that makes payments toward the cost of, or provides services for, medical care, including social security and Medicare benefits. Us government form 1040x The exemption applies only to qualified services performed for the religious organization. Us government form 1040x See Revenue Procedure 91-20, 1991-1 C. Us government form 1040x B. Us government form 1040x 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Us government form 1040x   To apply for the exemption, the employee should file Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. Us government form 1040x See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Us government form 1040x Members of recognized religious sects opposed to insurance. Us government form 1040x   If you belong to a recognized religious sect or to a division of such sect that is opposed to insurance, you may qualify for an exemption from the self-employment tax. Us government form 1040x To qualify, you must be conscientiously opposed to accepting the benefits of any public or private insurance that makes payments because of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care (including social security and Medicare benefits). Us government form 1040x If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Us government form 1040x Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Us government form 1040x In addition, your religious sect (or division) must have existed since December 31, 1950. Us government form 1040x Self-employed. Us government form 1040x   If you are self-employed and a member of a recognized religious sect opposed to insurance, you can apply for exemption by filing Form 4029 to waive all social security and Medicare benefits. Us government form 1040x Employees. Us government form 1040x   The social security and Medicare tax exemption available to the self-employed who are members of a recognized religious sect opposed to insurance is also available to their employees who are members of such a sect. Us government form 1040x This applies to partnerships only if each partner is a member of the sect. Us government form 1040x This exemption for employees applies only if both the employee and the employer are members of such a sect, and the employer has an exemption. Us government form 1040x To get the exemption, the employee must file Form 4029. Us government form 1040x   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes can also apply for an exemption on Form 4029. Us government form 1040x 5. Us government form 1040x Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Us government form 1040x Publication 15-B discusses fringe benefits. Us government form 1040x The following topics supplement those discussions. Us government form 1040x Relocating for Temporary Work Assignments If an employee is given a temporary work assignment away from his or her regular place of work, certain travel expenses reimbursed or paid directly by the employer in accordance with an accountable plan (see section 5 in Publication 15 (Circular E)) may be excludable from the employee's wages. Us government form 1040x Generally, a temporary work assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Us government form 1040x If the employee's new work assignment is indefinite, any living expenses reimbursed or paid by the employer (other than qualified moving expenses) must be included in the employee's wages as compensation. Us government form 1040x For the travel expenses to be excludable: The new work location must be outside of the city or general area of the employee's regular work place or post of duty, The travel expenses must otherwise qualify as deductible by the employee, and The expenses must be for the period during which the employee is at the temporary work location. Us government form 1040x If you reimburse or pay any personal expenses of an employee during his or her temporary work assignment, such as expenses for home leave for family members or for vacations, these amounts must be included in the employee's wages. Us government form 1040x See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Us government form 1040x These rules generally apply to temporary work assignments both inside and outside the U. Us government form 1040x S. Us government form 1040x Employee Achievement Awards Do not withhold federal income, social security, or Medicare taxes on the fair market value of an employee achievement award if it is excludable from your employee's gross income. Us government form 1040x To be excludable from your employee's gross income, the award must be tangible personal property (not cash, gift certificates, or securities) given to an employee for length of service or safety achievement, awarded as part of a meaningful presentation, and awarded under circumstances that do not indicate that the payment is disguised compensation. Us government form 1040x Excludable employee achievement awards also are not subject to FUTA tax. Us government form 1040x Limits. Us government form 1040x   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Us government form 1040x A higher limit of $1,600 applies to qualified plan awards. Us government form 1040x Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Us government form 1040x An award cannot be treated as a qualified plan award if the average cost per recipient of all awards under all of your qualified plans is more than $400. Us government form 1040x   If during the year an employee receives awards not made under a qualified plan and also receives awards under a qualified plan, the exclusion for the total cost of all awards to that employee cannot be more than $1,600. Us government form 1040x The $400 and $1,600 limits cannot be added together to exclude more than $1,600 for the cost of awards to any one employee during the year. Us government form 1040x Scholarship and Fellowship Payments Only amounts that you pay as a qualified scholarship to a candidate for a degree may be excluded from the recipient's gross income. Us government form 1040x A qualified scholarship is any amount granted as a scholarship or fellowship that is used for: Tuition and fees required to enroll in, or to attend, an educational institution, or Fees, books, supplies, and equipment that are required for courses at the educational institution. Us government form 1040x The exclusion from income does not apply to the portion of any amount received that represents payment for teaching, research, or other services required as a condition of receiving the scholarship or tuition reduction. Us government form 1040x These amounts are reportable on Form W-2. Us government form 1040x However, the exclusion will still apply for any amount received under two specific programs—the National Health Service Corps Scholarship Program and the Armed Forces Health Professions Scholarship and Financial Assistance Program—despite any service condition attached to those amounts. Us government form 1040x Any amounts that you pay for room and board are not excludable from the recipient's gross income. Us government form 1040x A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Us government form 1040x For more information, see Publication 970, Tax Benefits for Education. Us government form 1040x Outplacement Services If you provide outplacement services to your employees to help them find new employment (such as career counseling, resume assistance, or skills assessment), the value of these benefits may be income to them and subject to all withholding taxes. Us government form 1040x However, the value of these services will not be subject to any employment taxes if: You derive a substantial business benefit from providing the services (such as improved employee morale or business image) separate from the benefit that you would receive from the mere payment of additional compensation, and The employee would be able to deduct the cost of the services as employee business expenses if he or she had paid for them. Us government form 1040x However, if you receive no additional benefit from providing the services, or if the services are not provided on the basis of employee need, then the value of the services is treated as wages and is subject to federal income tax withholding and social security and Medicare taxes. Us government form 1040x Similarly, if an employee receives the outplacement services in exchange for reduced severance pay (or other taxable compensation), then the amount the severance pay is reduced is treated as wages for employment tax purposes. Us government form 1040x Withholding for Idle Time Payments made under a voluntary guarantee to employees for idle time (any time during which an employee performs no services) are wages for the purposes of social security, Medicare, and FUTA taxes, and federal income tax withholding. Us government form 1040x Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Us government form 1040x If back pay was awarded by a court or government agency to enforce a federal or state statute protecting an employee's right to employment or wages, special rules apply for reporting those wages to the Social Security Administration. Us government form 1040x These rules also apply to litigation actions and settlement agreements or agency directives that are resolved out of court and not under a court decree or order. Us government form 1040x Examples of pertinent statutes include, but are not limited to, the National Labor Relations Act, Fair Labor Standards Act, Equal Pay Act, and Age Discrimination in Employment Act. Us government form 1040x See Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration, and Form SSA-131, Employer Report of Special Wage Payments, for details. Us government form 1040x Supplemental Unemployment Benefits If you pay, under a plan, supplemental unemployment benefits to a former employee, all or part of the payments may be taxable and subject to federal income tax withholding, depending on how the plan is funded. Us government form 1040x Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Us government form 1040x You should withhold federal income tax on the taxable part of the payments made, under a plan, to an employee who is involuntarily separated because of a reduction in force, discontinuance of a plant or operation, or other similar condition. Us government form 1040x It does not matter whether the separation is temporary or permanent. Us government form 1040x There are special rules that apply in determining whether benefits qualify as supplemental unemployment benefits that are excluded from wages for social security, Medicare, and FUTA tax purposes. Us government form 1040x To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Us government form 1040x Benefits are paid only to unemployed former employees who are laid off by the employer. Us government form 1040x Eligibility for benefits depends on meeting prescribed conditions after termination. Us government form 1040x The amount of weekly benefits payable is based upon state unemployment benefits, other compensation allowable under state law, and the amount of regular weekly pay. Us government form 1040x The right to benefits does not accrue until a prescribed period after termination. Us government form 1040x Benefits are not attributable to the performance of particular services. Us government form 1040x No employee has any right to the benefits until qualified and eligible to receive benefits. Us government form 1040x Benefits may not be paid in a lump sum. Us government form 1040x Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Us government form 1040x Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. Us government form 1040x Under the agreement, the corporation agrees to pay certain amounts to its key personnel in the event of a change in ownership or control of the corporation. Us government form 1040x Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Us government form 1040x See Regulations section 1. Us government form 1040x 280G-1 for more information. Us government form 1040x No deduction is allowed to the corporation for any excess parachute payment. Us government form 1040x To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. Us government form 1040x A parachute payment for purposes of section 280G is any payment that meets all of the following. Us government form 1040x The payment is in the nature of compensation. Us government form 1040x The payment is to, or for the benefit of, a disqualified individual. Us government form 1040x A disqualified individual is anyone who at any time during the 12-month period prior to and ending on the date of the change in ownership or control of the corporation (the disqualified individual determination period) was an employee or independent contractor and was, in regard to that corporation, a shareholder, an officer, or highly compensated individual. Us government form 1040x The payment is contingent on a change in ownership of the corporation, the effective control of the corporation, or the ownership of a substantial portion of the assets of the corporation. Us government form 1040x The payment has an aggregate present value of at least three times the individual's base amount. Us government form 1040x The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. Us government form 1040x An excess parachute payment amount is the excess of any parachute payment over the base amount. Us government form 1040x For more information, see Regulations section 1. Us government form 1040x 280G-1. Us government form 1040x The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Us government form 1040x If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Us government form 1040x Example. Us government form 1040x An officer of a corporation receives a golden parachute payment of $400,000. Us government form 1040x This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Us government form 1040x The excess parachute payment is $300,000 ($400,000 minus $100,000). Us government form 1040x The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Us government form 1040x Reporting golden parachute payments. Us government form 1040x   Golden parachute payments to employees must be reported on Form W-2. Us government form 1040x See the General Instructions for Forms W-2 and W-3 for details. Us government form 1040x For nonemployee reporting of these payments, see Box 7. Us government form 1040x Nonemployee Compensation in the Instructions for Form 1099-MISC. Us government form 1040x Exempt payments. Us government form 1040x   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Us government form 1040x See section 280G(b)(5) and (6) for more information. Us government form 1040x Interest-Free and Below-Market-Interest-Rate Loans In general, if an employer lends an employee more than $10,000 at an interest rate less than the current applicable federal rate (AFR), the difference between the interest paid and the interest that would be paid under the AFR is considered additional compensation to the employee. Us government form 1040x This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Us government form 1040x This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Us government form 1040x Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Us government form 1040x The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Us government form 1040x You can get these rates by calling 1-800-829-4933 or by visiting IRS. Us government form 1040x gov. Us government form 1040x For more information, see section 7872 and its related regulations. Us government form 1040x Leave Sharing Plans If you establish a leave sharing plan for your employees that allows them to transfer leave to other employees for medical emergencies, the amounts paid to the recipients of the leave are considered wages. Us government form 1040x These amounts are includible in the gross income of the recipients and are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Us government form 1040x Do not include these amounts in the income of the transferors. Us government form 1040x These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Us government form 1040x Nonqualified Deferred Compensation Plans Income Tax and Reporting Section 409A provides that all amounts deferred under a nonqualified deferred compensation (NQDC) plan for all tax years are currently includible in gross income (to the extent not subject to a substantial risk of forfeiture and not previously included in gross income) and subject to additional taxes, unless certain requirements are met pertaining to, among other things, elections to defer compensation and distributions under a NQDC plan. Us government form 1040x Section 409A also includes rules that apply to certain trusts or similar arrangements associated with NQDC plans if the trusts or arrangements are located outside of the United States, are restricted to the provision of benefits in connection with a decline in the financial health of the plan sponsor, or contributions are made to the trust during certain periods such as when a qualified plan of the service recipient is underfunded. Us government form 1040x Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Us government form 1040x Other changes to the Internal Revenue Code provide that the deferrals under a NQDC plan must be reported separately on Form W-2 or Form 1099-MISC, whichever applies. Us government form 1040x Specific rules for reporting are provided in the instructions to the forms. Us government form 1040x The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Us government form 1040x The provisions do not prevent the inclusion of amounts in income or wages under other provisions of the Internal Revenue Code or common law principles, such as when amounts are actually or constructively received or irrevocably contributed to a separate fund. Us government form 1040x For more information about nonqualified deferred compensation plans, see Regulations sections 1. Us government form 1040x 409A-1 through 1. Us government form 1040x 409A-6. Us government form 1040x Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Us government form 1040x Notice 2008-113, 2008-51 I. Us government form 1040x R. Us government form 1040x B. Us government form 1040x 1305, is available at www. Us government form 1040x irs. Us government form 1040x gov/irb/2008-51_IRB/ar12. Us government form 1040x html. Us government form 1040x Also see Notice 2010-6, 2010-3 I. Us government form 1040x R. Us government form 1040x B. Us government form 1040x 275, available at www. Us government form 1040x irs. Us government form 1040x gov/irb/2010-03_IRB/ar08. Us government form 1040x html and Notice 2010-80, 2010-51 I. Us government form 1040x R. Us government form 1040x B. Us government form 1040x 853, available at www. Us government form 1040x irs. Us government form 1040x gov/irb/2010-51_IRB/ar08. Us government form 1040x html. Us government form 1040x Social security, Medicare, and FUTA taxes. Us government form 1040x   Employer contributions to nonqualified deferred compensation (NQDC) plans, as defined in the applicable regulations, are treated as wages subject to social security, Medicare, and FUTA taxes when the services are performed or the employee no longer has a substantial risk of forfeiting the right to the deferred compensation, whichever is later. Us government form 1040x   Amounts deferred are subject to social security, Medicare, and FUTA taxes at that time unless the amount that is deferred cannot be reasonably ascertained; for example, if benefits are based on final pay. Us government form 1040x If the value of the future benefit is based on any factors that are not yet reasonably ascertainable, you may choose to estimate the value of the future benefit and withhold and pay social security, Medicare, and FUTA taxes on that amount. Us government form 1040x You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Us government form 1040x If taxes are not paid before the amounts become reasonably ascertainable, when the amounts become reasonably ascertainable they are subject to social security, Medicare, and FUTA taxes on the amounts deferred plus the income attributable to those amounts deferred. Us government form 1040x For more information, see Regulations sections 31. Us government form 1040x 3121(v)(2)-1 and 31. Us government form 1040x 3306(r)(2)-1. Us government form 1040x Tax-Sheltered Annuities Employer payments made by a public educational institution or a tax-exempt organization to purchase a tax-sheltered annuity for an employee (annual deferrals) are included in the employee's social security and Medicare wages, if the payments are made because of a salary reduction agreement. Us government form 1040x However, they are not included in box 1 on Form W-2 in the year the deferrals are made and are not subject to federal income tax withholding. Us government form 1040x See Regulations section 31. Us government form 1040x 3121(a)(5)-2 for the definition of a salary reduction agreement. Us government form 1040x Contributions to a Simplified Employee Pension (SEP) An employer's SEP contributions to an employee's individual retirement arrangement (IRA) are excluded from the employee's gross income. Us government form 1040x These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Us government form 1040x However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. Us government form 1040x See Publication 560 for more information about SEPs. Us government form 1040x Salary reduction simplified employee pensions (SARSEP) repealed. Us government form 1040x   You may not establish a SARSEP after 1996. Us government form 1040x However, SARSEPs established before January 1, 1997, may continue to receive contributions. Us government form 1040x SIMPLE Retirement Plans Employer and employee contributions to a savings incentive match plan for employees (SIMPLE) retirement account (subject to limitations) are excludable from the employee's income and are exempt from federal income tax withholding. Us government form 1040x An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Us government form 1040x However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Us government form 1040x For more information about SIMPLE retirement plans, see Publication 560. Us government form 1040x 6. Us government form 1040x Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Us government form 1040x Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Us government form 1040x gov in December 2014. Us government form 1040x Special rules apply to the reporting of sick pay payments to employees. Us government form 1040x How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. Us government form 1040x Sick pay is usually subject to social security, Medicare, and FUTA taxes. Us government form 1040x For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Us government form 1040x Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Us government form 1040x Sick Pay Sick pay generally means any amount paid under a plan because of an employee's temporary absence from work due to injury, sickness, or disability. Us government form 1040x It may be paid by either the employer or a third party, such as an insurance company. Us government form 1040x Sick pay includes both short- and long-term benefits. Us government form 1040x It is often expressed as a percentage of the employee's regular wages. Us government form 1040x Payments That Are Not Sick Pay Sick pay does not include the following payments. Us government form 1040x Disability retirement payments. Us government form 1040x Disability retirement payments are not sick pay and are not discussed in this section. Us government form 1040x Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Us government form 1040x See section 8. Us government form 1040x Workers' compensation. Us government form 1040x Payments because of a work-related injury or sickness that are made under a workers' compensation law are not sick pay and are not subject to employment taxes. Us government form 1040x But see Payments in the nature of workers' compensation—public employees next. Us government form 1040x Payments in the nature of workers' compensation—public employees. Us government form 1040x State and local government employees, such as police officers and firefighters, sometimes receive payments due to an injury in the line of duty under a statute that is not the general workers' compensation law of a state. Us government form 1040x If the statute limits benefits to work-related injuries or sickness and does not base payments on the employee's age, length of service, or prior contributions, the statute is “in the nature of” a workers' compensation law. Us government form 1040x Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Us government form 1040x For more information, see Regulations section 31. Us government form 1040x 3121(a)(2)-1. Us government form 1040x Medical expense payments. Us government form 1040x Payments under a definite plan or system for medical and hospitalization expenses, or for insurance covering these expenses, are not sick pay and are not subject to employment taxes. Us government form 1040x Payments unrelated to absence from work. Us government form 1040x Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Us government form 1040x These include payments for: Permanent loss of a member or function of the body, Permanent loss of the use of a member or function of the body, or Permanent disfigurement of the body. Us government form 1040x Example. Us government form 1040x Donald was injured in a car accident and lost an eye. Us government form 1040x Under a policy paid for by Donald's employer, Delta Insurance Co. Us government form 1040x paid Donald $20,000 as compensation for the loss of his eye. Us government form 1040x Because the payment was determined by the type of injury and was unrelated to Donald's absence from work, it is not sick pay and is not subject to federal employment taxes. Us government form 1040x Sick Pay Plan A sick pay plan is a plan or system established by an employer under which sick pay is available to employees generally or to a class or classes of employees. Us government form 1040x This does not include a situation in which benefits are provided on a discretionary or occasional basis with merely an intention to aid particular employees in time of need. Us government form 1040x You have a sick pay plan or system if the plan is in writing or is otherwise made known to employees, such as by a bulletin board notice or your long and established practice. Us government form 1040x Some indications that you have a sick pay plan or system include references to the plan or system in the contract of employment, employer contributions to a plan, or segregated accounts for the payment of benefits. Us government form 1040x Definition of employer. Us government form 1040x   The employer for whom the employee normally works, a term used in the following discussion, is either the employer for whom the employee was working at the time that the employee became sick or disabled or the last employer for whom the employee worked before becoming sick or disabled, if that employer made contributions to the sick pay plan on behalf of the sick or disabled employee. Us government form 1040x Note. Us government form 1040x Contributions to a sick pay plan through a cafeteria plan (by direct employer contributions or salary reduction) are employer contributions unless they are after-tax employee contributions (that is, included in taxable wages). Us government form 1040x Third-Party Payers of Sick Pay Employer's agent. Us government form 1040x   An employer's agent is a third party that bears no insurance risk and is reimbursed on a cost-plus-fee basis for payment of sick pay and similar amounts. Us government form 1040x A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Us government form 1040x For example, if a third party provides administrative services only, the third party is your agent. Us government form 1040x If the third party is paid an insurance premium and is not reimbursed on a cost-plus-fee basis, the third party is not your agent. Us government form 1040x Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Us government form 1040x   A third party that makes payments of sick pay as your agent is not considered the employer and generally has no responsibility for employment taxes. Us government form 1040x This responsibility remains with you. Us government form 1040x However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. Us government form 1040x In this situation, the third-party agent should use its own name and EIN (rather than your name and EIN) for the responsibilities that it has assumed. Us government form 1040x Third party not employer's agent. Us government form 1040x   A third party that makes payments of sick pay other than as an agent of the employer is liable for federal income tax withholding (if requested by the employee) and the employee part of the social security and Medicare taxes. Us government form 1040x   The third party is also liable for the employer part of the social security and Medicare taxes, and the FUTA tax, unless the third party transfers this liability to the employer for whom the employee normally works. Us government form 1040x This liability is transferred if the third party takes the following steps. Us government form 1040x Withholds the employee social security and Medicare taxes from the sick pay payments. Us government form 1040x Makes timely deposits of the employee social security and Medicare taxes. Us government form 1040x Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Us government form 1040x The third party must notify the employer within the time required for the third party's deposit of the employee part of the social security and Medicare taxes. Us government form 1040x For instance, if the third party is a monthly schedule depositor, it must notify the employer by the 15th day of the month following the month in which the sick pay payment is made because that is the day by which the deposit is required to be made. Us government form 1040x The third party should notify the employer as soon as information on payments is available so that an employer required to make electronic deposits can make them timely. Us government form 1040x For multi-employer plans, see the special rule discussed next. Us government form 1040x Multi-employer plan timing rule. Us government form 1040x   A special rule applies to sick pay payments made to employees by a third-party insurer under an insurance contract with a multi-employer plan established under a collectively bargained agreement. Us government form 1040x If the third-party insurer making the payments complies wi