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Visit www irs gov freefile Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. Visit www irs gov freefile The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. Visit www irs gov freefile If you are requesting relief for more than three tax years, you must file an additional Form 8857. Visit www irs gov freefile The IRS will review your Form 8857 and let you know if you qualify. Visit www irs gov freefile A completed Form 8857 is shown later. Visit www irs gov freefile When to file Form 8857. Visit www irs gov freefile   You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. Visit www irs gov freefile The following are some of the ways you may become aware of such a liability. Visit www irs gov freefile The IRS is examining your tax return and proposing to increase your tax liability. Visit www irs gov freefile The IRS sends you a notice. Visit www irs gov freefile   You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. Visit www irs gov freefile (But see the exceptions below for different filing deadlines that apply. Visit www irs gov freefile ) For this reason, do not delay filing because you do not have all the documentation. Visit www irs gov freefile   Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. Visit www irs gov freefile The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. Visit www irs gov freefile This includes the filing of a proof of claim in a bankruptcy proceeding. Visit www irs gov freefile The filing of a suit by the United States against you to collect the joint liability. Visit www irs gov freefile The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. Visit www irs gov freefile The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. Visit www irs gov freefile Exception for equitable relief. Visit www irs gov freefile   On July 25, 2011, the IRS issued Notice 2011-70 (available at www. Visit www irs gov freefile irs. Visit www irs gov freefile gov/irb/2011-32_IRB/ar11. Visit www irs gov freefile html) expanding the amount of time to request equitable relief. Visit www irs gov freefile The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. Visit www irs gov freefile Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. Visit www irs gov freefile In certain cases, the 10-year period is suspended. Visit www irs gov freefile The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. Visit www irs gov freefile See Pub. Visit www irs gov freefile 594, The IRS Collection Process, for details. Visit www irs gov freefile Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. Visit www irs gov freefile But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. Visit www irs gov freefile See Pub. Visit www irs gov freefile 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. Visit www irs gov freefile Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. Visit www irs gov freefile Exception for relief based on community property laws. Visit www irs gov freefile   If you are requesting relief based on community property laws, a different filing deadline applies. Visit www irs gov freefile See Relief from liability arising from community property law discussed later under Community Property Laws . Visit www irs gov freefile Form 8857 filed by or on behalf of a decedent. Visit www irs gov freefile   An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. Visit www irs gov freefile An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. Visit www irs gov freefile For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. Visit www irs gov freefile Situations in which you are not entitled to relief. Visit www irs gov freefile   You are not entitled to innocent spouse relief for any tax year to which the following situations apply. Visit www irs gov freefile In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. Visit www irs gov freefile In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. Visit www irs gov freefile You entered into an offer in compromise with the IRS. Visit www irs gov freefile You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. Visit www irs gov freefile Exception for agreements relating to TEFRA partnership proceedings. Visit www irs gov freefile   You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. Visit www irs gov freefile (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. Visit www irs gov freefile ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). Visit www irs gov freefile Transferee liability not affected by innocent spouse relief provisions. Visit www irs gov freefile   The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. Visit www irs gov freefile Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. Visit www irs gov freefile Example. Visit www irs gov freefile Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. Visit www irs gov freefile Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. Visit www irs gov freefile In August 2010, the IRS assessed a deficiency for the 2008 return. Visit www irs gov freefile The items causing the deficiency belong to Herb. Visit www irs gov freefile Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. Visit www irs gov freefile However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. Visit www irs gov freefile The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. Visit www irs gov freefile There are no exceptions, even for victims of spousal abuse or domestic violence. Visit www irs gov freefile We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. Visit www irs gov freefile If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. Visit www irs gov freefile However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. Visit www irs gov freefile If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. Visit www irs gov freefile Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. Visit www irs gov freefile The IRS sends you a final determination letter regarding your request for relief. Visit www irs gov freefile You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. Visit www irs gov freefile If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. Visit www irs gov freefile The United States Tax Court is an independent judicial body and is not part of the IRS. Visit www irs gov freefile You must file a petition with the United States Tax Court in order for it to review your request for relief. Visit www irs gov freefile You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. Visit www irs gov freefile If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. Visit www irs gov freefile You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address:    United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. Visit www irs gov freefile ustaxcourt. Visit www irs gov freefile gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. Visit www irs gov freefile Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Visit www irs gov freefile Generally, community property laws require you to allocate community income and expenses equally between both spouses. Visit www irs gov freefile However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Visit www irs gov freefile Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. Visit www irs gov freefile Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. Visit www irs gov freefile You did not file a joint return for the tax year. Visit www irs gov freefile You did not include the item of community income in gross income. Visit www irs gov freefile The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. Visit www irs gov freefile Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. Visit www irs gov freefile Your spouse's (or former spouse's) distributive share of partnership income. Visit www irs gov freefile Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Visit www irs gov freefile Use the appropriate community property law to determine what is separate property. Visit www irs gov freefile Any other income that belongs to your spouse (or former spouse) under community property law. Visit www irs gov freefile You establish that you did not know of, and had no reason to know of, that community income. Visit www irs gov freefile See  Actual Knowledge or Reason To Know , below. Visit www irs gov freefile Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. Visit www irs gov freefile See Indications of unfairness for liability arising from community property law, later. Visit www irs gov freefile Actual knowledge or reason to know. Visit www irs gov freefile   You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. Visit www irs gov freefile Amount of community income unknown. Visit www irs gov freefile   If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. Visit www irs gov freefile Not knowing the specific amount is not a basis for relief. Visit www irs gov freefile Reason to know. Visit www irs gov freefile   The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. Visit www irs gov freefile The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. Visit www irs gov freefile The financial situation of you and your spouse (or former spouse). Visit www irs gov freefile Your educational background and business experience. Visit www irs gov freefile Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Visit www irs gov freefile Indications of unfairness for liability arising from community property law. Visit www irs gov freefile   The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. Visit www irs gov freefile   The following are examples of factors the IRS will consider. Visit www irs gov freefile Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). Visit www irs gov freefile Whether your spouse (or former spouse) deserted you. Visit www irs gov freefile Whether you and your spouse have been divorced or separated. Visit www irs gov freefile  For other factors see Factors for Determining Whether To Grant Equitable Relief later. Visit www irs gov freefile Benefit from omitted item of community income. Visit www irs gov freefile   A benefit includes normal support, but does not include de minimis (small) amounts. Visit www irs gov freefile Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. Visit www irs gov freefile   For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. Visit www irs gov freefile Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). Visit www irs gov freefile How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. Visit www irs gov freefile Fill in Form 8857 according to the instructions. Visit www irs gov freefile For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. Visit www irs gov freefile However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. Visit www irs gov freefile The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. Visit www irs gov freefile Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Visit www irs gov freefile Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). Visit www irs gov freefile However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. Visit www irs gov freefile The IRS can collect these amounts from either you or your spouse (or former spouse). Visit www irs gov freefile You must meet all of the following conditions to qualify for innocent spouse relief. Visit www irs gov freefile You filed a joint return. Visit www irs gov freefile There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). Visit www irs gov freefile You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). Visit www irs gov freefile See Actual Knowledge or Reason To Know, later. Visit www irs gov freefile Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. Visit www irs gov freefile See Indications of Unfairness for Innocent Spouse Relief , later. Visit www irs gov freefile Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. Visit www irs gov freefile A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Visit www irs gov freefile Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. Visit www irs gov freefile Erroneous Items Erroneous items are either of the following. Visit www irs gov freefile Unreported income. Visit www irs gov freefile This is any gross income item received by your spouse (or former spouse) that is not reported. Visit www irs gov freefile Incorrect deduction, credit, or basis. Visit www irs gov freefile This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). Visit www irs gov freefile The following are examples of erroneous items. Visit www irs gov freefile The expense for which the deduction is taken was never paid or incurred. Visit www irs gov freefile For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. Visit www irs gov freefile The expense does not qualify as a deductible expense. Visit www irs gov freefile For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. Visit www irs gov freefile Fines are not deductible. Visit www irs gov freefile No factual argument can be made to support the deductibility of the expense. Visit www irs gov freefile For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. Visit www irs gov freefile Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. Visit www irs gov freefile Actual knowledge. Visit www irs gov freefile   If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Visit www irs gov freefile You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Visit www irs gov freefile For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. Visit www irs gov freefile Reason to know. Visit www irs gov freefile   If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Visit www irs gov freefile You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Visit www irs gov freefile   The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. Visit www irs gov freefile The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. Visit www irs gov freefile The financial situation of you and your spouse (or former spouse). Visit www irs gov freefile Your educational background and business experience. Visit www irs gov freefile The extent of your participation in the activity that resulted in the erroneous item. Visit www irs gov freefile Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question. Visit www irs gov freefile Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Visit www irs gov freefile Partial relief when a portion of erroneous item is unknown. Visit www irs gov freefile   You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. Visit www irs gov freefile You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. Visit www irs gov freefile Example. Visit www irs gov freefile At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. Visit www irs gov freefile The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. Visit www irs gov freefile You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. Visit www irs gov freefile The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. Visit www irs gov freefile The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. Visit www irs gov freefile Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. Visit www irs gov freefile The following are examples of factors the IRS will consider. Visit www irs gov freefile Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. Visit www irs gov freefile Whether your spouse (or former spouse) deserted you. Visit www irs gov freefile Whether you and your spouse have been divorced or separated. Visit www irs gov freefile Whether you received a benefit on the return from the understated tax. Visit www irs gov freefile For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. Visit www irs gov freefile Significant benefit. Visit www irs gov freefile   A significant benefit is any benefit in excess of normal support. Visit www irs gov freefile Normal support depends on your particular circumstances. Visit www irs gov freefile Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax. Visit www irs gov freefile Example. Visit www irs gov freefile You receive money from your spouse that is beyond normal support. Visit www irs gov freefile The money can be traced to your spouse's lottery winnings that were not reported on your joint return. Visit www irs gov freefile You will be considered to have received a significant benefit from that income. Visit www irs gov freefile This is true even if your spouse gives you the money several years after he or she received it. Visit www irs gov freefile Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). Visit www irs gov freefile The understated tax allocated to you is generally the amount you are responsible for. Visit www irs gov freefile This type of relief is available only for unpaid liabilities resulting from the understated tax. Visit www irs gov freefile Refunds are not allowed. Visit www irs gov freefile To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Visit www irs gov freefile You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Visit www irs gov freefile (Under this rule, you are no longer married if you are widowed. Visit www irs gov freefile ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. Visit www irs gov freefile Members of the same household. Visit www irs gov freefile   You and your spouse are not members of the same household if you are living apart and are estranged. Visit www irs gov freefile However, you and your spouse are considered members of the same household if any of the following conditions are met. Visit www irs gov freefile You and your spouse reside in the same dwelling. Visit www irs gov freefile You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. Visit www irs gov freefile Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Visit www irs gov freefile Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. Visit www irs gov freefile Burden of proof. Visit www irs gov freefile   You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). Visit www irs gov freefile You must also establish the basis for allocating the erroneous items. Visit www irs gov freefile Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. Visit www irs gov freefile The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Visit www irs gov freefile A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Visit www irs gov freefile The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). Visit www irs gov freefile For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. Visit www irs gov freefile Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Visit www irs gov freefile See Transfers of Property To Avoid Tax , later. Visit www irs gov freefile Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. Visit www irs gov freefile You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. Visit www irs gov freefile If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. Visit www irs gov freefile You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. Visit www irs gov freefile (This rule applies whether or not there was a receipt of cash. Visit www irs gov freefile ) You knew of the facts that made an incorrect deduction or credit unallowable. Visit www irs gov freefile For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. Visit www irs gov freefile Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. Visit www irs gov freefile Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. Visit www irs gov freefile Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. Visit www irs gov freefile Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. Visit www irs gov freefile Neither is your actual knowledge of how the erroneous item was treated on the tax return. Visit www irs gov freefile For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. Visit www irs gov freefile Example. Visit www irs gov freefile Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. Visit www irs gov freefile The IRS audited their return and found that Bill did not report $20,000 of self-employment income. Visit www irs gov freefile The additional income resulted in a $6,000 understated tax, plus interest and penalties. Visit www irs gov freefile After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. Visit www irs gov freefile The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. Visit www irs gov freefile Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. Visit www irs gov freefile Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. Visit www irs gov freefile The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. Visit www irs gov freefile Factors supporting actual knowledge. Visit www irs gov freefile   The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. Visit www irs gov freefile The following are examples of factors the IRS may use. Visit www irs gov freefile Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. Visit www irs gov freefile Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. Visit www irs gov freefile Exception for spousal abuse or domestic violence. Visit www irs gov freefile   Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. Visit www irs gov freefile   If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. Visit www irs gov freefile However, you may be required to file a separate return for that tax year. Visit www irs gov freefile For more information about duress, see the instructions for Form 8857. Visit www irs gov freefile Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. Visit www irs gov freefile The increase may not be more than the entire amount of the liability. Visit www irs gov freefile A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. Visit www irs gov freefile This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. Visit www irs gov freefile If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. Visit www irs gov freefile Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. Visit www irs gov freefile Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. Visit www irs gov freefile An underpaid tax is an amount of tax you properly reported on your return but you have not paid. Visit www irs gov freefile For example, your joint 2009 return shows that you and your spouse owed $5,000. Visit www irs gov freefile You paid $2,000 with the return. Visit www irs gov freefile You have an underpaid tax of $3,000. Visit www irs gov freefile Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. Visit www irs gov freefile You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Visit www irs gov freefile You have an understated tax or an underpaid tax. Visit www irs gov freefile You did not pay the tax. Visit www irs gov freefile However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. Visit www irs gov freefile You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. Visit www irs gov freefile See Factors for Determining Whether To Grant Equitable Relief, later. Visit www irs gov freefile You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Visit www irs gov freefile A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Visit www irs gov freefile Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Visit www irs gov freefile See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. Visit www irs gov freefile You did not file or fail to file your return with the intent to commit fraud. Visit www irs gov freefile The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. Visit www irs gov freefile If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. Visit www irs gov freefile If the item is titled in your name, the item is presumed to be attributable to you. Visit www irs gov freefile However, you can rebut this presumption based on the facts and circumstances. Visit www irs gov freefile You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. Visit www irs gov freefile If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). Visit www irs gov freefile You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. Visit www irs gov freefile If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. Visit www irs gov freefile Factors for Determining Whether To Grant Equitable Relief The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understated or underpaid tax. Visit www irs gov freefile The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. Visit www irs gov freefile The IRS will consider all factors and weigh them appropriately. Visit www irs gov freefile Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. Visit www irs gov freefile Whether you are separated (whether legally or not) or divorced from your spouse. Visit www irs gov freefile A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. Visit www irs gov freefile A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Visit www irs gov freefile Whether you would suffer a significant economic hardship if relief is not granted. Visit www irs gov freefile (In other words, you would not be able to pay your reasonable basic living expenses. Visit www irs gov freefile ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. Visit www irs gov freefile This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. Visit www irs gov freefile Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. Visit www irs gov freefile (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. Visit www irs gov freefile ) Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years. Visit www irs gov freefile Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. Visit www irs gov freefile Knowledge or reason to know. Visit www irs gov freefile   In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. Visit www irs gov freefile   In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. Visit www irs gov freefile Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. Visit www irs gov freefile Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. Visit www irs gov freefile This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. Visit www irs gov freefile Reason to know. Visit www irs gov freefile   In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. Visit www irs gov freefile Example. Visit www irs gov freefile You and your spouse filed a joint 2009 return. Visit www irs gov freefile That return showed you owed $10,000. Visit www irs gov freefile You had $5,000 of your own money and you took out a loan to pay the other $5,000. Visit www irs gov freefile You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. Visit www irs gov freefile Without telling you, your spouse took the $5,000 loan and spent it on himself. Visit www irs gov freefile You and your spouse were divorced in 2010. Visit www irs gov freefile In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. Visit www irs gov freefile These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. Visit www irs gov freefile The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpaid tax. Visit www irs gov freefile Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. Visit www irs gov freefile Whether your spouse (or former spouse) abused you. Visit www irs gov freefile Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. Visit www irs gov freefile Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . Visit www irs gov freefile Not permitted under separation of liability relief. Visit www irs gov freefile Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. Visit www irs gov freefile Proof Required The IRS will only refund payments you made with your own money. Visit www irs gov freefile However, you must provide proof that you made the payments with your own money. Visit www irs gov freefile Examples of proof are a copy of your bank statement or a canceled check. Visit www irs gov freefile No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. Visit www irs gov freefile Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. Visit www irs gov freefile Underpaid tax. Visit www irs gov freefile   If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. Visit www irs gov freefile However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. Visit www irs gov freefile For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. Visit www irs gov freefile   The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. Visit www irs gov freefile Understated tax. Visit www irs gov freefile   If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. Visit www irs gov freefile You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. Visit www irs gov freefile Only installment payments made after the date you filed Form 8857 are eligible for a refund. Visit www irs gov freefile   The amount of the refund is subject to the limit discussed next. Visit www irs gov freefile Limit on Amount of Refund The amount of your refund is limited. Visit www irs gov freefile Read the following chart to find out the limit. Visit www irs gov freefile IF you file Form 8857. Visit www irs gov freefile . Visit www irs gov freefile . Visit www irs gov freefile THEN the refund cannot be more than. Visit www irs gov freefile . Visit www irs gov freefile . Visit www irs gov freefile Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. Visit www irs gov freefile After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. Visit www irs gov freefile Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. Visit www irs gov freefile Janie and Joe Boulder filed a joint tax return for 2007. Visit www irs gov freefile They claimed one dependency exemption for their son Michael. Visit www irs gov freefile Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. Visit www irs gov freefile Janie did not know about the award when the return was filed. Visit www irs gov freefile They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). Visit www irs gov freefile Janie and Joe were divorced on May 13, 2009. Visit www irs gov freefile In February 2010, Janie filed her 2009 federal income tax return as head of household. Visit www irs gov freefile She expected a refund of $1,203. Visit www irs gov freefile In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. Visit www irs gov freefile Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. Visit www irs gov freefile Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. Visit www irs gov freefile Janie believes she meets the third condition. Visit www irs gov freefile She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. Visit www irs gov freefile Janie believes she meets the fourth condition. Visit www irs gov freefile She believes it would be unfair to be held liable for the tax because she did not benefit from the award. Visit www irs gov freefile Joe spent it on personal items for his use only. Visit www irs gov freefile Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. Visit www irs gov freefile In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. Visit www irs gov freefile Part I Line 1. Visit www irs gov freefile   She enters “2007” on line 1 because this is the tax year for which she is requesting relief. Visit www irs gov freefile Line 2. Visit www irs gov freefile   She checks the box because she wants a refund. Visit www irs gov freefile Note. Visit www irs gov freefile Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. Visit www irs gov freefile Line 3. Visit www irs gov freefile   She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. Visit www irs gov freefile Line 4. Visit www irs gov freefile   She checks the “Yes” box because she filed a joint tax return for tax year 2007. Visit www irs gov freefile Line 5. Visit www irs gov freefile   She skips this line because she checked the “Yes” box on line 4. Visit www irs gov freefile Part II Line 6. Visit www irs gov freefile   She enters her name, address, social security number, county, and best daytime phone number. Visit www irs gov freefile Part III Line 7. Visit www irs gov freefile   She enters Joe's name, address, social security number, and best daytime phone number. Visit www irs gov freefile Line 8. Visit www irs gov freefile   She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. Visit www irs gov freefile ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. Visit www irs gov freefile Line 9. Visit www irs gov freefile   She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. Visit www irs gov freefile Line 10. Visit www irs gov freefile   She checks the “No” box because she was not a victim of spousal abuse or domestic violence. Visit www irs gov freefile Line 11. Visit www irs gov freefile   She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. Visit www irs gov freefile Line 12. Visit www irs gov freefile   She checks the “Yes” box because she signed the 2007 joint tax return. Visit www irs gov freefile Line 13. Visit www irs gov freefile   She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. Visit www irs gov freefile Part IV Line 14. Visit www irs gov freefile   Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. Visit www irs gov freefile ” Line 15. Visit www irs gov freefile   She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. Visit www irs gov freefile She explains this in the space provided. Visit www irs gov freefile Line 16. Visit www irs gov freefile   She checks the box, “You knew that person had income” because she knew Joe had income from wages. Visit www irs gov freefile She also lists Joe's income. Visit www irs gov freefile Under “Type of Income” she enters “wages. Visit www irs gov freefile ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. Visit www irs gov freefile ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. Visit www irs gov freefile ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. Visit www irs gov freefile Line 17. Visit www irs gov freefile   She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. Visit www irs gov freefile Line 18. Visit www irs gov freefile   She checks the “No” box because, when the return was signed, she was not having financial problems. Visit www irs gov freefile Line 19. Visit www irs gov freefile   She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. Visit www irs gov freefile She provides additional information in the space provided. Visit www irs gov freefile Line 20. Visit www irs gov freefile   She checks the “No” box because Joe has never transferred money or property to her. Visit www irs gov freefile Part V Line 21. Visit www irs gov freefile   She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. Visit www irs gov freefile Line 22. Visit www irs gov freefile   She enters her average monthly income for her entire household. Visit www irs gov freefile Line 23. Visit www irs gov freefile   She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. Visit www irs gov freefile Signing and mailing Form 8857. Visit www irs gov freefile    Janie signs and dates the form. Visit www irs gov freefile She attaches the copy of her divorce decree (not illustrated) required by line 8. Visit www irs gov freefile Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. Visit www irs gov freefile This image is too large to be displayed in the current screen. Visit www irs gov freefile Please click the link to view the image. Visit www irs gov freefile Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. Visit www irs gov freefile Please click the link to view the image. Visit www irs gov freefile Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. Visit www irs gov freefile Please click the link to view the image. Visit www irs gov freefile Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. Visit www irs gov freefile Please click the link to view the image. Visit www irs gov freefile Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. Visit www irs gov freefile But do not rely on these flowcharts alone. Visit www irs gov freefile Also read the earlier discussions. Visit www irs gov freefile Figure A. Visit www irs gov freefile Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. Visit www irs gov freefile "Do You Qualify for Innocent Spouse Relief?" Figure B. Visit www irs gov freefile Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. Visit www irs gov freefile "Do You Qualify for Separation of Liability Relief?" Figure C. Visit www irs gov freefile Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. Visit www irs gov freefile Please click the link to view the image. 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AARP addresses the consumer problems and issues that especially impact the financial security of people 50 years and older. Through advocacy, AARP works to make the marketplace safer for all consumers and empowers members to protect themselves from fraud and deceptive practices.

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The Visit Www Irs Gov Freefile

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