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2012 Tax Return

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2012 Tax Return

2012 tax return Publication 51 - Main Content Table of Contents 1. 2012 tax return Taxpayer Identification NumbersWhen you receive your EIN. 2012 tax return Registering for SSNVS. 2012 tax return 2. 2012 tax return Who Are Employees?Crew Leaders Business Owned and Operated by Spouses 3. 2012 tax return Wages and Other Compensation 4. 2012 tax return Social Security and Medicare TaxesThe $150 Test or the $2,500 Test Social Security and Medicare Tax Withholding 5. 2012 tax return Federal Income Tax WithholdingImplementation of lock-in letter. 2012 tax return Seasonal employees and employees not currently performing services. 2012 tax return Termination and re-hire of employees. 2012 tax return How To Figure Federal Income Tax Withholding 6. 2012 tax return Required Notice to Employees About Earned Income Credit (EIC) 7. 2012 tax return Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties Employers of Both Farm and Nonfarm Workers 8. 2012 tax return Form 943 9. 2012 tax return Reporting Adjustments on Form 943Current Year Adjustments Prior Year Adjustments 10. 2012 tax return Federal Unemployment (FUTA) Tax 11. 2012 tax return Reconciling Wage Reporting Forms 13. 2012 tax return Federal Income Tax Withholding MethodsWage Bracket Method Percentage Method Alternative Methods of Federal Income Tax Withholding How To Get Tax Help 1. 2012 tax return Taxpayer Identification Numbers If you are required to withhold any federal income, social security, or Medicare taxes, you will need an employer identification number (EIN) for yourself. 2012 tax return Also, you will need the SSN of each employee and the name of each employee as shown on the employee's social security card. 2012 tax return Employer identification number (EIN). 2012 tax return   An employer identification number (EIN) is a nine-digit number that the IRS issues. 2012 tax return The digits are arranged as follows: 00-0000000. 2012 tax return It is used to identify the tax accounts of employers and certain others who have no employees. 2012 tax return Use your EIN on all of the items that you send to the IRS and SSA. 2012 tax return   If you do not have an EIN, you may apply for one online. 2012 tax return Visit IRS. 2012 tax return gov and click on the Apply for an EIN Online link under Tools. 2012 tax return You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. 2012 tax return Do not use a SSN in place of an EIN. 2012 tax return   If you do not have an EIN by the time a return is due, write “Applied For” and the date you applied for it in the space shown for the number. 2012 tax return If you took over another employer's business, do not use that employer's EIN. 2012 tax return   You should have only one EIN. 2012 tax return If you have more than one, and are not sure which one to use, call the toll-free Business and Specialty Tax Line at 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). 2012 tax return Provide the EINs that you have, the name and address to which each number was assigned, and the address of your principal place of business. 2012 tax return The IRS will tell you which EIN to use. 2012 tax return   For more information, see Publication 1635 or Publication 583. 2012 tax return When you receive your EIN. 2012 tax return   If you are a new employer that indicated a federal tax obligation when requesting an EIN, you will be pre-enrolled in the Electronic Federal Tax Payment System (EFTPS). 2012 tax return You will receive information in your Employer Identification Number (EIN) Package about Express Enrollment and an additional mailing containing your EFTPS personal identification number (PIN) and instructions for activating your PIN. 2012 tax return Call the toll-free number located in your “How to Activate Your Enrollment” brochure to activate your enrollment and begin making your employment tax deposits. 2012 tax return If you outsource any of your payroll and related tax duties to a third party payer, such as a payroll service provider or reporting agent, be sure to tell them about your EFTPS enrollment. 2012 tax return Social security number (SSN). 2012 tax return   An employee's social security number (SSN) consists of nine digits arranged as follows: 000-00-0000. 2012 tax return You must obtain each employee's name and SSN as shown on the employee's social security card because you must enter them on Form W-2. 2012 tax return Do not accept a social security card that says “Not valid for employment. 2012 tax return ” A social security number issued with this legend does not permit employment. 2012 tax return You may, but are not required to, photocopy the social security card if the employee provides it. 2012 tax return If you do not show the employee's correct name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. 2012 tax return See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs. 2012 tax return Applying for a social security card. 2012 tax return   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation to SSA. 2012 tax return You can get Form SS-5 at SSA offices, by calling 1-800-772-1213 or 1-800-325-0778 (TTY), or from the SSA website at www. 2012 tax return socialsecurity. 2012 tax return gov/online/ss-5. 2012 tax return html. 2012 tax return The employee must complete and sign Form SS-5; it cannot be filed by the employer. 2012 tax return You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. 2012 tax return Applying for a social security number. 2012 tax return   If you file Form W-2 on paper and your employee has applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. 2012 tax return If you are filing electronically, enter all zeros (000-00-0000) in the social security number field. 2012 tax return When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. 2012 tax return Furnish Copies B, C, and 2 of Form W-2c to the employee. 2012 tax return Up to 25 Forms W-2c per Form W-3c, Transmittal of Corrected Wage and Tax Statements, may be filed per session over the Internet, with no limit on the number of sessions. 2012 tax return For more information, visit SSA's Employer W-2 Filing Instructions & Information webpage at www. 2012 tax return socialsecurity. 2012 tax return gov/employer. 2012 tax return Advise your employee to correct the SSN on his or her original Form W-2. 2012 tax return Correctly record the employee's name and SSN. 2012 tax return   Record the name and number of each employee as they are shown on the employee's social security card. 2012 tax return If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. 2012 tax return Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. 2012 tax return   If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported on the most recently filed Form W-2. 2012 tax return It is not necessary to correct other years if the previous name and SSN were used for years before the most recent Form W-2. 2012 tax return IRS individual taxpayer identification numbers (ITINs) for aliens. 2012 tax return   Do not accept an ITIN in place of an SSN for employee identification or for work. 2012 tax return An ITIN is issued for use by resident and nonresident aliens who need identification for tax purposes, but who are not eligible for U. 2012 tax return S. 2012 tax return employment. 2012 tax return The ITIN is a nine-digit number formatted like an SSN (for example, NNN-NN-NNNN). 2012 tax return However, it begins with the number “9” and has either a “7” or “8” as the fourth digit (for example, 9NN-7N-NNNN or 9NN-8N-NNNN). 2012 tax return    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. 2012 tax return If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier in this section. 2012 tax return Do not use an ITIN in place of an SSN on Form W-2. 2012 tax return Verification of social security numbers. 2012 tax return   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 employee names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive results the next business day. 2012 tax return Visit www. 2012 tax return socialsecurity. 2012 tax return gov/employer/ssnv. 2012 tax return htm for more information. 2012 tax return Registering for SSNVS. 2012 tax return   You must register online and receive authorization from your employer to use SSNVS. 2012 tax return To register, visit SSA's website at www. 2012 tax return socialsecurity. 2012 tax return gov/employer and click on the Business Services Online link. 2012 tax return Follow the registration instructions to obtain a user identification (ID) and password. 2012 tax return You will need to provide the following information about yourself and your company. 2012 tax return Name. 2012 tax return SSN. 2012 tax return Date of birth. 2012 tax return Type of employer. 2012 tax return EIN. 2012 tax return Company name, address, and telephone number. 2012 tax return Email address. 2012 tax return When you have completed the online registration process, SSA will mail a one-time activation code to your employer. 2012 tax return You must enter the activation code online to use SSNVS. 2012 tax return 2. 2012 tax return Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. 2012 tax return See Publication 15-A for details on statutory employees and nonemployees. 2012 tax return Employee status under common law. 2012 tax return   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. 2012 tax return This is so even when you give the employee freedom of action. 2012 tax return What matters is that you have the right to control the details of how the services are performed. 2012 tax return See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. 2012 tax return If an employer-employee relationship exists, it does not matter what it is called. 2012 tax return The employee may be called an agent or independent contractor. 2012 tax return It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. 2012 tax return You are responsible for withholding and paying employment taxes for your employees. 2012 tax return You are also required to file employment tax returns. 2012 tax return These requirements do not apply to amounts that you pay to independent contractors. 2012 tax return The rules discussed in this publication apply only to workers who are your employees. 2012 tax return In general, you are an employer of farmworkers if your employees: Raise or harvest agricultural or horticultural products on your farm (including the raising and feeding of livestock); Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and equipment; Provide services relating to salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor); Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity); or Do work for you related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. 2012 tax return For this purpose, the term “farm” includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, as well as plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards. 2012 tax return Farmwork does not include reselling activities that do not involve any substantial activity of raising agricultural or horticultural commodities, such as a retail store or a greenhouse used primarily for display or storage. 2012 tax return The table in section 12, How Do Employment Taxes Apply to Farmwork , distinguishes between farm and nonfarm activities, and also addresses rules that apply in special situations. 2012 tax return Crew Leaders If you are a crew leader, you are an employer of farmworkers. 2012 tax return A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. 2012 tax return If there is no written agreement between you and the farm operator stating that you are his or her employee and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader. 2012 tax return For FUTA tax rules, see section 10. 2012 tax return Business Owned and Operated by Spouses If you and your spouse jointly own and operate a farm or nonfarm business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. 2012 tax return See Publication 541, Partnerships, for more details. 2012 tax return The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. 2012 tax return Exception—Qualified joint venture. 2012 tax return   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. 2012 tax return A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). 2012 tax return   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. 2012 tax return Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. 2012 tax return   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. 2012 tax return If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. 2012 tax return Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. 2012 tax return However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. 2012 tax return    Note. 2012 tax return If your spouse is your employee, not your partner, you must pay social security and Medicare taxes for him or her. 2012 tax return   For more information on qualified joint ventures, visit IRS. 2012 tax return gov and enter “qualified joint venture” in the search box. 2012 tax return Exception—Community income. 2012 tax return   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. 2012 tax return S. 2012 tax return possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. 2012 tax return You may still make an election to be taxed as a qualified joint venture instead of a partnership. 2012 tax return See Exception—Qualified joint venture , earlier in this section. 2012 tax return 3. 2012 tax return Wages and Other Compensation Cash wages that you pay to employees for farmwork are generally subject to social security tax and Medicare tax. 2012 tax return You may also be required to withhold, deposit, and report Additional Medicare Tax. 2012 tax return See section 4 for more information. 2012 tax return If the wages are subject to social security and Medicare taxes, they are also subject to federal income tax withholding. 2012 tax return You may also be liable for FUTA tax, which is not withheld by you or paid by the employee. 2012 tax return FUTA tax is discussed in section 10. 2012 tax return Cash wages include checks, money orders, etc. 2012 tax return Do not count as cash wages the value of food, lodging, and other noncash items. 2012 tax return For more information on what payments are considered taxable wages, see Publication 15 (Circular E). 2012 tax return Commodity wages. 2012 tax return   Commodity wages are not cash and are not subject to social security and Medicare taxes or federal income tax withholding. 2012 tax return However, noncash payments, including commodity wages, are treated as cash wages (see above) if the substance of the transaction is a cash payment. 2012 tax return These noncash payments are subject to social security and Medicare taxes and federal income tax withholding. 2012 tax return Other compensation. 2012 tax return   Publications 15-A and 15-B discuss other forms of compensation that may be taxable. 2012 tax return Family members. 2012 tax return   Generally, the wages that you pay to family members who are your employees are subject to social security and Medicare taxes, federal income tax withholding, and FUTA tax. 2012 tax return However, certain exemptions may apply for your child, spouse, or parent. 2012 tax return See the table, How Do Employment Taxes Apply to Farmwork , in section 12. 2012 tax return Household employees. 2012 tax return   The wages of an employee who performs household services, such as a maid, babysitter, gardener, or cook, in your home are not subject to social security and Medicare taxes if you pay that employee cash wages of less than $1,900 in 2014. 2012 tax return   Social security and Medicare taxes do not apply to cash wages for housework in your private home if it was done by your spouse or your child under age 21. 2012 tax return Nor do the taxes apply to housework done by your parent unless: You have a child living in your home who is under age 18 or has a physical or mental condition that requires care by an adult for at least 4 continuous weeks in a calendar quarter, and You are a widow or widower, or divorced and not remarried, or have a spouse in the home who, because of a physical or mental condition, cannot care for your child for at least 4 continuous weeks in the quarter. 2012 tax return   For more information, see Publication 926, Household Employer's Tax Guide. 2012 tax return    Wages for household work may not be a deductible farm expense. 2012 tax return See Publication 225, Farmer's Tax Guide. 2012 tax return Share farmers. 2012 tax return   You do not have to withhold or pay social security and Medicare taxes on amounts paid to share farmers under share-farming arrangements. 2012 tax return Compensation paid to H-2A visa holders. 2012 tax return   Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2 but do not report it as social security wages (box 3) or Medicare wages (box 5) on Form W-2 because compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes. 2012 tax return On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. 2012 tax return   An employer is not required to withhold federal income tax from compensation it pays an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. 2012 tax return In that case, the worker must give the employer a completed Form W-4. 2012 tax return Federal income tax withheld should be reported in box 2 of Form W-2. 2012 tax return These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. 2012 tax return For rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. 2012 tax return 4. 2012 tax return Social Security and Medicare Taxes Generally, you must withhold social security and Medicare taxes on all cash wage payments that you make to your employees. 2012 tax return You may also be required to withhold Additional Medicare Tax. 2012 tax return For more information, see Additional Medicare Tax withholding , later. 2012 tax return The $150 Test or the $2,500 Test All cash wages that you pay to an employee during the year for farmwork are subject to social security and Medicare taxes and federal income tax withholding if either of the two tests below is met. 2012 tax return You pay cash wages to an employee of $150 or more in a year for farmwork (count all cash wages paid on a time, piecework, or other basis). 2012 tax return The $150 test applies separately to each farmworker that you employ. 2012 tax return If you employ a family of workers, each member is treated separately. 2012 tax return Do not count wages paid by other employers. 2012 tax return The total that you pay for farmwork (cash and noncash) to all your employees is $2,500 or more during the year. 2012 tax return Exceptions. 2012 tax return   The $150 and $2,500 tests do not apply to wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes, or federal income tax withholding, even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker: Is employed in agriculture as a hand-harvest laborer, Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment, Commutes daily from his or her permanent home to the farm, and Had been employed in agriculture less than 13 weeks in the preceding calendar year. 2012 tax return   Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes. 2012 tax return Social Security and Medicare Tax Withholding The social security tax rate is 6. 2012 tax return 2%, for both the employee and employer, on the first $117,000 paid to each employee. 2012 tax return You must withhold at this rate from each employee and pay a matching amount. 2012 tax return The Medicare tax rate is 1. 2012 tax return 45% each for the employee and employer on all wages. 2012 tax return You must withhold at this rate from each employee and pay a matching amount. 2012 tax return There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. 2012 tax return Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. 2012 tax return For details, see Publication 15-A. 2012 tax return Additional Medicare Tax withholding. 2012 tax return   In addition to withholding Medicare tax at 1. 2012 tax return 45%, you must withhold a 0. 2012 tax return 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 2012 tax return You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. 2012 tax return Additional Medicare Tax is only imposed on the employee. 2012 tax return There is no employer share of Additional Medicare Tax. 2012 tax return All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. 2012 tax return   For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E). 2012 tax return For more information on Additional Medicare Tax, visit IRS. 2012 tax return gov and enter “Additional Medicare Tax” in the search box. 2012 tax return Employee share paid by employer. 2012 tax return   If you would rather pay a household or agricultural employee's share of the social security and Medicare taxes without withholding them from his or her wages, you may do so. 2012 tax return If you do not withhold the taxes, however, you must still pay them. 2012 tax return Any employee social security and Medicare taxes that you pay is additional income to the employee. 2012 tax return Include it in box 1 of the employee's Form W-2, but do not count it as social security and Medicare wages and do not include it in boxes 3 and 5. 2012 tax return Also, do not count the additional income as wages for FUTA tax purposes. 2012 tax return Different rules apply to employer payments of social security and Medicare taxes for non-household and non-agricultural employees. 2012 tax return See section 7 of Publication 15-A. 2012 tax return Withholding social security and Medicare taxes on nonresident alien employees. 2012 tax return   In general, if you pay wages to nonresident alien employees, you must withhold social security and Medicare taxes as you would for a U. 2012 tax return S. 2012 tax return citizen or resident alien. 2012 tax return However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. 2012 tax return Also see Compensation paid to H-2A visa holders in section 3. 2012 tax return Religious exemption. 2012 tax return    An exemption from social security and Medicare taxes is available to members of a recognized religious sect opposed to public insurance. 2012 tax return This exemption is available only if both the employee and the employer are members of the sect. 2012 tax return   For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. 2012 tax return 5. 2012 tax return Federal Income Tax Withholding Farmers and crew leaders must withhold federal income tax from the wages of farmworkers if the wages are subject to social security and Medicare taxes. 2012 tax return The amount to withhold is figured on gross wages before taking out social security and Medicare taxes, union dues, insurance, etc. 2012 tax return You may use one of several methods to determine the amount of federal income tax withholding. 2012 tax return They are discussed in section 13. 2012 tax return Form W-4. 2012 tax return   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. 2012 tax return Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. 2012 tax return Advise your employees to use the IRS Withholding Calculator on the IRS website at www. 2012 tax return irs. 2012 tax return gov/individuals for help in determining how many withholding allowances to claim on their Form W-4. 2012 tax return   Ask each new employee to give you a signed Form W-4 when starting work. 2012 tax return Make the form effective with the first wage payment. 2012 tax return If a new employee does not give you a completed Form W-4, withhold tax as if he or she is single, with no withholding allowances. 2012 tax return Forms in Spanish. 2012 tax return   You can provide Formulario W-4(SP) in place of Form W-4 to your Spanish-speaking employees. 2012 tax return For more information, see Publicación 17(SP). 2012 tax return Effective date of Form W-4. 2012 tax return   A Form W-4 remains in effect until the employee gives you a new one. 2012 tax return When you receive a new Form W-4, do not adjust withholding for pay periods before the effective date of the new form. 2012 tax return Do not adjust withholding retroactively. 2012 tax return If an employee gives you a replacement Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. 2012 tax return For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. 2012 tax return A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. 2012 tax return Completing Form W-4. 2012 tax return   The amount of federal income tax withholding is based on marital status and withholding allowances. 2012 tax return Your employees may not base their withholding amounts on a fixed dollar amount or percentage. 2012 tax return However, the employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. 2012 tax return   Employees may claim fewer withholding allowances than they are entitled to claim. 2012 tax return They may do this to ensure that they have enough withholding or to offset other sources of taxable income that are not subject to withholding. 2012 tax return   See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. 2012 tax return Along with Form W-4, you may wish to order Publication 505 for use by your employees. 2012 tax return    Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. 2012 tax return If an employee wants additional withholding, he or she should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. 2012 tax return Exemption from federal income tax withholding. 2012 tax return   Generally, an employee may claim exemption from federal income tax withholding because he or she had no federal income tax liability last year and expects none this year. 2012 tax return See the Form W-4 instructions for more information. 2012 tax return However, the wages are still subject to social security and Medicare taxes. 2012 tax return   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. 2012 tax return To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. 2012 tax return If the employee does not give you a new Form W-4 by February 15, withhold tax based on the last valid Form W-4 you have for the employee that did not claim an exemption from withholding or, if one does not exist, withhold as if he or she is single with zero withholding allowances. 2012 tax return If the employee provides a new Form W-4 claiming an exemption from withholding on February 16 or later, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. 2012 tax return Withholding income taxes on the wages of nonresident alien employees. 2012 tax return   In general, you must withhold federal income taxes on the wages of nonresident alien employees. 2012 tax return However, see Publication 515 for exceptions to this general rule. 2012 tax return Also see Compensation paid to H-2A visa workers in section 3. 2012 tax return Withholding adjustment for nonresident alien employees. 2012 tax return   A special procedure applies for figuring the amount of income tax to withhold from wages of nonresident alien employees performing services within the United States for wages paid in 2014. 2012 tax return This procedure requires a special chart to be used with the withholding tables to determine the amount to withhold from the wages of the nonresident alien employee. 2012 tax return See Withholding adjustment for nonresident alien employees in section 9 of Publication 15 (Circular E). 2012 tax return Nonresident alien employee's Form W-4. 2012 tax return   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding; Request withholding as if they are single, regardless of their actual marital status; Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or Korea, he or she may claim more than one allowance); and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. 2012 tax return   If you maintain an electronic Form W-4 system, you should provide a field for nonresident alien employees to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. 2012 tax return    A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. 2012 tax return Form 8233. 2012 tax return   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. 2012 tax return See Publication 515 for details. 2012 tax return IRS review of requested Forms W-4. 2012 tax return   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. 2012 tax return You may also be directed to send certain Forms W-4 to the IRS. 2012 tax return You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. 2012 tax return Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. 2012 tax return The IRS may also require you to submit copies of Form W-4 to the IRS as directed by a revenue procedure or notice published in the Internal Revenue Bulletin. 2012 tax return When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. 2012 tax return   After submitting a copy of the requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). 2012 tax return However, if the IRS later notifies you in writing that the employee is not entitled to claim a complete exemption from withholding or more than the maximum number of withholding allowances specified by the IRS in the written notice, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the notice (commonly referred to as a “lock-in letter”). 2012 tax return Initial lock-in letter. 2012 tax return   The IRS uses information reported on Form W-2 to identify employees with withholding compliance problems. 2012 tax return In some cases, where a serious under-withholding problem is found to exist for a particular employee, the IRS may issue a lock-in letter to the employer specifying the maximum number of withholding allowances and marital status permitted for a specific employee. 2012 tax return You will also receive a copy for the employee that identifies the maximum number of withholding allowances permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate number of withholding allowances. 2012 tax return If the employee is employed by you as of the date of the notice, you must furnish the employee copy to the employee within 10 business days of receipt. 2012 tax return You may follow any reasonable business practice to furnish the employee copy to the employee. 2012 tax return Implementation of lock-in letter. 2012 tax return   When you receive the notice specifying the maximum number of withholding allowances and marital status permitted, you may not withhold immediately on the basis of the notice. 2012 tax return You must begin withholding tax on the basis of the notice for any wages paid after the date specified in the notice. 2012 tax return The delay between your receipt of the notice and the date to begin the withholding on the basis of the notice permits the employee to contact the IRS. 2012 tax return Seasonal employees and employees not currently performing services. 2012 tax return   If you receive a notice for an employee who is not currently performing services for you, you are still required to furnish the employee copy to the employee and withhold based on the notice if any of the following apply. 2012 tax return You are paying wages for the employee's prior services and the wages are subject to income tax withholding on or after the date specified in the notice. 2012 tax return You reasonably expect the employee to resume services within 12 months of the date of the notice. 2012 tax return The employee is on a bona fide leave of absence that does not exceed 12 months or the employee has a right to reemployment after the leave of absence. 2012 tax return Termination and re-hire of employees. 2012 tax return   If you are required to furnish and withhold based on the notice and the employment relationship is terminated after the date of the notice, you must continue to withhold based on the notice if you continue to pay any wages subject to income tax withholding. 2012 tax return You must also withhold based on the notice or modification notice (explained next) if the employee resumes the employment relationship with you within 12 months after the termination of the employment relationship. 2012 tax return Modification notice. 2012 tax return   After issuing the notice specifying the maximum number of withholding allowances and marital status permitted, the IRS may issue a subsequent notice (modification notice) that modifies the original notice. 2012 tax return The modification notice may change the marital status and/or the number of withholding allowances permitted. 2012 tax return You must withhold federal income tax based on the effective date specified in the modification notice. 2012 tax return New Form W-4 after IRS notice. 2012 tax return   After the IRS issues a notice or modification notice, if the employee provides you with a new Form W-4 claiming complete exemption from withholding or claims a marital status, a number of withholding allowances, and any additional withholding that results in less withholding than would result under the IRS notice or modification notice, you must disregard the new Form W-4. 2012 tax return You are required to withhold on the basis of the notice or modification notice unless the IRS subsequently notifies you to withhold based on the new Form W-4. 2012 tax return If the employee wants to put a new Form W-4 into effect that results in less withholding than required, the employee must contact the IRS. 2012 tax return   If, after you receive an IRS notice or modification notice, your employee provides you with a new Form W-4 that does not claim exemption from federal income tax withholding and claims a marital status, a number of withholding allowances, and any additional withholding that results in more withholding than would result under the notice or modification notice, you must withhold tax on the basis of that new Form W-4. 2012 tax return Otherwise, disregard any subsequent Forms W-4 provided by the employee and withhold based on the IRS notice or modification notice. 2012 tax return Substitute Forms W-4. 2012 tax return   You are encouraged to have your employees use the official version of Form W-4 to claim withholding allowances or exemption from withholding. 2012 tax return Call the IRS at 1-800-TAX-FORM (1-800-829-3676) or visit IRS. 2012 tax return gov to obtain copies of Form W-4. 2012 tax return   You may use a substitute version of Form W-4 to meet your business needs. 2012 tax return However, your substitute Form W-4 must contain language that is identical to the official Form W-4 and your form must meet all current IRS rules for substitute forms. 2012 tax return At the time that you provide your substitute form to the employee, you must provide him or her with all tables, instructions, and worksheets from the current Form W-4. 2012 tax return   You cannot accept a substitute Form W-4 developed by an employee, and the employee submitting such form will be treated as failing to furnish a Form W-4. 2012 tax return However, continue to use any valid Forms W-4 developed by your employees that you accepted before October 11, 2007. 2012 tax return Invalid Forms W-4. 2012 tax return   Any unauthorized change or addition to Form W-4 makes it invalid. 2012 tax return This includes taking out any language by which the employee certifies that the form is correct. 2012 tax return A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way that it is false. 2012 tax return An employee who submits a false Form W-4 may be subject to a $500 penalty. 2012 tax return You may treat a Form W-4 as invalid if the employee wrote “exempt” on line 7 and also entered a number on line 5 or an amount on line 6. 2012 tax return   When you get an invalid Form W-4, do not use it to figure federal income tax withholding. 2012 tax return Tell the employee that it is invalid and ask for another one. 2012 tax return If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. 2012 tax return However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before. 2012 tax return   For additional information about these rules, see Treasury Decision 9337, 2007-35 I. 2012 tax return R. 2012 tax return B. 2012 tax return 455, available at www. 2012 tax return irs. 2012 tax return gov/irb/2007-35_IRB/ar10. 2012 tax return html. 2012 tax return Amounts exempt from levy on wages, salary, and other income. 2012 tax return   If you receive a Notice of Levy on Wages, Salary, and Other Income—Forms 668-W(ACS), 668-W(c)(DO), or 668-W(ICS), you must withhold amounts as described in the instructions for these forms. 2012 tax return Publication 1494, Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income—Forms 668-W(ACS), 668-W(c)(DO), and 668-W(ICS), shows the exempt amount. 2012 tax return If a levy issued in a prior year is still in effect and the taxpayer submits a new Statement of Exemptions and Filing Status, use the current year Publication 1494 to compute the exempt amount. 2012 tax return How To Figure Federal Income Tax Withholding There are several ways to figure federal income tax withholding. 2012 tax return Wage bracket tables. 2012 tax return See section 13 for directions on how to use the tables. 2012 tax return Percentage method. 2012 tax return See section 13 for directions on how to use the percentage method. 2012 tax return Alternative formula tables for percentage method withholding. 2012 tax return See Publication 15-A. 2012 tax return Wage bracket percentage method withholding tables. 2012 tax return See Publication 15-A. 2012 tax return Other alternative methods. 2012 tax return See Publication 15-A. 2012 tax return Employers with automated payroll systems will find the two alternative formula tables and the two alternative wage bracket percentage method tables in Publication 15-A useful. 2012 tax return If an employee wants additional federal tax withheld, have the employee show the extra amount on Form W-4. 2012 tax return Supplemental wages. 2012 tax return   Supplemental wages are wage payments to an employee that are not regular wages. 2012 tax return They include, but are not limited to, bonuses, commissions, overtime pay, accumulated sick leave, severance pay, awards, prizes, back pay and retroactive pay increases for current employees, and payments for nondeductible moving expenses. 2012 tax return Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. 2012 tax return   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total was a single payment for a regular payroll period. 2012 tax return   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold federal income tax from your employee's regular wages. 2012 tax return If you withheld federal income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. 2012 tax return Withhold a flat 25% (no other percentage allowed). 2012 tax return If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. 2012 tax return If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. 2012 tax return Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. 2012 tax return Subtract the tax withheld from the regular wages. 2012 tax return Withhold the remaining tax from the supplemental wages. 2012 tax return If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and previous supplemental wage payments, and withhold the remaining tax from the current payment of supplemental wages. 2012 tax return If you did not withhold federal income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b above. 2012 tax return This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. 2012 tax return    Separate rules apply to any supplemental wages exceeding $1 million that you pay to an individual during the year. 2012 tax return See section 7 in Publication 15 (Circular E) for details. 2012 tax return   Regardless of the method that you use to withhold federal income tax on supplemental wages, they are generally subject to social security, Medicare, and FUTA taxes. 2012 tax return 6. 2012 tax return Required Notice to Employees About Earned Income Credit (EIC) You must notify employees who have no federal income tax withheld that they may be able to claim a tax refund because of the EIC. 2012 tax return Although you do not have to notify employees who claim exemption from withholding on Form W-4 about the EIC, you are encouraged to notify any employees whose wages for 2013 were less than $46,227 ($51,567 if married filing jointly) that they may be eligible to claim the credit for 2013. 2012 tax return This is because eligible employees may get a refund of the amount of EIC that is more than the tax that they owe. 2012 tax return You will meet the notification requirement if you issue to the employee Form W-2 with the EIC notice on the back of Copy B, or a substitute Form W-2 with the same statement. 2012 tax return You may also meet the requirement by providing Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), or your own statement that contains the same wording. 2012 tax return If a substitute Form W-2 is given to the employee on time but does not have the required statement, you must notify the employee within 1 week of the date that the substitute Form W-2 is given. 2012 tax return If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement by the date that Form W-2 is required to be given. 2012 tax return If Form W-2 is not required, you must notify the employee by February 7, 2014. 2012 tax return 7. 2012 tax return Depositing Taxes Generally, you must deposit both the employer and employee shares of social security and Medicare taxes and federal income tax withheld. 2012 tax return You must use electronic funds transfer to make all federal tax deposits. 2012 tax return See How To Deposit , later in this section. 2012 tax return The credit against employment taxes for COBRA premium assistance payments is treated as a deposit of taxes on the first day of your return period. 2012 tax return For more information, see COBRA premium assistance credit under Introduction. 2012 tax return Payment with return. 2012 tax return   You may make payments with Forms 943 or 945 instead of depositing if one of the following applies. 2012 tax return You report less than a $2,500 tax liability for the year (Form 943, line 11; Form 945, line 3) and you pay in full with a return that is filed on time. 2012 tax return However, if you are unsure that you will report less than $2,500, deposit under the rules explained in this section so that you will not be subject to failure-to-deposit penalties. 2012 tax return You are a monthly schedule depositor and make a payment in accordance with the Accuracy of Deposits Rule discussed later in this section. 2012 tax return This payment may be $2,500 or more. 2012 tax return Only monthly schedule depositors, defined later, are allowed to make an Accuracy of Deposits Rule payment with the return. 2012 tax return Semiweekly schedule depositors must timely deposit the amount. 2012 tax return See Accuracy of Deposits Rule and How To Deposit, later in this section. 2012 tax return When To Deposit If you employ both farm and nonfarm workers, do not combine the taxes reportable on Forms 941 or 944 with Form 943 to decide whether to make a deposit. 2012 tax return See Employers of Both Farm and Nonfarm Workers, later in this section. 2012 tax return The rules for determining when to deposit Form 943 taxes are discussed below. 2012 tax return See section 10 for the separate rules that apply to FUTA tax. 2012 tax return Under these rules, you are classified as either a monthly schedule depositor or a semiweekly schedule depositor. 2012 tax return The terms “monthly schedule depositor” and “semiweekly schedule depositor” do not refer to how often your business pays its employees or how often you are required to make deposits. 2012 tax return The terms identify which set of rules you must follow when you incur a tax liability (for example, when you have a payday). 2012 tax return The deposit schedule that you must use for a calendar year is determined from the tax liability reported on your Form 943, line 9, for the lookback period, discussed next. 2012 tax return If you reported $50,000 or less of Form 943 taxes for the lookback period, you are a monthly schedule depositor. 2012 tax return If you reported more than $50,000 of Form 943 taxes for the lookback period, you are a semiweekly schedule depositor. 2012 tax return Lookback period. 2012 tax return   The lookback period is the second calendar year preceding the current calendar year. 2012 tax return For example, the lookback period for 2014 is 2012. 2012 tax return Example of deposit schedule based on lookback period. 2012 tax return Rose Co. 2012 tax return reported taxes on Form 943 as follows. 2012 tax return 2012 — $48,000 2013 — $60,000 Rose Co. 2012 tax return is a monthly schedule depositor for 2014 because its taxes for the lookback period ($48,000 for calendar year 2012) were not more than $50,000. 2012 tax return However, for 2015, Rose Co. 2012 tax return is a semiweekly schedule depositor because the total taxes before adjustment for its lookback period ($60,000 for calendar year 2013) exceeded $50,000. 2012 tax return Adjustments to lookback period taxes. 2012 tax return   To determine your taxes for the lookback period, use only the tax that you reported on the original return (Form 943, line 9). 2012 tax return Do not include adjustments shown on Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund. 2012 tax return Example of adjustments. 2012 tax return An employer originally reported total tax of $45,000 for the lookback period in 2012. 2012 tax return The employer discovered during March 2014 that the tax reported for the lookback period was understated by $10,000 and corrected this error by filing Form 943-X. 2012 tax return The total tax reported in the lookback period is still $45,000. 2012 tax return The $10,000 adjustment is also not treated as part of the 2014 taxes. 2012 tax return Deposit period. 2012 tax return   The term “deposit period” refers to the period during which tax liabilities are accumulated for each required deposit due date. 2012 tax return For monthly schedule depositors, the deposit period is a calendar month. 2012 tax return The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday. 2012 tax return Monthly Deposit Schedule If the tax liability reported on Form 943, line 9, for the lookback period is $50,000 or less, you are a monthly schedule depositor for the current year. 2012 tax return You must deposit Form 943 taxes on payments made during a calendar month by the 15th day of the following month. 2012 tax return Monthly schedule example. 2012 tax return   Red Co. 2012 tax return is a seasonal employer and a monthly schedule depositor. 2012 tax return It pays wages each Friday. 2012 tax return It paid wages during August 2014, but did not pay any wages during September. 2012 tax return Red Co. 2012 tax return must deposit the combined tax liabilities for the August paydays by September 15. 2012 tax return Red Co. 2012 tax return does not have a deposit requirement for September (that is, due by October 15, 2014) because no wages were paid in September; therefore, it did not have a tax liability for September. 2012 tax return New employers. 2012 tax return   For agricultural employers, your tax liability for any year in the lookback period before the date you started or acquired your business is considered to be zero. 2012 tax return Therefore, you are a monthly schedule depositor for the first and second calendar years of your agricultural business (but see the $100,000 Next-Day Deposit Rule , later in this section). 2012 tax return Semiweekly Deposit Schedule You are a semiweekly schedule depositor for a calendar year if the tax liability on Form 943, line 9, during your lookback period was more than $50,000. 2012 tax return Under the semiweekly deposit schedule, deposit Form 943 taxes for payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. 2012 tax return Deposit amounts accumulated for payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. 2012 tax return Semiweekly depositors are not required to deposit twice a week if their payments were in the same semiweekly period unless the $100,000 Next-Day Deposit Rule (discussed later in this section) applies. 2012 tax return For example, if you made a payment on both Wednesday and Friday and incurred taxes of $10,000 for each pay date, deposit the $20,000 by the following Wednesday. 2012 tax return If you made no additional payments on Saturday through Tuesday, no deposit is due on Friday. 2012 tax return Semiweekly schedule depositors must complete Form 943-A, Agricultural Employer's Record of Federal Tax Liability, and submit it with Form 943. 2012 tax return Semiweekly Deposit Schedule IF the payday falls on a. 2012 tax return . 2012 tax return . 2012 tax return THEN deposit taxes by the following. 2012 tax return . 2012 tax return . 2012 tax return Wednesday, Thursday, and/or Friday Wednesday Saturday, Sunday, Monday, and/or Tuesday Friday Semiweekly schedule example. 2012 tax return   Green, Inc. 2012 tax return , is a semiweekly schedule depositor and pays wages once each month on the last Friday of the month. 2012 tax return Green, Inc. 2012 tax return , will deposit only once a month, but the deposit will be made under the semiweekly deposit schedule as follows. 2012 tax return Green, Inc. 2012 tax return 's tax liability for the April 25, 2014 (Friday), wage payment must be deposited by April 30, 2014 (Wednesday). 2012 tax return Semiweekly deposit period spanning two quarters. 2012 tax return   If you have more than one pay date during a semiweekly period and the pay dates fall in different calendar quarters, you will need to make separate deposits for the separate liabilities. 2012 tax return For example, if you have a pay date on Monday, March 31, 2014 (first quarter), and another pay date on Tuesday, April 1, 2014 (second quarter), two separate deposits will be required even though the pay dates fall within the same semiweekly period. 2012 tax return Both deposits will be due Friday, April 4, 2014 (3 business days from the end of the semiweekly deposit period). 2012 tax return Deposits on Business Days Only If a deposit is required to be made on a day that is not a business day, the deposit is considered timely if it is made by the close of the next business day. 2012 tax return A business day is any day other than a Saturday, Sunday, or legal holiday. 2012 tax return For example, if a deposit is required to be made on Friday and Friday is a legal holiday, the deposit is considered timely if it is made by the following Monday (if Monday is a business day). 2012 tax return Semiweekly schedule depositors   will always have 3 business days to make a deposit. 2012 tax return That is, if any of the 3 weekdays after the end of a semiweekly period is a legal holiday, you will have an additional day for each day that is a legal holiday to make the deposit. 2012 tax return For example, if a semiweekly schedule depositor accumulated taxes on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday (this allows 3 business days to make the deposit). 2012 tax return Legal holiday. 2012 tax return   The term “legal holiday” means any legal holiday in the District of Columbia. 2012 tax return Legal holidays for 2014 are listed below. 2012 tax return January 1— New Year's Day January 20— Birthday of Martin Luther King, Jr. 2012 tax return February 17— Washington's Birthday April 16— District of Columbia Emancipation Day May 26— Memorial Day July 4— Independence Day September 1— Labor Day October 13— Columbus Day November 11— Veterans' Day November 27— Thanksgiving Day December 25— Christmas Day $100,000 Next-Day Deposit Rule If you accumulate $100,000 or more of Form 943 taxes (that is, taxes reported on Form 943, line 11) on any day during a deposit period, you must deposit the tax by the close of the next business day, whether you are a monthly or a semiweekly schedule depositor. 2012 tax return For purposes of the $100,000 rule, do not continue accumulating a tax liability after the end of a deposit period. 2012 tax return For example, if a semiweekly schedule depositor has accumulated a liability of $95,000 on a Tuesday (of a Saturday-through-Tuesday deposit period) and accumulated a $10,000 liability on Wednesday, the $100,000 next-day deposit rule does not apply because the $10,000 is accumulated in the next deposit period. 2012 tax return Thus, $95,000 must be deposited by Friday and $10,000 must be deposited by the following Wednesday. 2012 tax return However, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. 2012 tax return For example, Fir Co. 2012 tax return is a semiweekly schedule depositor. 2012 tax return On Monday, Fir Co. 2012 tax return accumulates taxes of $110,000 and must deposit this amount on Tuesday, the next business day. 2012 tax return On Tuesday, Fir Co. 2012 tax return accumulates additional taxes of $30,000. 2012 tax return Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. 2012 tax return does not have to deposit the $30,000 until Friday (following the semiweekly deposit schedule). 2012 tax return If you are a monthly schedule depositor and you accumulate a $100,000 tax liability on any day, you become a semiweekly schedule depositor on the next day and remain so for at least the rest of the calendar year and for the following calendar year. 2012 tax return Example of the $100,000 next-day deposit rule. 2012 tax return   Elm, Inc. 2012 tax return , started its business on May 1, 2014. 2012 tax return Because Elm, Inc. 2012 tax return , is a new employer, the taxes for its lookback period are considered to be zero; therefore, Elm, Inc. 2012 tax return , is a monthly schedule depositor. 2012 tax return On May 8, Elm, Inc. 2012 tax return , paid wages for the first time and accumulated taxes of $50,000. 2012 tax return On May 9 (Friday), Elm, Inc. 2012 tax return , paid wages and accumulated taxes of $60,000, for a total of $110,000. 2012 tax return Because Elm, Inc. 2012 tax return , accumulated $110,000 on May 9, it must deposit $110,000 by May 12 (Monday), the next business day. 2012 tax return Elm, Inc. 2012 tax return , became a semiweekly schedule depositor on May 10. 2012 tax return It will be a semiweekly schedule depositor for the remainder of 2014 and for 2015. 2012 tax return Accuracy of Deposits Rule You are required to deposit 100% of your tax liability on or before the deposit due date. 2012 tax return However, penalties will not be applied for depositing less than 100% if both of the following conditions are met. 2012 tax return Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited. 2012 tax return The deposit shortfall is paid or deposited by the shortfall makeup date as described below. 2012 tax return Makeup Date for Deposit Shortfall:    Monthly Schedule Depositor—Deposit the shortfall or pay it with your return by the due date of your Form 943. 2012 tax return You may pay the shortfall with your Form 943 even if the amount is $2,500 or more. 2012 tax return Semiweekly Schedule Depositor—Deposit by the earlier of (a) the first Wednesday or Friday (whichever comes first) that falls on or after the 15th of the month following the month in which the shortfall occurred, or (b) the due date for Form 943. 2012 tax return For example, if a semiweekly schedule depositor has a deposit shortfall during February 2014, the shortfall makeup date is March 19, 2014 (Wednesday). 2012 tax return How To Deposit You must deposit employment taxes by electronic funds transfer. 2012 tax return See Payment with return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited. 2012 tax return Electronic deposit requirement. 2012 tax return   You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). 2012 tax return Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). 2012 tax return If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. 2012 tax return   EFTPS is a free service provided by the Department of Treasury. 2012 tax return To get more information or to enroll in EFTPS, call 1-800-555-4477 (business), 1-800-316-6541 (individual), or 1-800-733-4829 (TDD). 2012 tax return You can also visit the EFTPS website at www. 2012 tax return eftps. 2012 tax return gov. 2012 tax return Additional information about EFTPS is also available in Publication 966. 2012 tax return New employers that have a federal tax obligation will be pre-enrolled in EFTPS. 2012 tax return Call the toll-free number located in your Employer Identification Number (EIN) Package to activate your enrollment and begin making your tax deposit payments. 2012 tax return See When you receive your EIN in section 1 for more information. 2012 tax return Deposit record. 2012 tax return   For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. 2012 tax return The number can be used as a receipt or to trace the payment. 2012 tax return Depositing on time. 2012 tax return   For deposits made by EFTPS to be on time, you must initiate the deposit by 8 p. 2012 tax return m. 2012 tax return Eastern time the day before the date a deposit is due. 2012 tax return If you use a third party to make a deposit on your behalf, they may have different cutoff times. 2012 tax return Same-day payment option. 2012 tax return   If you fail to initiate a deposit transaction on EFTPS by 8 p. 2012 tax return m. 2012 tax return Eastern time the day before the date a deposit is due, you can still make your deposit on time by using the Federal Tax Application (FTA). 2012 tax return To use the same-day payment method, you will need to make arrangements with your financial institution ahead of time. 2012 tax return Please check with your financial institution regarding availability, deadlines, and costs. 2012 tax return Your financial institution may charge you a fee for payments made this way. 2012 tax return To learn more about the information you will need to provide to your financial institution to make a same-day wire payment, visit www. 2012 tax return eftps. 2012 tax return gov to download the Same-Day Payment Worksheet. 2012 tax return Deposit Penalties Penalties may apply if you do not make required deposits on time or if you make deposits for less than the required amount. 2012 tax return The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. 2012 tax return IRS may also waive deposit penalties if you inadvertently fail to deposit in the first quarter that a deposit is due, or the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return. 2012 tax return For amounts not properly deposited or not deposited on time, the penalty rates are shown next. 2012 tax return Penalty Charged for. 2012 tax return . 2012 tax return . 2012 tax return 2% Deposits made 1 to 5 days late. 2012 tax return 5% Deposits made 6 to 15 days late. 2012 tax return 10% Deposits made 16 or more days late. 2012 tax return Also applies to amounts paid within 10 days of the date of the first notice the IRS sent asking for the tax due. 2012 tax return 10% Amounts (that should have been deposited) paid directly to the IRS or paid with your tax return. 2012 tax return See Payment with return , earlier in this section, for exceptions. 2012 tax return 15% Amounts still unpaid more than 10 days after the date of the first notice that the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier. 2012 tax return Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. 2012 tax return Order in which deposits are applied. 2012 tax return   Deposits generally are applied to the most recent tax liability within the year. 2012 tax return If you receive a failure-to-deposit penalty notice, you may designate how your deposits are to be applied in order to minimize the amount of the penalty, if you do so within 90 days of the date of the notice. 2012 tax return Follow the instructions on the penalty notice that you received. 2012 tax return For examples on how the IRS will apply deposits and more information on designating deposits, see Revenue Procedure 2001-58. 2012 tax return You can find Revenue Procedure 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www. 2012 tax return irs. 2012 tax return gov/pub/irs-irbs/irb01-50. 2012 tax return pdf. 2012 tax return Example. 2012 tax return Cedar, Inc. 2012 tax return , is required to make a deposit of $1,000 on July 15 and $1,500 on August 15. 2012 tax return It does not make the deposit on July 15. 2012 tax return On August 15, Cedar, Inc. 2012 tax return , deposits $2,000. 2012 tax return Under the deposits rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the August 15 deposit and the remaining $500 is applied to the July deposit. 2012 tax return Accordingly, $500 of the July 15 liability remains undeposited. 2012 tax return The penalty on this underdeposit will apply as explained above. 2012 tax return Trust fund recovery penalty. 2012 tax return   If federal income, social security, or Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. 2012 tax return The penalty is the full amount of the unpaid trust fund tax. 2012 tax return This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business. 2012 tax return   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. 2012 tax return   A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. 2012 tax return A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds. 2012 tax return    Willfully means voluntarily, consciously, and intentionally. 2012 tax return A responsible person acts willfully if the person knows that the required actions of collecting, accounting for or paying over trust fund taxes are not taking place, or recklessly disregards obvious and known risks to the government's right to receive trust fund taxes. 2012 tax return “Average” failure-to-deposit penalty. 2012 tax return   IRS may assess an “averaged” failure-to-deposit penalty of 2% to 10% if you are a monthly schedule depositor and did not properly complete Form 943, line 17, when your tax liability shown on Form 943, line 11, was $2,500 or more. 2012 tax return IRS may also assess this penalty of 2% to 10% if you are a semiweekly schedule depositor and your tax liability shown on Form 943, line 11, was $2,500 or more and you did any of the following. 2012 tax return Completed Form 943, line 17, instead of Form 943-A. 2012 tax return Failed to attach a properly completed Form 943-A. 2012 tax return Completed Form 943-A incorrectly, for example, by entering tax deposits instead of tax liabilities in the numbered spaces. 2012 tax return   IRS figures the penalty by allocating your tax liability on Form 943, line 11, equally throughout the tax period. 2012 tax return Your deposits and payments may not be counted as timely because IRS does not know the actual dates of your tax liabilities. 2012 tax return   You can avoid the penalty by reviewing your return before filing it. 2012 tax return Follow these steps before filing your Form 943. 2012 tax return If you are a monthly schedule depositor, report your tax liabilities (not your deposits) in the monthly entry spaces on Form 943, line 17. 2012 tax return If you are a semiweekly schedule depositor, report your tax liabilities (not your deposits) on Form 943-A in the lines that represent the dates you paid your employees. 2012 tax return Verify that your total liability shown on Form 943, line 17, or Form 943-A, line M, equals your tax liability shown on Form 943, line 11. 2012 tax return Do not show negative amounts on Form 943, line 17, or Form 943-A. 2012 tax return For prior period errors discovered after December 31, 2008, do not adjust your tax liabilities reported on Form 943, line 17, or on Form 943-A. 2012 tax return Employers of Both Farm and Nonfarm Workers If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers (Form 943 taxes) separately from employment taxes for the nonfarm workers (Form 941 and 944 taxes). 2012 tax return Form 943 taxes and Form 941/944 taxes are not combined for purposes of applying any of the deposit schedule rules. 2012 tax return If a deposit is due, deposi
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The 2012 Tax Return

2012 tax return 12. 2012 tax return   Self-Employment Tax Table of Contents What's New for 2013 What's New for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Why Pay Self-Employment Tax? How To Pay Self-Employment TaxReplacing a lost social security card. 2012 tax return Name change. 2012 tax return Penalty for underpayment of estimated tax. 2012 tax return Who Must Pay Self-Employment Tax?Limited partner. 2012 tax return Community property. 2012 tax return Figuring Self-Employment EarningsLandlord Participation in Farming Methods for Figuring Net EarningsRegular Method Farm Optional Method Nonfarm Optional Method Using Both Optional Methods Reporting Self-Employment Tax What's New for 2013 Tax rates. 2012 tax return  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. 2012 tax return 4% to 12. 2012 tax return 4%. 2012 tax return The Medicare part of the tax remains at 2. 2012 tax return 9%. 2012 tax return As a result, the self-employment tax is increased from 13. 2012 tax return 3% to 15. 2012 tax return 3%. 2012 tax return Additional Medicare Tax. 2012 tax return . 2012 tax return  For tax years beginning in 2013, a 0. 2012 tax return 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. 2012 tax return Use Form 8959, Additional Medicare Tax, to figure this tax. 2012 tax return For more information, see the Instructions for Form 8959. 2012 tax return Maximum net earnings. 2012 tax return  The maximum net self-employment earnings subject to the social security part (12. 2012 tax return 4%) of the self-employment tax increased to $113,700 for 2013. 2012 tax return There is no maximum limit on earnings subject to the Medicare part (2. 2012 tax return 9%). 2012 tax return What's New for 2014 Maximum net earnings. 2012 tax return  The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. 2012 tax return Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. 2012 tax return It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. 2012 tax return You usually have to pay SE tax if you are self-employed. 2012 tax return You are usually self-employed if you operate your own farm on land you either own or rent. 2012 tax return You have to figure SE tax on Schedule SE (Form 1040). 2012 tax return Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. 2012 tax return See chapter 13 for information on employment taxes. 2012 tax return Self-employment tax rate. 2012 tax return   For tax years beginning in 2013, the self-employment tax rate is 15. 2012 tax return 3%. 2012 tax return The rate consists of two parts: 12. 2012 tax return 4% for social security (old-age, survivors, and disability insurance) and 2. 2012 tax return 9% for Medicare (hospital insurance). 2012 tax return Topics - This chapter discusses: Why pay self-employment tax How to pay self-employment tax Who must pay self-employment tax Figuring self-employment earnings Landlord participation in farming Methods for figuring net earnings Reporting self-employment tax Useful Items - You may want to see: Publication 541 Partnerships Form (and Instructions) 1040 U. 2012 tax return S. 2012 tax return Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. 2012 tax return S. 2012 tax return Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 2012 tax return See chapter 16 for information about getting publications and forms. 2012 tax return Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. 2012 tax return Your payments of SE tax contribute to your coverage under the social security system. 2012 tax return Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. 2012 tax return How to become insured under social security. 2012 tax return   You must be insured under the social security system before you begin receiving social security benefits. 2012 tax return You are insured if you have the required number of credits (also called quarters of coverage). 2012 tax return Earning credits in 2013. 2012 tax return   You can earn a maximum of four credits per year. 2012 tax return For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. 2012 tax return You need $4,640 ($1,160 × 4) of combined wages and self-employment earnings subject to social security tax to earn four credits in 2013. 2012 tax return It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. 2012 tax return For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office or visit the SSA website at www. 2012 tax return socialsecurity. 2012 tax return gov. 2012 tax return Making false statements to get or to increase social security benefits may subject you to penalties. 2012 tax return The Social Security Administration (SSA) time limit for posting self-employment earnings. 2012 tax return   Generally, the SSA will give you credit only for self-employment earnings reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. 2012 tax return    If you file your tax return or report a change in your self-employment earnings after the SSA time limit for posting self-employment earnings, the SSA may change its records, but only to remove or reduce the amount. 2012 tax return The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. 2012 tax return How To Pay Self-Employment Tax To pay SE tax, you must have a social security number (SSN) or an individual taxpayer identification number (ITIN). 2012 tax return This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. 2012 tax return An ITIN does not entitle you to social security benefits. 2012 tax return Obtaining an ITIN does not change your immigration or employment status under U. 2012 tax return S. 2012 tax return law. 2012 tax return Obtaining a social security number. 2012 tax return   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. 2012 tax return The application is also available in Spanish. 2012 tax return You can get this form at any Social Security office or by calling 1-800-772-1213. 2012 tax return    You can also download Form SS-5 from the Social Security Administration website at  www. 2012 tax return socialsecurity. 2012 tax return gov. 2012 tax return   If you have a social security number from the time you were an employee, you must use that number. 2012 tax return Do not apply for a new one. 2012 tax return Replacing a lost social security card. 2012 tax return   If you have a number but lost your card, file Form SS-5. 2012 tax return You will get a new card showing your original number, not a new number. 2012 tax return Name change. 2012 tax return   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. 2012 tax return Obtaining an individual taxpayer identification number. 2012 tax return   The IRS will issue you an ITIN, for tax use only, if you are a nonresident or resident alien and you do not have, and are not eligible to get, an SSN. 2012 tax return To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. 2012 tax return You can get this form by calling 1-800-829-3676. 2012 tax return For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. 2012 tax return Form W-7 and Publication 1915 are also available in Spanish. 2012 tax return    You can also download Form W-7 from the IRS website at IRS. 2012 tax return gov. 2012 tax return Paying estimated tax. 2012 tax return   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. 2012 tax return You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. 2012 tax return Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. 2012 tax return   However, if at least two-thirds of your gross income for 2013 or 2014 was from farming and you file your 2014 Form 1040 and pay all the tax due by March 2, 2015, you do not have to pay any estimated tax. 2012 tax return For more information about estimated tax for farmers, see chapter 15. 2012 tax return Penalty for underpayment of estimated tax. 2012 tax return   You may have to pay a penalty if you do not pay enough estimated tax by its due date. 2012 tax return Who Must Pay Self-Employment Tax? You must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. 2012 tax return The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. 2012 tax return Aliens. 2012 tax return   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. 2012 tax return S. 2012 tax return citizens. 2012 tax return Nonresident aliens are not subject to self-employment tax. 2012 tax return However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. 2012 tax return S. 2012 tax return residents for self-employment tax purposes. 2012 tax return For more information on aliens, see Publication 519, U. 2012 tax return S. 2012 tax return Tax Guide for Aliens. 2012 tax return Are you self-employed?   You are self-employed if you carry on a trade or business (such as running a farm) as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. 2012 tax return A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. 2012 tax return Share farmer. 2012 tax return   You are a self-employed farmer under an income-sharing arrangement if both the following apply. 2012 tax return You produce a crop or raise livestock on land belonging to another person. 2012 tax return Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. 2012 tax return Your net farm profit or loss from the income-sharing arrangement is reported on Schedule F (Form 1040) and included in your self-employment earnings. 2012 tax return   If you produce a crop or livestock on land belonging to another person and are to receive a specified rate of pay, a fixed sum of money, or a fixed quantity of the crop or livestock, and not a share of the crop or livestock or their proceeds, you may be either self-employed or an employee of the landowner. 2012 tax return This will depend on whether the landowner has the right to direct or control your performance of services. 2012 tax return Example. 2012 tax return A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. 2012 tax return Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. 2012 tax return The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. 2012 tax return The share farmer is provided a house in which to live. 2012 tax return The landowner and the share farmer decide on a cropping plan. 2012 tax return The share farmer is a self-employed farmer for purposes of the agreement to produce the crops, and the share farmer's part of the profit or loss from the crops is reported on Schedule F (Form 1040) and included in self-employment earnings. 2012 tax return The tax treatment of the landowner is discussed later under Landlord Participation in Farming. 2012 tax return Contract farming. 2012 tax return   Under typical contract farming arrangements, the grower receives a fixed payment per unit of crops or finished livestock delivered to the processor or packing company. 2012 tax return Since the grower typically furnishes labor and bears some production risk, the payments are reported on Schedule F and are therefore subject to self-employment tax. 2012 tax return 4-H Club or FFA project. 2012 tax return   If an individual participates in a 4-H Club or Future Farmers of America (FFA) project, any net income received from sales or prizes related to the project may be subject to income tax. 2012 tax return Report the net income as “Other income” on line 21 of Form 1040. 2012 tax return If necessary, attach a statement showing the gross income and expenses. 2012 tax return The net income may not be subject to SE tax if the project is primarily for educational purposes and not for profit, and is completed by the individual under the rules and economic restrictions of the sponsoring 4-H or FFA organization. 2012 tax return Such a project is generally not considered a trade or business. 2012 tax return Partners in a partnership. 2012 tax return   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. 2012 tax return Limited partner. 2012 tax return   If you are a limited partner, your partnership income is generally not subject to SE tax. 2012 tax return However, guaranteed payments you receive for services you perform for the partnership are subject to SE tax and should be reported to you in box 14 of your Schedule K-1 (Form 1065). 2012 tax return Business Owned and Operated by Spouses. 2012 tax return   If you and your spouse jointly own and operate a farm as an unincorporated business and share in the profits and losses, you are partners in a partnership whether or not you have a formal partnership agreement. 2012 tax return You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. 2012 tax return Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. 2012 tax return Qualified joint venture. 2012 tax return   If you and your spouse each materially participate as the only members of a jointly owned and operated farm, and you file a joint tax return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. 2012 tax return For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. 2012 tax return   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. 2012 tax return Each of you must file a separate Schedule F and a separate Schedule SE. 2012 tax return For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). 2012 tax return Spouse employee. 2012 tax return   If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. 2012 tax return For more information about employment taxes, see chapter 13. 2012 tax return Community property. 2012 tax return   If you are a partner and your distributive share of any income or loss from a trade or business carried on by the partnership is community property, treat your share as your self-employment earnings. 2012 tax return Do not treat any of your share as self-employment earnings of your spouse. 2012 tax return Figuring Self-Employment Earnings Farmer. 2012 tax return   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. 2012 tax return Partnership income or loss. 2012 tax return   If you are a member of a partnership that carries on a trade or business, the partnership should report your self-employment earnings in box 14, code A, of your Schedule K-1 (Form 1065). 2012 tax return Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). 2012 tax return Use these amounts if you use the farm or nonfarm optional method to figure net earnings from self-employment (see Methods for Figuring Net Earnings , later). 2012 tax return   If you are a general partner, you may need to reduce these reported earnings by amounts you claim as a section 179 deduction, unreimbursed partnership expenses, or depletion on oil and gas properties. 2012 tax return   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. 2012 tax return   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). 2012 tax return   For general information on partnerships, see Publication 541. 2012 tax return More than one business. 2012 tax return   If you have self-employment earnings from more than one trade, business, or profession, you generally must combine the net profit or loss from each to determine your total self-employment earnings. 2012 tax return A loss from one business reduces your profit from another business. 2012 tax return However, do not combine earnings from farm and nonfarm businesses if you are using one of the optional methods (discussed later) to figure net earnings. 2012 tax return Community property. 2012 tax return   If any of the income from a farm or business, other than a partnership, is community property under state law, it is included in the self-employment earnings of the spouse carrying on the trade or business. 2012 tax return Lost income payments. 2012 tax return   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. 2012 tax return These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. 2012 tax return Even if you are not farming when you receive the payment, it is included in self-employment earnings if it relates to your farm business (even though it is temporarily inactive). 2012 tax return A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. 2012 tax return Gain or loss. 2012 tax return   A gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers is not included in self-employment earnings. 2012 tax return It does not matter whether the disposition is a sale, exchange, or involuntary conversion. 2012 tax return For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. 2012 tax return Investment property. 2012 tax return Depreciable property or other fixed assets used in your trade or business. 2012 tax return Livestock held for draft, breeding, sport, or dairy purposes, and not held primarily for sale, regardless of how long the livestock was held, or whether it was raised or purchased. 2012 tax return Unharvested standing crops sold with land held more than 1 year. 2012 tax return Timber, coal, or iron ore held for more than 1 year if an economic interest was retained, such as a right to receive coal royalties. 2012 tax return   A gain or loss from the cutting of timber is not included in self-employment earnings if the cutting is treated as a sale or exchange. 2012 tax return For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. 2012 tax return Wages and salaries. 2012 tax return   Wages and salaries received for services performed as an employee and covered by social security or railroad retirement are not included in self-employment earnings. 2012 tax return   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. 2012 tax return Retired partner. 2012 tax return   Retirement income received by a partner from his or her partnership under a written plan is not included in self-employment earnings if all the following apply. 2012 tax return The retired partner performs no services for the partnership during the year. 2012 tax return The retired partner is owed only the retirement payments. 2012 tax return The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. 2012 tax return The payments to the retired partner are lifelong periodic payments. 2012 tax return Conservation Reserve Program (CRP) payments. 2012 tax return   Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a longterm contract with the USDA, agreeing to convert to a less intensive use of that cropland. 2012 tax return You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. 2012 tax return Cost share payments you receive may qualify for the costsharing exclusion. 2012 tax return See Cost-Sharing Exclusion (Improvements), above. 2012 tax return CRP payments are reported to you on Form 1099G. 2012 tax return Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. 2012 tax return See the instructions for Schedule SE (Form 1040). 2012 tax return Self-employed health insurance deduction. 2012 tax return   You cannot deduct the self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings on Schedule SE (Form 1040). 2012 tax return Landlord Participation in Farming As a general rule, income and deductions from rentals and from personal property leased with real estate are not included in determining self-employment earnings. 2012 tax return However, income and deductions from farm rentals, including government commodity program payments received by a landowner who rents land, are included if the rental arrangement provides that the landowner will, and does, materially participate in the production or management of production of the farm products on the land. 2012 tax return Crop shares. 2012 tax return   Rent paid in the form of crop shares is included in self-employment earnings for the year you sell, exchange, give away, or use the crop shares if you meet one of the four material participation tests (discussed next) at the time the crop shares are produced. 2012 tax return Feeding such crop shares to livestock is considered using them. 2012 tax return Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. 2012 tax return Material participation for landlords. 2012 tax return   You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. 2012 tax return You do at least three of the following. 2012 tax return Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. 2012 tax return Furnish at least half the tools, equipment, and livestock used in the production activities. 2012 tax return Advise or consult with your tenant. 2012 tax return Inspect the production activities periodically. 2012 tax return You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. 2012 tax return You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. 2012 tax return You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. 2012 tax return These tests may be used as general guides for determining whether you are a material participant. 2012 tax return Example. 2012 tax return Drew Houston agrees to produce a crop on J. 2012 tax return Clarke's cotton farm, with each receiving half the proceeds. 2012 tax return Clarke advises Houston when to plant, spray, and pick the cotton. 2012 tax return During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. 2012 tax return Houston furnishes all labor needed to grow and harvest the crop. 2012 tax return The management decisions made by Clarke in connection with the care of the cotton crop and his regular inspection of the crop establish that he participates to a material degree in the cotton production operations. 2012 tax return The income Clarke receives from his cotton farm is included in his self-employment earnings. 2012 tax return Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. 2012 tax return The regular method. 2012 tax return The farm optional method. 2012 tax return The nonfarm optional method. 2012 tax return You must use the regular method unless you are eligible to use one or both of the optional methods. 2012 tax return See Figure 12-1 , shown later. 2012 tax return Figure 12-1. 2012 tax return Can I Use the Optional Methods? Please click here for the text description of the image. 2012 tax return Figure 12–1. 2012 tax return Can I Use the Optional Methods? Why use an optional method?   You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. 2012 tax return You want to receive credit for social security benefit coverage. 2012 tax return You incurred child or dependent care expenses for which you could claim a credit. 2012 tax return (An optional method may increase your earned income, which could increase your credit. 2012 tax return ) You are entitled to the earned income credit. 2012 tax return (An optional method may increase your earned income, which could increase your credit. 2012 tax return ) You are entitled to the additional child tax credit. 2012 tax return (An optional method may increase your earned income, which could increase your credit. 2012 tax return ) Effects of using an optional method. 2012 tax return   Using an optional method could increase your SE tax. 2012 tax return Paying more SE tax may result in you getting higher social security disability or retirement benefits. 2012 tax return   If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller SE tax or no SE tax using the regular method. 2012 tax return   The optional methods may be used only to figure your SE tax. 2012 tax return To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. 2012 tax return Regular Method Multiply your total self-employment earnings by 92. 2012 tax return 35% (. 2012 tax return 9235) to get your net earnings under the regular method. 2012 tax return See Short Schedule SE, line 4, or Long Schedule SE, line 4a. 2012 tax return Net earnings figured using the regular method are also called “actual net earnings. 2012 tax return ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. 2012 tax return You can use this method if you meet either of the following tests. 2012 tax return Your gross farm income is $6,960 or less. 2012 tax return Your net farm profits are less than $5,024. 2012 tax return Gross farm income. 2012 tax return   Your gross farm income is the total of the amounts from: Schedule F (Form 1040), line 9, and Schedule K-1 (Form 1065), box 14, code B (from farm partnerships). 2012 tax return Net farm profits. 2012 tax return   Net farm profits generally are the total of the amounts from: Schedule F (Form 1040), line 34, and Schedule K-1 (Form 1065), box 14, code A (from farm partnerships). 2012 tax return However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. 2012 tax return For more information, see Partnership income or loss , earlier. 2012 tax return Figuring farm net earnings. 2012 tax return   If you meet either of the two tests explained above, use Table 12-1. 2012 tax return Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. 2012 tax return Table 12-1. 2012 tax return Figuring Farm Net Earnings IF your gross farm income  is. 2012 tax return . 2012 tax return . 2012 tax return THEN your net earnings are equal to. 2012 tax return . 2012 tax return . 2012 tax return $6,960 or less Two-thirds of your gross farm income. 2012 tax return More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. 2012 tax return   If your gross farm income is $6,960 or less and your farm net earnings figured under the farm optional method are less than your actual net earnings, you can use the farm optional method to reduce or eliminate your SE tax. 2012 tax return Your actual net earnings are your net earnings figured using the regular method, explained earlier. 2012 tax return Example. 2012 tax return Your gross farm income is $540 and your net farm profit is $460. 2012 tax return Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. 2012 tax return 35% of $460). 2012 tax return You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. 2012 tax return Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. 2012 tax return If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. 2012 tax return You can use this method even if you do not use the farm optional method for determining your farm net earnings and even if you have a net loss from your nonfarm business. 2012 tax return For more information about the nonfarm optional method, see Publication 334. 2012 tax return You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. 2012 tax return Using Both Optional Methods If you use both optional methods, you must add the net earnings figured under each method to arrive at your total net earnings from self-employment. 2012 tax return You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. 2012 tax return If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. 2012 tax return Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. 2012 tax return Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. 2012 tax return Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. 2012 tax return However, certain taxpayers must use Section B–Long Schedule SE. 2012 tax return Use the chart on page 1 of Schedule SE to find out which one to use. 2012 tax return If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. 2012 tax return Deduction for employer-equivalent portion of self-employment tax. 2012 tax return   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. 2012 tax return This deduction only affects your income tax. 2012 tax return It does not affect either your net earnings from self-employment or your SE tax. 2012 tax return   To deduct the tax, enter on Form 1040, line 27, the amount shown on Section A, Line 6, or Section B, line 13, Deduction for employer-equivalent portion of self-employment tax, of the Schedule SE. 2012 tax return Joint return. 2012 tax return   Even if you file a joint return, you cannot file a joint Schedule SE. 2012 tax return This is true whether one spouse or both spouses have self-employment earnings. 2012 tax return Your spouse is not considered self-employed just because you are. 2012 tax return If both of you have self-employment earnings, each of you must complete a separate Schedule SE. 2012 tax return However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. 2012 tax return Attach both schedules to the joint return. 2012 tax return If you and your spouse operate a business as a partnership, see Business Owned and Operated by Spouses and Qualified joint venture , earlier, under Who Must Pay Self-Employment Tax . 2012 tax return Prev  Up  Next   Home   More Online Publications