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Filing 1040x Electronically

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Filing 1040x Electronically

Filing 1040x electronically Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. Filing 1040x electronically Proc. Filing 1040x electronically 2013-16 Table of Contents SECTION 1. Filing 1040x electronically PURPOSE SECTION 2. Filing 1040x electronically BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. Filing 1040x electronically BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. Filing 1040x electronically FEDERAL INCOME TAX TREATMENT SECTION 5. Filing 1040x electronically INFORMATION-REPORTING OBLIGATIONS SECTION 6. Filing 1040x electronically HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. Filing 1040x electronically PENALTY RELIEF FOR 2012 SECTION 8. Filing 1040x electronically SCOPE AND EFFECTIVE DATE SECTION 9. Filing 1040x electronically DRAFTING INFORMATION SECTION 1. Filing 1040x electronically PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). Filing 1040x electronically Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). Filing 1040x electronically In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. Filing 1040x electronically Current plans call for HAMP to continue accepting new borrowers through the end of 2013. Filing 1040x electronically The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. Filing 1040x electronically SECTION 2. Filing 1040x electronically BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . Filing 1040x electronically 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Filing 1040x electronically A description of the program can be found at www. Filing 1040x electronically makinghomeaffordable. Filing 1040x electronically gov. Filing 1040x electronically . Filing 1040x electronically 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. Filing 1040x electronically These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. Filing 1040x electronically . Filing 1040x electronically 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. Filing 1040x electronically The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. Filing 1040x electronically However, as noted in section 2. Filing 1040x electronically 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. Filing 1040x electronically (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. Filing 1040x electronically ”) . Filing 1040x electronically 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. Filing 1040x electronically . Filing 1040x electronically 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. Filing 1040x electronically The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. Filing 1040x electronically (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. Filing 1040x electronically ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). Filing 1040x electronically Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. Filing 1040x electronically Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. Filing 1040x electronically . Filing 1040x electronically 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. Filing 1040x electronically (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. Filing 1040x electronically ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. Filing 1040x electronically . Filing 1040x electronically 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). Filing 1040x electronically If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. Filing 1040x electronically These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. Filing 1040x electronically The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. Filing 1040x electronically The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. Filing 1040x electronically For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. Filing 1040x electronically ” . Filing 1040x electronically 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). Filing 1040x electronically . Filing 1040x electronically 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. Filing 1040x electronically 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. Filing 1040x electronically . Filing 1040x electronically 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. Filing 1040x electronically SECTION 3. Filing 1040x electronically BACKGROUND—APPLICABLE PROVISIONS OF LAW . Filing 1040x electronically 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. Filing 1040x electronically See § 61(a)(12). Filing 1040x electronically . Filing 1040x electronically 02 Under § 1. Filing 1040x electronically 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. Filing 1040x electronically In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. Filing 1040x electronically However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. Filing 1040x electronically See § 1. Filing 1040x electronically 1001-3(c)(6). Filing 1040x electronically . Filing 1040x electronically 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. Filing 1040x electronically 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. Filing 1040x electronically If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. Filing 1040x electronically See also § 1. Filing 1040x electronically 61-12(c). Filing 1040x electronically . Filing 1040x electronically 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. Filing 1040x electronically If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. Filing 1040x electronically See, e. Filing 1040x electronically g. Filing 1040x electronically , §§ 1. Filing 1040x electronically 1272-1(c)(5) and 1. Filing 1040x electronically 1274-2(d). Filing 1040x electronically . Filing 1040x electronically 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. Filing 1040x electronically Section 108(a)(1)(E) and 108(a)(1)(B). Filing 1040x electronically (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. Filing 1040x electronically ) . Filing 1040x electronically 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. Filing 1040x electronically . Filing 1040x electronically 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. Filing 1040x electronically See §§ 108(h) and 163(h)(3)(B)(i). Filing 1040x electronically . Filing 1040x electronically 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). Filing 1040x electronically Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. Filing 1040x electronically . Filing 1040x electronically 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. Filing 1040x electronically . Filing 1040x electronically 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. Filing 1040x electronically Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. Filing 1040x electronically . Filing 1040x electronically 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. Filing 1040x electronically See § 108(h)(1). Filing 1040x electronically If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). Filing 1040x electronically See § 108(b). Filing 1040x electronically For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Filing 1040x electronically . Filing 1040x electronically 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). Filing 1040x electronically See Form 982 instructions and Publication 4681. Filing 1040x electronically This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. Filing 1040x electronically . Filing 1040x electronically 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. Filing 1040x electronically See Notice 2003-18, 2003-1 C. Filing 1040x electronically B. Filing 1040x electronically 699, and Rev. Filing 1040x electronically Rul. Filing 1040x electronically 79-356, 1979-2 C. Filing 1040x electronically B. Filing 1040x electronically 28. Filing 1040x electronically However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). Filing 1040x electronically See Rev. Filing 1040x electronically Rul. Filing 1040x electronically 2005-46, 2005-2 C. Filing 1040x electronically B. Filing 1040x electronically 120, and Rev. Filing 1040x electronically Rul. Filing 1040x electronically 75-246, 1975-1 C. Filing 1040x electronically B. Filing 1040x electronically 24. Filing 1040x electronically . Filing 1040x electronically 14 Under § 451 and § 1. Filing 1040x electronically 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. Filing 1040x electronically . Filing 1040x electronically 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. Filing 1040x electronically See § 6041(a) and (d) and § 1. Filing 1040x electronically 6041-1(a)(1) and (b). Filing 1040x electronically . Filing 1040x electronically 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. Filing 1040x electronically See § 6050P(a)-(c) and §§ 1. Filing 1040x electronically 6050P-1(a) and 1. Filing 1040x electronically 6050P-2(a) and (d). Filing 1040x electronically . Filing 1040x electronically 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. Filing 1040x electronically These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. Filing 1040x electronically Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. Filing 1040x electronically ” . Filing 1040x electronically 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. Filing 1040x electronically These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. Filing 1040x electronically Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. Filing 1040x electronically SECTION 4. Filing 1040x electronically FEDERAL INCOME TAX TREATMENT . Filing 1040x electronically 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. Filing 1040x electronically See § 1. Filing 1040x electronically 1001-3. Filing 1040x electronically At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. Filing 1040x electronically See also § 61(a)(12) and § 1. Filing 1040x electronically 61-12(c). Filing 1040x electronically . Filing 1040x electronically 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. Filing 1040x electronically Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. Filing 1040x electronically Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. Filing 1040x electronically . Filing 1040x electronically 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. Filing 1040x electronically Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. Filing 1040x electronically . Filing 1040x electronically 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. Filing 1040x electronically Therefore, for purposes of § 1. Filing 1040x electronically 1001-3, the date of the modification is the date of the permanent modification. Filing 1040x electronically . Filing 1040x electronically 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. Filing 1040x electronically 01 of this revenue procedure for the taxable year in which the permanent modification occurs. Filing 1040x electronically Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. Filing 1040x electronically The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. Filing 1040x electronically . Filing 1040x electronically 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. Filing 1040x electronically . Filing 1040x electronically 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. Filing 1040x electronically This is consistent with Rev. Filing 1040x electronically Rul. Filing 1040x electronically 2009-19, 2009-28 I. Filing 1040x electronically R. Filing 1040x electronically B. Filing 1040x electronically 111, which addressed the treatment of Pay-for-Performance Success Payments. Filing 1040x electronically . Filing 1040x electronically 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. Filing 1040x electronically If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. Filing 1040x electronically . Filing 1040x electronically 09 As described in section 2. Filing 1040x electronically 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. Filing 1040x electronically To the extent that the HAMP-PRA borrower is described in section 4. Filing 1040x electronically 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. Filing 1040x electronically To the extent that the HAMP-PRA borrower is described in section 4. Filing 1040x electronically 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. Filing 1040x electronically SECTION 5. Filing 1040x electronically INFORMATION-REPORTING OBLIGATIONS . Filing 1040x electronically 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. Filing 1040x electronically A copy of this form is required to be furnished to the borrower. Filing 1040x electronically . Filing 1040x electronically 02 As stated in sections 4. Filing 1040x electronically 01 and 4. Filing 1040x electronically 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. Filing 1040x electronically . Filing 1040x electronically 03 An investor is an applicable entity that is required under § 1. Filing 1040x electronically 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. Filing 1040x electronically Under § 1. Filing 1040x electronically 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. Filing 1040x electronically Identifiable events determine when Forms 1099-C have to be issued. Filing 1040x electronically Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. Filing 1040x electronically This rule under § 1. Filing 1040x electronically 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. Filing 1040x electronically . Filing 1040x electronically 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. Filing 1040x electronically That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). Filing 1040x electronically . Filing 1040x electronically 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Filing 1040x electronically 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. Filing 1040x electronically Under § 6041, these payments are not subject to information reporting. Filing 1040x electronically See Notice 2011-14, 2011-11 I. Filing 1040x electronically R. Filing 1040x electronically B. Filing 1040x electronically 544, 546. Filing 1040x electronically . Filing 1040x electronically 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Filing 1040x electronically 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. Filing 1040x electronically The payment is subject to the information reporting requirements of § 6041, as described in section 3. Filing 1040x electronically 15 of this revenue procedure. Filing 1040x electronically Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. Filing 1040x electronically SECTION 6. Filing 1040x electronically HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . Filing 1040x electronically 01 In general. Filing 1040x electronically The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). Filing 1040x electronically As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. Filing 1040x electronically Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. Filing 1040x electronically A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. Filing 1040x electronically 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. Filing 1040x electronically Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. Filing 1040x electronically 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. Filing 1040x electronically . Filing 1040x electronically 02 HAMP-PRA borrower options. Filing 1040x electronically A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. Filing 1040x electronically 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. Filing 1040x electronically If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. Filing 1040x electronically 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. Filing 1040x electronically . Filing 1040x electronically 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. Filing 1040x electronically (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. Filing 1040x electronically (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. Filing 1040x electronically 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. Filing 1040x electronically 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. Filing 1040x electronically This section 6. Filing 1040x electronically 03(2) applies only if the change to reporting the discharge using the method described in section 6. Filing 1040x electronically 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. Filing 1040x electronically To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. Filing 1040x electronically (3) Example. Filing 1040x electronically The following example illustrates the application of section 6. Filing 1040x electronically 03(2) of this revenue procedure. Filing 1040x electronically In 2010, B’s basis in B’s principal residence was $330,000. Filing 1040x electronically In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. Filing 1040x electronically B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). Filing 1040x electronically The trial period plan effective date also fell in 2010. Filing 1040x electronically B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. Filing 1040x electronically 02(2) of this revenue procedure. Filing 1040x electronically That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. Filing 1040x electronically The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. Filing 1040x electronically For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. Filing 1040x electronically 02(1) of this revenue procedure. Filing 1040x electronically Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. Filing 1040x electronically 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). Filing 1040x electronically (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. Filing 1040x electronically 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. Filing 1040x electronically 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. Filing 1040x electronically Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. Filing 1040x electronically 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. Filing 1040x electronically Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. Filing 1040x electronically (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. Filing 1040x electronically 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. Filing 1040x electronically The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. Filing 1040x electronically (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. Filing 1040x electronically The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). Filing 1040x electronically The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. Filing 1040x electronically . Filing 1040x electronically 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. Filing 1040x electronically (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. Filing 1040x electronically Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. Filing 1040x electronically Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. Filing 1040x electronically If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. Filing 1040x electronically (2) A HAMP-PRA borrower who has been using the method described in section 6. Filing 1040x electronically 02(1) of this revenue procedure may change to the method described in section 6. Filing 1040x electronically 02(2) but must comply with the consistency and open-year requirements described in section 6. Filing 1040x electronically 01 of this revenue procedure. Filing 1040x electronically SECTION 7. Filing 1040x electronically PENALTY RELIEF FOR 2012 . Filing 1040x electronically 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. Filing 1040x electronically 03 through 5. Filing 1040x electronically 04 and section 8. Filing 1040x electronically 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. Filing 1040x electronically 01 through 4. Filing 1040x electronically 04 of this revenue procedure) that is required to be reported for 2012. Filing 1040x electronically (2) Not later than March 28, 2013, a statement is sent to the Service. Filing 1040x electronically It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. Filing 1040x electronically 01(1) of this revenue procedure. Filing 1040x electronically The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . Filing 1040x electronically 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. Filing 1040x electronically 06 and 8. Filing 1040x electronically 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. Filing 1040x electronically . Filing 1040x electronically 03 Section 8. Filing 1040x electronically 03 and 8. Filing 1040x electronically 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. Filing 1040x electronically SECTION 8. Filing 1040x electronically SCOPE AND EFFECTIVE DATE . Filing 1040x electronically 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. Filing 1040x electronically . Filing 1040x electronically 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. Filing 1040x electronically . Filing 1040x electronically 03 Because of the effective date in section 8. Filing 1040x electronically 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. Filing 1040x electronically 03 through 5. Filing 1040x electronically 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. Filing 1040x electronically 03 through 5. Filing 1040x electronically 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. Filing 1040x electronically . Filing 1040x electronically 04 Because of the effective date in section 8. Filing 1040x electronically 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. Filing 1040x electronically 06 of this revenue procedure. Filing 1040x electronically SECTION 9. Filing 1040x electronically DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. Filing 1040x electronically Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. Filing 1040x electronically Pflanz and Sheldon A. Filing 1040x electronically Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. Filing 1040x electronically Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). Filing 1040x electronically For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). Filing 1040x electronically Prev  Up  Next   Home   More Internal Revenue Bulletins
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

North Carolina Department of Agriculture and Consumer Services

Website: North Carolina Department of Agriculture and Consumer Services

Address: North Carolina Department of Agriculture and Consumer Services
1001 Mail Service Center
Raleigh, NC 27699-1001

Phone Number: 919-707-3000

North Carolina Office of the Attorney General

Website: North Carolina Office of the Attorney General

Address: North Carolina Office of the Attorney General
Consumer Protection Division
Mail Service Center 9001
Raleigh, NC 27699-9001

Phone Number: 919-716-6000 919-716-0058 (in Spanish)

Toll-free: 1-877-566-7226 (NC)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Commissioner of Banks

Website: Commissioner of Banks

Address: Commissioner of Banks
4309 Mail Service Center
Raleigh, NC 27699-4309

Toll-free: 1-888-384-3811

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
Consumer Services Division
1201 Mail Service Center
Raleigh, NC 27699-1201

Phone Number: 919-807-6750

Toll-free: 1-800-546-5664 (NC)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Secretary of State

Website: Secretary of State

Address: Secretary of State
Securities Division
PO Box 29622
Raleigh, NC 27626-0622

Phone Number: 919-733-3924

Toll-free: 1-800-688-4507 (Investor Hotline)

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Utilities Commission

Website: Utilities Commission

Address: Utilities Commission
Consumer Services
4325 Mail Service Center
Raleigh, NC 27699-4325

Phone Number: 919-733-9277

Toll-free: 1-866-380-9816

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The Filing 1040x Electronically

Filing 1040x electronically Publication 15 - Main Content Table of Contents 1. Filing 1040x electronically Employer Identification Number (EIN) 2. Filing 1040x electronically Who Are Employees?Relief provisions. Filing 1040x electronically Business Owned and Operated by Spouses 3. Filing 1040x electronically Family Employees 4. Filing 1040x electronically Employee's Social Security Number (SSN)Registering for SSNVS. Filing 1040x electronically 5. Filing 1040x electronically Wages and Other CompensationAccountable plan. Filing 1040x electronically Nonaccountable plan. Filing 1040x electronically Per diem or other fixed allowance. Filing 1040x electronically 50% test. Filing 1040x electronically Health Savings Accounts and medical savings accounts. Filing 1040x electronically Nontaxable fringe benefits. Filing 1040x electronically When fringe benefits are treated as paid. Filing 1040x electronically Valuation of fringe benefits. Filing 1040x electronically Withholding on fringe benefits. Filing 1040x electronically Depositing taxes on fringe benefits. Filing 1040x electronically 6. Filing 1040x electronically TipsOrdering rule. Filing 1040x electronically 7. Filing 1040x electronically Supplemental Wages 8. Filing 1040x electronically Payroll Period 9. Filing 1040x electronically Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Filing 1040x electronically Required Notice to Employees About the Earned Income Credit (EIC) 11. Filing 1040x electronically Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Filing 1040x electronically Filing Form 941 or Form 944 13. Filing 1040x electronically Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Filing 1040x electronically Federal Unemployment (FUTA) TaxSuccessor employer. Filing 1040x electronically Household employees. Filing 1040x electronically When to deposit. Filing 1040x electronically Household employees. Filing 1040x electronically Electronic filing by reporting agents. Filing 1040x electronically 16. Filing 1040x electronically How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Filing 1040x electronically Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Filing 1040x electronically The EIN is a nine-digit number the IRS issues. Filing 1040x electronically The digits are arranged as follows: 00-0000000. Filing 1040x electronically It is used to identify the tax accounts of employers and certain others who have no employees. Filing 1040x electronically Use your EIN on all of the items you send to the IRS and SSA. Filing 1040x electronically For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Filing 1040x electronically If you do not have an EIN, you may apply for one online. Filing 1040x electronically Go to the IRS. Filing 1040x electronically gov and click on the Apply for an EIN Online link under Tools. Filing 1040x electronically 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. Filing 1040x electronically Do not use an SSN in place of an EIN. Filing 1040x electronically You should have only one EIN. Filing 1040x electronically If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Filing 1040x electronically Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Filing 1040x electronically The IRS will tell you which number to use. Filing 1040x electronically If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Filing 1040x electronically If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. Filing 1040x electronically 2. Filing 1040x electronically Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Filing 1040x electronically See Publication 15-A for details on statutory employees and nonemployees. Filing 1040x electronically Employee status under common law. Filing 1040x electronically   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. Filing 1040x electronically This is so even when you give the employee freedom of action. Filing 1040x electronically What matters is that you have the right to control the details of how the services are performed. Filing 1040x electronically See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Filing 1040x electronically   Generally, people in business for themselves are not employees. Filing 1040x electronically For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Filing 1040x electronically However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Filing 1040x electronically   If an employer-employee relationship exists, it does not matter what it is called. Filing 1040x electronically The employee may be called an agent or independent contractor. Filing 1040x electronically It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Filing 1040x electronically Statutory employees. Filing 1040x electronically   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Filing 1040x electronically Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. Filing 1040x electronically An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Filing 1040x electronically A full-time life insurance salesperson who sells primarily for one company. Filing 1040x electronically A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. Filing 1040x electronically A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. Filing 1040x electronically The orders must be for merchandise for resale or supplies for use in the customer's business. Filing 1040x electronically The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Filing 1040x electronically    Statutory nonemployees. Filing 1040x electronically   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Filing 1040x electronically They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Filing 1040x electronically H-2A agricultural workers. Filing 1040x electronically   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Filing 1040x electronically Treating employees as nonemployees. Filing 1040x electronically   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. Filing 1040x electronically You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. Filing 1040x electronically The applicable rates depend on whether you filed required Forms 1099. Filing 1040x electronically You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. Filing 1040x electronically You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Filing 1040x electronically You continue to owe the full employer share of social security and Medicare taxes. Filing 1040x electronically The employee remains liable for the employee share of social security and Medicare taxes. Filing 1040x electronically See Internal Revenue Code section 3509 for details. Filing 1040x electronically Also see the Instructions for Form 941-X. Filing 1040x electronically   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Filing 1040x electronically Section 3509 is not available for reclassifying statutory employees. Filing 1040x electronically See Statutory employees , earlier in this section. Filing 1040x electronically   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Filing 1040x electronically 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Filing 1040x electronically For Medicare taxes; employer rate of 1. Filing 1040x electronically 45% plus 20% of the employee rate of 1. Filing 1040x electronically 45%, for a total rate of 1. Filing 1040x electronically 74% of wages. Filing 1040x electronically For Additional Medicare Tax; 0. Filing 1040x electronically 18% (20% of the employee rate of 0. Filing 1040x electronically 9%) of wages subject to Additional Medicare Tax. Filing 1040x electronically For income tax withholding, the rate is 1. Filing 1040x electronically 5% of wages. Filing 1040x electronically   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Filing 1040x electronically 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Filing 1040x electronically For Medicare taxes; employer rate of 1. Filing 1040x electronically 45% plus 40% of the employee rate of 1. Filing 1040x electronically 45%, for a total rate of 2. Filing 1040x electronically 03% of wages. Filing 1040x electronically For Additional Medicare Tax; 0. Filing 1040x electronically 36% (40% of the employee rate of 0. Filing 1040x electronically 9%) of wages subject to Additional Medicare Tax. Filing 1040x electronically For income tax withholding, the rate is 3. Filing 1040x electronically 0% of wages. Filing 1040x electronically Relief provisions. Filing 1040x electronically   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Filing 1040x electronically To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. Filing 1040x electronically You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Filing 1040x electronically See Publication 1976, Do You Qualify for Relief Under Section 530. Filing 1040x electronically IRS help. Filing 1040x electronically   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Filing 1040x electronically Voluntary Classification Settlement Program (VCSP). Filing 1040x electronically   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Filing 1040x electronically To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Filing 1040x electronically For more information visit IRS. Filing 1040x electronically gov and enter “VCSP” in the search box. Filing 1040x electronically Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Filing 1040x electronically See Publication 541, Partnerships, for more details. Filing 1040x electronically The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Filing 1040x electronically Exception—Qualified joint venture. Filing 1040x electronically   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. Filing 1040x electronically 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). Filing 1040x electronically   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. Filing 1040x electronically Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Filing 1040x electronically   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Filing 1040x electronically 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. Filing 1040x electronically Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Filing 1040x electronically 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. Filing 1040x electronically    Note. Filing 1040x electronically If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Filing 1040x electronically   For more information on qualified joint ventures, visit IRS. Filing 1040x electronically gov and enter “qualified joint venture” in the search box. Filing 1040x electronically Exception—Community income. Filing 1040x electronically   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. Filing 1040x electronically S. Filing 1040x electronically possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Filing 1040x electronically You may still make an election to be taxed as a qualified joint venture instead of a partnership. Filing 1040x electronically See Exception—Qualified joint venture , earlier. Filing 1040x electronically 3. Filing 1040x electronically Family Employees Child employed by parents. Filing 1040x electronically   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Filing 1040x electronically If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. Filing 1040x electronically However, see Covered services of a child or spouse , later in this section. Filing 1040x electronically Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. Filing 1040x electronically Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. Filing 1040x electronically One spouse employed by another. Filing 1040x electronically   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. Filing 1040x electronically However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. Filing 1040x electronically Covered services of a child or spouse. Filing 1040x electronically   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. Filing 1040x electronically Parent employed by son or daughter. Filing 1040x electronically   When the employer is a son or daughter employing his or her parent the following rules apply. Filing 1040x electronically Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. Filing 1040x electronically Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. Filing 1040x electronically    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. Filing 1040x electronically   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Filing 1040x electronically 4. Filing 1040x electronically Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. Filing 1040x electronically This requirement also applies to resident and nonresident alien employees. Filing 1040x electronically You should ask your employee to show you his or her social security card. Filing 1040x electronically The employee may show the card if it is available. Filing 1040x electronically Do not accept a social security card that says “Not valid for employment. Filing 1040x electronically ” A social security number issued with this legend does not permit employment. Filing 1040x electronically You may, but are not required to, photocopy the social security card if the employee provides it. Filing 1040x electronically If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Filing 1040x electronically See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Filing 1040x electronically Applying for a social security card. Filing 1040x electronically   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. Filing 1040x electronically You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Filing 1040x electronically socialsecurity. Filing 1040x electronically gov/online/ss-5. Filing 1040x electronically html. Filing 1040x electronically The employee must complete and sign Form SS-5; it cannot be filed by the employer. Filing 1040x electronically 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. Filing 1040x electronically Applying for a social security number. Filing 1040x electronically   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Filing 1040x electronically If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Filing 1040x electronically 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. Filing 1040x electronically Furnish copies B, C, and 2 of Form W-2c to the employee. Filing 1040x electronically Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. Filing 1040x electronically For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Filing 1040x electronically socialsecurity. Filing 1040x electronically gov/employer. Filing 1040x electronically Advise your employee to correct the SSN on his or her original Form W-2. Filing 1040x electronically Correctly record the employee's name and SSN. Filing 1040x electronically   Record the name and number of each employee as they are shown on the employee's social security card. Filing 1040x electronically 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. Filing 1040x electronically 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. Filing 1040x electronically If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported for the most recently filed Form W-2. Filing 1040x electronically It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. Filing 1040x electronically IRS individual taxpayer identification numbers (ITINs) for aliens. Filing 1040x electronically   Do not accept an ITIN in place of an SSN for employee identification or for work. Filing 1040x electronically An ITIN is only available to resident and nonresident aliens who are not eligible for U. Filing 1040x electronically S. Filing 1040x electronically employment and need identification for other tax purposes. Filing 1040x electronically You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). Filing 1040x electronically    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Filing 1040x electronically 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. Filing 1040x electronically Do not use an ITIN in place of an SSN on Form W-2. Filing 1040x electronically Verification of social security numbers. Filing 1040x electronically   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Filing 1040x electronically Visit www. Filing 1040x electronically socialsecurity. Filing 1040x electronically gov/employer/ssnv. Filing 1040x electronically htm for more information. Filing 1040x electronically Registering for SSNVS. Filing 1040x electronically   You must register online and receive authorization from your employer to use SSNVS. Filing 1040x electronically To register, visit SSA's website at www. Filing 1040x electronically ssa. Filing 1040x electronically gov/employer and click on the Business Services Online link. Filing 1040x electronically Follow the registration instructions to obtain a user identification (ID) and password. Filing 1040x electronically You will need to provide the following information about yourself and your company. Filing 1040x electronically Name. Filing 1040x electronically SSN. Filing 1040x electronically Date of birth. Filing 1040x electronically Type of employer. Filing 1040x electronically EIN. Filing 1040x electronically Company name, address, and telephone number. Filing 1040x electronically Email address. Filing 1040x electronically   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Filing 1040x electronically You must enter the activation code online to use SSNVS. Filing 1040x electronically 5. Filing 1040x electronically Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Filing 1040x electronically The pay may be in cash or in other forms. Filing 1040x electronically It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Filing 1040x electronically It does not matter how you measure or make the payments. Filing 1040x electronically Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. Filing 1040x electronically Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Filing 1040x electronically More information. Filing 1040x electronically   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Filing 1040x electronically Also, see section 15 for exceptions to the general rules for wages. Filing 1040x electronically Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Filing 1040x electronically Publication 15-B provides information on other forms of compensation, including: Accident and health benefits, Achievement awards, Adoption assistance, Athletic facilities, De minimis (minimal) benefits, Dependent care assistance, Educational assistance, Employee discounts, Employee stock options, Employer-provided cell phones, Group-term life insurance coverage, Health Savings Accounts, Lodging on your business premises, Meals, Moving expense reimbursements, No-additional-cost services, Retirement planning services, Transportation (commuting) benefits, Tuition reduction, and Working condition benefits. Filing 1040x electronically Employee business expense reimbursements. Filing 1040x electronically   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Filing 1040x electronically How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Filing 1040x electronically If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Filing 1040x electronically   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Filing 1040x electronically Accountable plan. Filing 1040x electronically   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Filing 1040x electronically They must have paid or incurred deductible expenses while performing services as your employees. Filing 1040x electronically The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. Filing 1040x electronically They must substantiate these expenses to you within a reasonable period of time. Filing 1040x electronically They must return any amounts in excess of substantiated expenses within a reasonable period of time. Filing 1040x electronically   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Filing 1040x electronically   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. Filing 1040x electronically This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. Filing 1040x electronically   A reasonable period of time depends on the facts and circumstances. Filing 1040x electronically Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Filing 1040x electronically Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. Filing 1040x electronically Nonaccountable plan. Filing 1040x electronically   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Filing 1040x electronically Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. Filing 1040x electronically   See section 7 for more information on supplemental wages. Filing 1040x electronically Per diem or other fixed allowance. Filing 1040x electronically   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Filing 1040x electronically In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Filing 1040x electronically The 2013 standard mileage rate for auto expenses was 56. Filing 1040x electronically 5 cents per mile. Filing 1040x electronically The rate for 2014 is 56 cents per mile. Filing 1040x electronically   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Filing 1040x electronically Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). Filing 1040x electronically   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Filing 1040x electronically This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Filing 1040x electronically Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Filing 1040x electronically ” Wages not paid in money. Filing 1040x electronically   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. Filing 1040x electronically ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Filing 1040x electronically Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Filing 1040x electronically   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. Filing 1040x electronically Withhold income tax on these payments only if you and the employee agree to do so. Filing 1040x electronically Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. Filing 1040x electronically Moving expenses. Filing 1040x electronically   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. Filing 1040x electronically Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Filing 1040x electronically For more information on moving expenses, see Publication 521, Moving Expenses. Filing 1040x electronically Meals and lodging. Filing 1040x electronically   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. Filing 1040x electronically The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. Filing 1040x electronically    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. Filing 1040x electronically For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. Filing 1040x electronically   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Filing 1040x electronically A written statement that the meals or lodging are for your convenience is not sufficient. Filing 1040x electronically 50% test. Filing 1040x electronically   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. Filing 1040x electronically If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. Filing 1040x electronically For more information, see Publication 15-B. Filing 1040x electronically Health insurance plans. Filing 1040x electronically   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Filing 1040x electronically Generally, this exclusion also applies to qualified long-term care insurance contracts. Filing 1040x electronically However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). Filing 1040x electronically For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. Filing 1040x electronically See Announcement 92-16 for more information. Filing 1040x electronically You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Filing 1040x electronically Health Savings Accounts and medical savings accounts. Filing 1040x electronically   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. Filing 1040x electronically To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Filing 1040x electronically Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. Filing 1040x electronically However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. Filing 1040x electronically For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Filing 1040x electronically Medical care reimbursements. Filing 1040x electronically   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. Filing 1040x electronically See Publication 15-B for an exception for highly compensated employees. Filing 1040x electronically Differential wage payments. Filing 1040x electronically   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. Filing 1040x electronically   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Filing 1040x electronically Employers should report differential wage payments in box 1 of Form W-2. Filing 1040x electronically For more information about the tax treatment of differential wage payments, visit IRS. Filing 1040x electronically gov and enter “employees in a combat zone” in the search box. Filing 1040x electronically Fringe benefits. Filing 1040x electronically   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Filing 1040x electronically The benefits are subject to income tax withholding and employment taxes. Filing 1040x electronically Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Filing 1040x electronically In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. Filing 1040x electronically There are other special rules you and your employees may use to value certain fringe benefits. Filing 1040x electronically See Publication 15-B for more information. Filing 1040x electronically Nontaxable fringe benefits. Filing 1040x electronically   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Filing 1040x electronically See Publication 15-B for details. Filing 1040x electronically The following are some examples of nontaxable fringe benefits. Filing 1040x electronically Services provided to your employees at no additional cost to you. Filing 1040x electronically Qualified employee discounts. Filing 1040x electronically Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Filing 1040x electronically Examples include a company car for business use and subscriptions to business magazines. Filing 1040x electronically Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). Filing 1040x electronically Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Filing 1040x electronically Qualified moving expense reimbursement. Filing 1040x electronically See Moving expenses , earlier in this section, for details. Filing 1040x electronically The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Filing 1040x electronically Qualified tuition reduction an educational organization provides to its employees for education. Filing 1040x electronically For more information, see Publication 970, Tax Benefits for Education. Filing 1040x electronically Employer-provided cell phones provided primarily for a noncompensatory business reason. Filing 1040x electronically   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. Filing 1040x electronically No-additional-cost services. Filing 1040x electronically Qualified employee discounts. Filing 1040x electronically Meals provided at an employer operated eating facility. Filing 1040x electronically Reduced tuition for education. Filing 1040x electronically  For more information, including the definition of a highly compensated employee, see Publication 15-B. Filing 1040x electronically When fringe benefits are treated as paid. Filing 1040x electronically   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. Filing 1040x electronically You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Filing 1040x electronically You do not have to make this choice for all employees. Filing 1040x electronically You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. Filing 1040x electronically See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Filing 1040x electronically Valuation of fringe benefits. Filing 1040x electronically   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Filing 1040x electronically Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Filing 1040x electronically Withholding on fringe benefits. Filing 1040x electronically   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. Filing 1040x electronically However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Filing 1040x electronically   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Filing 1040x electronically You must, however, withhold social security and Medicare taxes on the use of the vehicle. Filing 1040x electronically See Publication 15-B for more information on this election. Filing 1040x electronically Depositing taxes on fringe benefits. Filing 1040x electronically   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Filing 1040x electronically To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Filing 1040x electronically   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. Filing 1040x electronically See Valuation of fringe benefits , earlier. Filing 1040x electronically If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Filing 1040x electronically See section 11 for information on deposit penalties. Filing 1040x electronically   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. Filing 1040x electronically However, you must recover the income taxes before April 1 of the following year. Filing 1040x electronically Sick pay. Filing 1040x electronically   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. Filing 1040x electronically These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Filing 1040x electronically In either case, these payments are subject to social security, Medicare, and FUTA taxes. Filing 1040x electronically Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Filing 1040x electronically The payments are always subject to federal income tax. Filing 1040x electronically See Publication 15-A for more information. Filing 1040x electronically 6. Filing 1040x electronically Tips Tips your employee receives from customers are generally subject to withholding. Filing 1040x electronically Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Filing 1040x electronically The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Filing 1040x electronically Both directly and indirectly tipped employees must report tips to you. Filing 1040x electronically No report is required for months when tips are less than $20. Filing 1040x electronically Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Filing 1040x electronically The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period the report covers, and The total of tips received during the month or period. Filing 1040x electronically Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. Filing 1040x electronically You are permitted to establish a system for electronic tip reporting by employees. Filing 1040x electronically See Regulations section 31. Filing 1040x electronically 6053-1(d). Filing 1040x electronically Collecting taxes on tips. Filing 1040x electronically   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Filing 1040x electronically The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. Filing 1040x electronically If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Filing 1040x electronically   You can collect these taxes from the employee's wages or from other funds he or she makes available. Filing 1040x electronically See Tips treated as supplemental wages in section 7 for more information. Filing 1040x electronically Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. Filing 1040x electronically You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Filing 1040x electronically You are responsible for the employer Medicare tax for the whole year on all wages and tips. Filing 1040x electronically File Form 941 or Form 944 to report withholding and employment taxes on tips. Filing 1040x electronically Ordering rule. Filing 1040x electronically   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. Filing 1040x electronically If there are not enough funds available, withhold taxes in the following order. Filing 1040x electronically Withhold on regular wages and other compensation. Filing 1040x electronically Withhold social security and Medicare taxes on tips. Filing 1040x electronically Withhold income tax on tips. Filing 1040x electronically Reporting tips. Filing 1040x electronically   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Filing 1040x electronically Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Filing 1040x electronically Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Filing 1040x electronically ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Filing 1040x electronically See section 13 and the General Instructions for Forms W-2 and W-3. Filing 1040x electronically   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. Filing 1040x electronically See Revenue Ruling 2012-18, 2012-26 I. Filing 1040x electronically R. Filing 1040x electronically B. Filing 1040x electronically 1032, available at www. Filing 1040x electronically irs. Filing 1040x electronically gov/irb/2012-26_IRB/ar07. Filing 1040x electronically html. Filing 1040x electronically Allocated tips. Filing 1040x electronically   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Filing 1040x electronically However, do not withhold income, social security, or Medicare taxes on allocated tips. Filing 1040x electronically   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. Filing 1040x electronically   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Filing 1040x electronically For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. Filing 1040x electronically For information on filing Form 8027 electronically with the IRS, see Publication 1239. Filing 1040x electronically Tip Rate Determination and Education Program. Filing 1040x electronically   Employers may participate in the Tip Rate Determination and Education Program. Filing 1040x electronically The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. Filing 1040x electronically The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Filing 1040x electronically A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Filing 1040x electronically To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Filing 1040x electronically Additionally, visit IRS. Filing 1040x electronically gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Filing 1040x electronically 7. Filing 1040x electronically Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Filing 1040x electronically They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Filing 1040x electronically Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Filing 1040x electronically How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Filing 1040x electronically See Regulations section 31. Filing 1040x electronically 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Filing 1040x electronically Also see Revenue Ruling 2008-29, 2008-24 I. Filing 1040x electronically R. Filing 1040x electronically B. Filing 1040x electronically 1149, available at www. Filing 1040x electronically irs. Filing 1040x electronically gov/irb/2008-24_IRB/ar08. Filing 1040x electronically html. Filing 1040x electronically Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Filing 1040x electronically   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Filing 1040x electronically If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. Filing 1040x electronically 6% (or the highest rate of income tax for the year). Filing 1040x electronically Withhold using the 39. Filing 1040x electronically 6% rate without regard to the employee's Form W-4. Filing 1040x electronically In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Filing 1040x electronically For more information, see Treasury Decision 9276, 2006-37 I. Filing 1040x electronically R. Filing 1040x electronically B. Filing 1040x electronically 423, available at www. Filing 1040x electronically irs. Filing 1040x electronically gov/irb/2006-37_IRB/ar09. Filing 1040x electronically html. Filing 1040x electronically Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Filing 1040x electronically   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. Filing 1040x electronically Supplemental wages combined with regular wages. Filing 1040x electronically   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. Filing 1040x electronically Supplemental wages identified separately from regular wages. Filing 1040x electronically   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages. Filing 1040x electronically If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Filing 1040x electronically Withhold a flat 25% (no other percentage allowed). Filing 1040x electronically If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Filing 1040x electronically 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. Filing 1040x electronically Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Filing 1040x electronically Subtract the tax withheld from the regular wages. Filing 1040x electronically Withhold the remaining tax from the supplemental wages. Filing 1040x electronically If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax. Filing 1040x electronically If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. Filing 1040x electronically This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Filing 1040x electronically Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Filing 1040x electronically Example 1. Filing 1040x electronically You pay John Peters a base salary on the 1st of each month. Filing 1040x electronically He is single and claims one withholding allowance. Filing 1040x electronically In January he is paid $1,000. Filing 1040x electronically Using the wage bracket tables, you withhold $50 from this amount. Filing 1040x electronically In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. Filing 1040x electronically You figure the withholding based on the total of $3,000. Filing 1040x electronically The correct withholding from the tables is $338. Filing 1040x electronically Example 2. Filing 1040x electronically You pay Sharon Warren a base salary on the 1st of each month. Filing 1040x electronically She is single and claims one allowance. Filing 1040x electronically Her May 1 pay is $2,000. Filing 1040x electronically Using the wage bracket tables, you withhold $188. Filing 1040x electronically On May 14 she receives a bonus of $1,000. Filing 1040x electronically Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). Filing 1040x electronically Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Filing 1040x electronically Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Filing 1040x electronically Withhold $150 from the bonus payment. Filing 1040x electronically Example 3. Filing 1040x electronically The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Filing 1040x electronically You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Filing 1040x electronically Example 4. Filing 1040x electronically The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Filing 1040x electronically Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). Filing 1040x electronically Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Filing 1040x electronically Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). Filing 1040x electronically Withhold $443 from the second bonus payment. Filing 1040x electronically Tips treated as supplemental wages. Filing 1040x electronically   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Filing 1040x electronically If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Filing 1040x electronically If you have not withheld income tax from the regular wages, add the tips to the regular wages. Filing 1040x electronically Then withhold income tax on the total. Filing 1040x electronically If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. Filing 1040x electronically Vacation pay. Filing 1040x electronically   Vacation pay is subject to withholding as if it were a regular wage payment. Filing 1040x electronically When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Filing 1040x electronically If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. Filing 1040x electronically 8. Filing 1040x electronically Payroll Period Your payroll period is a period of service for which you usually pay wages. Filing 1040x electronically When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Filing 1040x electronically No regular payroll period. Filing 1040x electronically   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Filing 1040x electronically Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Filing 1040x electronically If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. Filing 1040x electronically Employee paid for period less than 1 week. Filing 1040x electronically   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. Filing 1040x electronically If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Filing 1040x electronically You then figure withholding based on the daily or miscellaneous period. Filing 1040x electronically 9. Filing 1040x electronically Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Filing 1040x electronically   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Filing 1040x electronically 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. Filing 1040x electronically Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Filing 1040x electronically irs. Filing 1040x electronically gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Filing 1040x electronically   Ask all new employees to give you a signed Form W-4 when they start work. Filing 1040x electronically Make the form effective with the first wage payment. Filing 1040x electronically If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. Filing 1040x electronically Form in Spanish. Filing 1040x electronically   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. Filing 1040x electronically For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Filing 1040x electronically The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Filing 1040x electronically Electronic system to receive Form W-4. Filing 1040x electronically   You may establish a system to electronically receive Forms W-4 from your employees. Filing 1040x electronically See Regulations section 31. Filing 1040x electronically 3402(f)(5)-1(c) for more information. Filing 1040x electronically Effective date of Form W-4. Filing 1040x electronically   A Form W-4 remains in effect until the employee gives you a new one. Filing 1040x electronically When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. Filing 1040x electronically If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. Filing 1040x electronically 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. Filing 1040x electronically A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Filing 1040x electronically Successor employer. Filing 1040x electronically   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. Filing 1040x electronically See Revenue Procedure 2004-53, 2004-34 I. Filing 1040x electronically R. Filing 1040x electronically B. Filing 1040x electronically 320, available at www. Filing 1040x electronically irs. Filing 1040x electronically gov/irb/2004-34_IRB/ar13. Filing 1040x electronically html. Filing 1040x electronically Completing Form W-4. Filing 1040x electronically   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Filing 1040x electronically Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Filing 1040x electronically However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. Filing 1040x electronically Employees may claim fewer withholding allowances than they are entitled to claim. Filing 1040x electronically They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. Filing 1040x electronically See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Filing 1040x electronically Along with Form W-4, you may wish to order Publication 505 for use by your employees. Filing 1040x electronically Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Filing 1040x electronically If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. Filing 1040x electronically Exemption from federal income tax withholding. Filing 1040x electronically   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. Filing 1040x electronically See the Form W-4 instructions for more information. Filing 1040x electronically However, the wages are still subject to social security and Medicare taxes. Filing 1040x electronically See also Invalid Forms W-4 , later in this section. Filing 1040x electronically   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Filing 1040x electronically 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. Filing 1040x electronically If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. Filing 1040x electronically If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. Filing 1040x electronically Withholding income taxes on the wages of nonresident alien employees. Filing 1040x electronically   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Filing 1040x electronically However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Filing 1040x electronically Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Filing 1040x electronically Withholding adjustment for nonresident alien employees. Filing 1040x electronically   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. Filing 1040x electronically Nonresident alien students from India and business apprentices from India are not subject to this procedure. Filing 1040x electronically Instructions. Filing 1040x electronically   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. Filing 1040x electronically Step 1. Filing 1040x electronically   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. Filing 1040x electronically    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Filing 1040x electronically 30     Biweekly 86. Filing 1040x electronically 50     Semimonthly 93. Filing 1040x electronically 80     Monthly 187. Filing 1040x electronically 50     Quarterly 562. Filing 1040x electronically 50     Semiannually 1,125. Filing 1040x electronically 00     Annually 2,250. Filing 1040x electronically 00     Daily or Miscellaneous (each day of the payroll period) 8. Filing 1040x electronically 70   Step 2. Filing 1040x electronically   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Filing 1040x electronically Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Filing 1040x electronically Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Filing 1040x electronically If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. Filing 1040x electronically If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. Filing 1040x electronically The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Filing 1040x electronically The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Filing 1040x electronically Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Filing 1040x electronically This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Filing 1040x electronically Example. Filing 1040x electronically An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Filing 1040x electronically The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). Filing 1040x electronically The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. Filing 1040x electronically 50 from the chart under Step 1 ($586. Filing 1040x electronically 50 total). Filing 1040x electronically The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Filing 1040x electronically Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. Filing 1040x electronically The $86. Filing 1040x electronically 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. Filing 1040x electronically Also, the $86. Filing 1040x electronically 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Filing 1040x electronically Supplemental wage payment. Filing 1040x electronically   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Filing 1040x electronically 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. Filing 1040x electronically Nonresident alien employee's Form W-4. Filing 1040x electronically   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding, Request withholding as if they are single, regardless of their actual marital status, Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. Filing 1040x electronically   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Filing 1040x electronically 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. Filing 1040x electronically Form 8233. Filing 1040x electronically   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. Filing 1040x electronically See Publication 515 for details. Filing 1040x electronically IRS review of requested Forms W-4. Filing 1040x electronically   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Filing 1040x electronically You may also be directed to send certain Forms W-4 to the IRS. Filing 1040x electronically 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. Filing 1040x electronically 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. Filing 1040x electronically The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. Filing 1040x electronically R. Filing 1040x electronically B. Filing 1040x electronically 455, which is available at www. Filing 1040x electronically irs. Filing 1040x electronically gov/irb/2007-35_IRB/ar10. Filing 1040x electronically html. Filing 1040x electronically When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Filing 1040x electronically After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). Filing 1040x electronically However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter