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Incometax 13. Incometax   Employment Taxes Table of Contents What's New for 2013 What's New for 2014 Reminders Important Dates for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Farm Employment Family Employees Crew Leaders Social Security and Medicare TaxesReligious exemption. Incometax Wage limit. Incometax Federal Income Tax WithholdingNew Form W-4 for 2014. Incometax Required Notice to Employees About Earned Income Credit (EIC) Reporting and Paying Social Security, Medicare, and Withheld Federal Income TaxesElectronic deposit requirement. Incometax Federal Unemployment (FUTA) TaxReporting and Paying FUTA Tax What's New for 2013 Social security and Medicare tax for 2013. Incometax  The employee tax rate for social security is 6. Incometax 2%. Incometax Previously, the employee tax rate for social security was 4. Incometax 2%. Incometax The employer tax rate for social security remains unchanged at 6. Incometax 2%. Incometax The social security wage base limit is $113,700. Incometax The Medicare tax rate is 1. Incometax 45% each for the employee and employer, unchanged from 2012. Incometax There is no wage base limit for Medicare tax. Incometax Additional Medicare Tax. Incometax  In addition to withholding Medicare tax at 1. Incometax 45%, you must withhold a 0. Incometax 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Incometax You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Incometax Additional Medicare Tax is only imposed on the employee. Incometax There is no employer share of Additional Medicare Tax. Incometax All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 threshold. Incometax For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. Incometax For more information on Additional Medicare Tax, visit IRS. Incometax gov and enter “Additional Medicare Tax” in the search box. Incometax Leave-based donation programs to aid victims of Hurricane Sandy. Incometax  Under these programs, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made before January 1, 2014, to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy. Incometax The donated leave will not be included in the income or wages of the employee. Incometax The employer may deduct the cash payments as business expenses or charitable contributions. Incometax For more information, see Notice 2012-69, 2012-51 I. Incometax R. Incometax B. Incometax 712, available at www. Incometax irs. Incometax gov/irb/2012-51_IRB/ar09. Incometax html. Incometax Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans extended. Incometax  The work opportunity tax credit is now available for eligible unemployed veterans who begin work before January 1, 2014. Incometax Previously, the credit was available for unemployed veterans who began work on or after November 22, 2011, and before January 1, 2013. Incometax Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. Incometax For more information, visit IRS. Incometax gov and enter “work opportunity credit” in the search box. Incometax What's New for 2014 Social security and Medicare tax for 2014. Incometax  The employee and employer tax rates for social security and the maximum amount of wages subject to social security tax for 2014 will be discussed in Publication 51 (Circular A), Agricultural Employer's Tax Guide (For use in 2014). Incometax The Medicare tax rate for 2014 will also be discussed in Publication 51 (Circular A) (For use in 2014). Incometax There is no limit on the amount of wages subject to Medicare tax. Incometax Reminders Additional employment tax information for farmers. Incometax  See Publication 51 (Circular A) for more detailed guidance on employment taxes. Incometax For the latest information about employment tax developments impacting farmers, go to www. Incometax irs. Incometax gov/pub51. Incometax Correcting a previously filed Form 943. Incometax  If you discover an error on a previously filed Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, make the correction using Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund. Incometax Form 943-X is filed separately from Form 943. Incometax For more information on correcting Form 943, see the Instructions for Form 943-X. Incometax Federal tax deposits must be made by electronic funds transfer. Incometax  You must use electronic funds transfer to make all federal tax deposits. Incometax Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). Incometax If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Incometax Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Incometax EFTPS is a free service provided by the Department of Treasury. Incometax Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Incometax For more information on making federal tax deposits, see section 7 of Publication 51 (Circular A). Incometax To get more information about EFTPS or to enroll in EFTPS, visit www. Incometax eftps. Incometax gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). Incometax Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. Incometax Important Dates for 2014 You should take the action indicated by the dates listed. Incometax See By February 15 and On February 16 for Form W-4, Employee's Withholding Allowance Certificate, information. Incometax Due dates for deposits of withheld federal income taxes, social security taxes, and Medicare taxes are not listed here. Incometax For these dates, see Publication 509, Tax Calendars (For use in 2014). Incometax Note. Incometax  If any date shown below for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. Incometax A statewide legal holiday delays a filing or furnishing due date only if the IRS office where you are required to file a return or furnish a form is located in that state. Incometax For any due date, you will meet the “file” or “furnish” date requirement if the envelope containing the tax return or form is properly addressed, contains sufficient postage, and is postmarked by the U. Incometax S. Incometax Postal Service by the due date, or sent by an IRS-designated delivery service by the due date. Incometax See Private delivery services in Publication 51 (Circular A). Incometax Federal tax deposits can only be made by electronic funds transfer and are governed by legal holidays in the District of Columbia. Incometax Statewide holidays no longer apply. Incometax For a list of legal holidays that delay the due date of a federal tax deposit, see section 7 of Publication 51 (Circular A). Incometax Fiscal year taxpayers. Incometax  The due dates listed below apply whether you use a calendar or a fiscal year. Incometax By January 31. Incometax   File Form 943 with the IRS. Incometax If you deposited all Form 943 taxes when due, you have 10 additional days to file. Incometax Furnish each employee with a completed Form W-2, Wage and Tax Statement. Incometax Furnish each recipient to whom you paid $600 or more in nonemployee compensation with a completed Form 1099 (for example, Form 1099-MISC). Incometax File Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, with the IRS. Incometax If you deposited all the FUTA tax when due, you have 10 additional days to file. Incometax File Form 945, Annual Return of Withheld Federal Income Tax, with the IRS to report any nonpayroll income tax withheld during 2013. Incometax If you deposited all Form 945 taxes when due, you have 10 additional days to file. Incometax By February 15. Incometax  Ask for a new Form W-4 or Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, from each employee who claimed exemption from federal income tax withholding last year. Incometax On February 16. Incometax  Any Form W-4 claiming exemption from withholding for the previous year has now expired. Incometax Begin withholding for any employee who previously claimed exemption from withholding but has not given you a new Form W-4 for the current year. Incometax If the employee does not give you a new Form W-4, withhold taxes based on the last valid Form W-4 you have for the employee that does not claim exemption from withholding or, if one does not exist, as if he or she is single with zero withholding allowances. Incometax If the employee furnishes a new Form W-4 claiming exemption from withholding after February 15, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. Incometax By February 28. Incometax   File paper Forms 1099 and 1096. Incometax File Copy A of all paper Forms 1099 with Form 1096, Annual Summary and Transmittal of U. Incometax S. Incometax Information Returns, with the IRS. Incometax For electronically filed returns, see By March 31 below. Incometax File paper Forms W-2 and W-3. Incometax File Copy A of all paper Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration (SSA). Incometax For electronically filed returns, see By March 31 below. Incometax By March 31. Incometax   File electronic Forms W-2 and 1099. Incometax File electronic Forms W-2 with the SSA and Forms 1099 with the IRS. Incometax For more information on reporting Form W-2 information to the SSA electronically, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Incometax socialsecurity. Incometax gov/employer. Incometax For information on filing information returns electronically with the IRS, see Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically. Incometax By April 30, July 31, October 31, and January 31. Incometax   Deposit FUTA taxes. Incometax Deposit FUTA tax due if it is more than $500. Incometax Before December 1. Incometax  Remind employees to submit a new Form W-4 if their withholding allowances have changed or will change for the next year. Incometax Introduction You are generally required to withhold federal income tax from the wages of your employees. Incometax You may also be subject to social security and Medicare taxes under the Federal Insurance Contributions Act (FICA) and federal unemployment tax under the Federal Unemployment Tax Act (FUTA). Incometax You must also withhold Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Incometax This chapter includes information about these taxes. Incometax You must also pay self-employment tax on your net earnings from farming. Incometax See chapter 12 for information on self-employment tax. Incometax Topics - This chapter discusses: Farm employment, Family employees, Crew leaders, Social security and Medicare taxes, Additional Medicare Tax withholding, Federal income tax withholding, Reporting and paying social security, Medicare, and withheld federal income taxes, and FUTA tax. Incometax Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits 51 (Circular A), Agricultural Employer's Tax Guide 926 Household Employer's Tax Guide Form (and Instructions) W-2 Wage and Tax Statement W-4 Employee's Withholding Allowance Certificate W-9 Request for Taxpayer Identification Number and Certification 940 Employer's Annual Federal Unemployment (FUTA) Tax Return 943 Employer's Annual Federal Tax Return for Agricultural Employees 943-X Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund See chapter 16 for information about getting publications and forms. Incometax Farm Employment In general, you are an employer of farmworkers if your employees do any of the following types of work. Incometax Raising or harvesting agricultural or horticultural products on a farm, including raising and feeding of livestock. Incometax Operating, managing, conserving, improving, or maintaining your farm and its tools and equipment. Incometax Services performed in salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor). Incometax Handling, processing, or packaging any agricultural or horticultural commodity if you produced more than half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity). Incometax Work related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. Incometax For more information, see Publication 51 (Circular A). Incometax 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. Incometax This is so even when you give the employee freedom of action. Incometax What matters is that you have the right to control the details of how the services are performed. Incometax You are responsible for withholding and paying employment taxes for your employees. Incometax You are also required to file employment tax returns. Incometax These requirements do not apply to amounts that you pay to independent contractors. Incometax See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Incometax If you employ a family of workers, each worker subject to your control (not just the head of the family) is an employee. Incometax Special rules apply to crew leaders. Incometax See Crew Leaders , later. Incometax Employer identification number (EIN). Incometax   If you have employees, you must have an EIN. Incometax If you do not have an EIN, you may apply for one online. Incometax Go to IRS. Incometax gov and click on the Apply for an EIN Online link under Tools. Incometax You may also apply for an EIN by calling 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Incometax The hours of operation for both numbers are Monday–Friday form 7:00 a. Incometax m. Incometax –7:00 p. Incometax m. Incometax local time (Alaska and Hawaii follow Pacific time). Incometax You can also fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Incometax Employee's social security number (SSN). Incometax   An employee who does not have an SSN should submit Form SS-5, Application for a Social Security Card, to the Social Security Administration (SSA). Incometax Form SS-5 is available from any SSA office or by calling 1-800-772-1213 (operates 24 hours per day). Incometax It is also available from the SSA's website at www. Incometax socialsecurity. Incometax gov. Incometax   The employee must furnish evidence of age, identity, and U. Incometax S. Incometax citizenship or lawful immigration status permitting employment with the Form SS-5. Incometax An employee who is age 18 or older must appear in person with this evidence at an SSA office. Incometax Form I-9. Incometax    You must verify that each new employee is legally eligible to work in the United States. Incometax This includes completing the Form I-9, Employment Eligibility Verification. Incometax Form I-9 is available from the U. Incometax S. Incometax Citizenship and Immigration Services (USCIS) offices or by calling the Bureau of Citizenship and Immigration Services Forms Request Line at 1-800-870-3676. Incometax Form I-9 is also available from the USCIS website at www. Incometax uscis. Incometax gov. Incometax You can also contact the USCIS at 1-800-375-5283 for more information. Incometax New hire reporting. Incometax   You are required to report any new employee to a designated state new hire registry. Incometax Many states accept a copy of Form W-4 with employer information added. Incometax Visit the Office of Child Support Enforcement website at www. Incometax acf. Incometax hhs. Incometax gov/programs/cse/newhire for more information. Incometax Family Employees Generally, the wages you pay to family members who are your employees are subject to employment taxes. Incometax However, certain exemptions may apply to wages paid to your child, spouse, or parent. Incometax Exemptions for your child. Incometax   Payments for the services of your child under age 18 who works for you in your trade or business (including a farm) are not subject to social security and Medicare taxes. Incometax However, see Nonexempt services of a child or spouse , later. Incometax Payments for the services of your child under age 21 employed by you in other than a trade or business, such as payments for household services in your home, are also not subject to social security or Medicare taxes. Incometax Payments for the services of your child under age 21 employed by you, whether or not in your trade or business, are not subject to FUTA tax. Incometax Although not subject to social security, Medicare, or FUTA tax, the child's wages still may be subject to federal income tax withholding. Incometax Exemptions for your spouse. Incometax   Payments for the services of your spouse who works for you in your trade or business are subject to federal income tax withholding and social security and Medicare taxes, but not FUTA tax. Incometax   Payments for the services of your spouse employed by you in other than a trade or business, such as payments for household services in your home, are not subject to social security, Medicare, or FUTA taxes. Incometax Nonexempt services of a child or spouse. Incometax   Payments for the services of your child or spouse are subject to federal income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for any of the following entities. Incometax A corporation, even if it is controlled by you. Incometax A partnership, even if you are a partner. Incometax This does not apply to wages paid to your child if each partner is a parent of the child. Incometax An estate or trust, even if it is the estate of a deceased parent. Incometax In these situations, the child or spouse is considered to work for the corporation, partnership, or estate, not you. Incometax Exemptions for your parent. Incometax   Payments for the services of your parent employed by you in your trade or business are subject to federal income tax withholding and social security and Medicare taxes. Incometax Social security and Medicare taxes do not apply to wages paid to your parent for services not in your trade or business, but they do apply to payments for household services in your home if both the following conditions are satisfied. Incometax You have a child living in your home who is under age 18 or has a physical or mental condition that requires care by an adult for at least 4 continuous weeks in a calendar quarter. Incometax You are a widow or widower; or divorced and not remarried; or have a spouse in the home who, because of a physical or mental condition, cannot care for your child for at least 4 continuous weeks in the quarter. Incometax   Wages you pay to your parent are not subject to FUTA tax, regardless of the type of services provided. Incometax Qualified joint venture. Incometax   If spouses elect to be treated as a qualified joint venture instead of a partnership, either spouse may report and pay the employment taxes due on the wages paid to employees using the EIN of that spouse's sole proprietorship. Incometax For more information about qualified joint ventures, see chapter 12. Incometax Crew Leaders If farmworkers are provided by a crew leader, the crew leader may be the employer of the workers. Incometax Social security and Medicare taxes. Incometax   For social security and Medicare tax purposes, the crew leader is the employer of the workers if both of the following requirements are met. Incometax The crew leader pays (either on his or her own behalf or on behalf of the farmer) the workers for their farm labor. Incometax The crew leader has not entered into a written agreement with the farmer under which the crew leader is designated as an employee of the farmer. Incometax Federal income tax withholding. Incometax   If the crew leader is the employer for social security and Medicare tax purposes, the crew leader is the employer for federal income tax withholding purposes. Incometax Federal unemployment (FUTA) tax. Incometax   For FUTA tax purposes, the crew leader is the employer of the workers if, in addition to the earlier requirements, either of the following requirements are met. Incometax The crew leader is registered under the Migrant and Seasonal Agricultural Worker Protection Act. Incometax Substantially all crew members operate or maintain mechanized equipment provided by the crew leader as part of the service to the farmer. Incometax   The farmer is the employer of workers furnished by a crew leader in all other situations. Incometax In addition, the farmer is the employer of workers furnished by a registered crew leader if the workers are the employees of the farmer under the common-law test. Incometax For example, some farmers employ individuals to recruit farmworkers exclusively for them. Incometax Although these individuals may be required to register under the Migrant and Seasonal Agricultural Worker Protection Act, the workers are employed directly by the farmer. Incometax The farmer is the employer in these cases. Incometax For information about common-law employees, see section 1 of Publication 15-A. Incometax For information about crew leaders, see the Department of Labor website at www. Incometax dol. Incometax gov/whd/regs/compliance/whdfs49. Incometax htm. Incometax Social Security and Medicare Taxes All cash wages you pay to an employee during the year for farmwork are subject to social security and Medicare taxes if you meet either of the following tests. Incometax You pay the employee $150 or more in cash wages (count all wages paid on a time, piecework, or other basis) during the year for farmwork (the $150 test). Incometax The $150 test applies separately to each farmworker that you employ. Incometax If you employ a family of workers, each member is treated separately. Incometax Do not count wages paid by other employers. Incometax You pay cash and noncash wages of $2,500 or more during the year to all your employees for farmwork (the $2,500 test). Incometax If the $2,500 test for the group is not met, the $150 test for an employee still applies. Incometax Exceptions. Incometax   Annual cash wages of less than $150 you pay to a seasonal farmworker are not subject to social security and Medicare taxes, even if you pay $2,500 or more to all your farmworkers. Incometax However, these wages count toward the $2,500 test for determining whether other farmworkers' wages are subject to social security and Medicare taxes. Incometax   A seasonal farmworker is a worker who: Works as a hand-harvest laborer, Is paid piece rates in an operation usually paid on this basis in the region of employment, Commutes daily from his or her permanent home to the farm, and Worked in agriculture less than 13 weeks in the preceding calendar year. Incometax   See Family Employees , earlier, for certain exemptions from social security and Medicare taxes that apply to your child, spouse, and parent. Incometax Religious exemption. Incometax   An exemption from social security and Medicare taxes is available to members of a recognized religious group or division opposed to public insurance. Incometax This exemption is available only if both the employee and the employer are members of the group or division. Incometax   For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Incometax Cash wages. Incometax   Only cash wages paid to farmworkers are subject to social security and Medicare taxes. Incometax Cash wages include checks, money orders, and any kind of money or cash. Incometax   Only cash wages subject to social security and Medicare taxes are credited to your employees for social security benefit purposes. Incometax Payments not subject to these taxes, such as commodity wages, do not contribute to your employees' social security coverage. Incometax For information about social security benefits, contact the SSA at 1-800-772-1213 or online at www. Incometax socialsecurity. Incometax gov. Incometax Noncash wages. Incometax    Noncash wages include food, lodging, clothing, transportation passes, and other goods and services. Incometax Noncash wages paid to farmworkers, including commodity wages, are not subject to social security and Medicare taxes. Incometax However, they are subject to these taxes if the substance of the transaction is a cash payment. Incometax For information on lodging provided as a condition of employment, see Publication 15-B. Incometax   Report the value of noncash wages in box 1 of Form W-2 together with cash wages. Incometax Do not show noncash wages in box 3 or in box 5, (unless the substance of the transaction is a cash payment). Incometax Tax rates and social security wage limit. Incometax   For 2013, the employer and the employee will pay the following taxes. Incometax The employer and employee each pay 6. Incometax 2% of cash wages for social security tax (old-age, survivors, and disability insurance). Incometax The employer and employee each pay 1. Incometax 45% of cash wages for Medicare tax (hospital insurance). Incometax The employee pays 0. Incometax 9% of cash wages in excess of $200,000 for Additional Medicare Tax. Incometax Wage limit. Incometax   The limit on wages subject to the social security tax for 2013 is $113,700. Incometax There is no limit on wages subject to the Medicare tax. Incometax All covered wages are subject to the Medicare tax. Incometax Additionally, all wages in excess of $200,000 are subject to Additional Medicare Tax withholding. Incometax Paying employee's share. Incometax   If you would rather pay the employee's share of social security and Medicare taxes without deducting it from his or her wages, you may do so. Incometax It is additional income to the employee. Incometax You must include it in box 1 of the employee's Form W-2, but do not count it as social security and Medicare wages (boxes 3 and 5 on Form W-2) or as wages for federal unemployment (FUTA) tax purposes. Incometax Example. Incometax Jane operates a small family fruit farm. Incometax She employs day laborers in the picking season to enable her to timely get her crop to market. Incometax She does not deduct the employees' share of social security and Medicare taxes from their pay; instead, she pays it on their behalf. Incometax When her accountant, Susan, prepares the employees' Forms W-2, she adds each employee's share of social security and Medicare taxes paid by Jane to the employee's wage income (box 1 of Form W-2), but does not include it in box 3 (social security wages) or box 5 (Medicare wages and tips). Incometax For 2013, Jane paid Mary $1,000 during the year. Incometax Susan enters $1,076. Incometax 50 in box 1 of Mary's Form W-2 ($1,000 wages plus $76. Incometax 50 social security and Medicare taxes paid for Mary). Incometax She enters $1,000 in boxes 3 and 5 of Mary's Form W-2. Incometax Additional Medicare Tax. Incometax   In addition to withholding Medicare tax at 1. Incometax 45%, you must withhold a 0. Incometax 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Incometax You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Incometax Additional Medicare Tax is only imposed on the employee. Incometax There is no employer share of Additional Medicare Tax. Incometax All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 threshold. Incometax   For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E). Incometax For more information on Additional Medicare Tax, visit IRS. Incometax gov and enter “Additional Medicare Tax” in the search box. Incometax Federal Income Tax Withholding If the cash wages you pay to farmworkers are subject to social security and Medicare taxes, they are also subject to federal income tax withholding. Incometax Although noncash wages are subject to federal income tax, withhold income tax only if you and the employee agree to do so. Incometax The amount to withhold is figured on gross wages without taking out social security and Medicare taxes, union dues, insurance, etc. Incometax Form W-4. Incometax   Generally, the amount of federal income tax you withhold is based on the employee's marital status and withholding allowances claimed on the employee's Form W-4. Incometax In general, an employee can claim withholding allowances on Form W-4 equal to the number of exemptions the employee will be entitled to claim on his or her tax return. Incometax An employee may also be able to claim a special withholding allowance and allowances for estimated deductions and credits. Incometax   Do not withhold federal income tax from the wages of an employee who, by filing Form W-4, certifies that he or she had no federal income tax liability last year and anticipates no liability for the current year. Incometax   You should give each new employee a Form W-4 as soon as you hire the employee. Incometax For Spanish-speaking employees, you may use Formulario W-4(SP) which is the Spanish translation of Form W-4. Incometax Have the employee complete and return the form to you before the first payday. Incometax If the employee does not return the completed form, you must withhold federal income tax as if the employee is single and claims no withholding allowances. Incometax New Form W-4 for 2014. Incometax   You should make the 2014 Form W-4 available to your employees and encourage them to check their income tax withholding for 2014. Incometax Those employees who owed a large amount of tax or received a large refund for 2013 may want to submit a new Form W-4. Incometax You cannot accept substitute Forms W-4 developed by employees. Incometax How to figure withholding. Incometax   You can use one of several methods to determine the amount to withhold. Incometax The methods are described in Publication 51 (Circular A), which contains tables showing the correct amount of federal income tax you should withhold. Incometax Publication 51 (Circular A) also contains additional information about federal income tax withholding. Incometax Nonemployee compensation. Incometax   Generally, you do not have to withhold federal income tax on payments for services to individuals who are not your employees. Incometax However, you may be required to report these payments on Form 1099-MISC, Miscellaneous Income, and to withhold under the backup withholding rules. Incometax For more information, see the Instructions for Form 1099-MISC. Incometax Required Notice to Employees About Earned Income Credit (EIC) You must provide notification about EIC to each employee who worked for you at any time during the year and from whom you did not withhold any federal income tax. Incometax However, you do not have to notify employees who claim exemption from federal income tax withholding on Form W-4. Incometax You meet the notification requirement by giving each employee any of the following. Incometax Form W-2, which contains EIC notification on the back of Copy B. Incometax A substitute Form W-2 with the exact EIC wording shown on the back of copy B of Form W-2. Incometax Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC). Incometax Your own written statement with the exact wording of Notice 797. Incometax For more information, see Publication 51 (Circular A). Incometax Reporting and Paying Social Security, Medicare, and Withheld Federal Income Taxes You must withhold federal income, social security, and Medicare taxes required to be withheld from the salaries and wages of your employees. Incometax You are liable for the payment of these taxes to the federal government whether or not you collect them from your employees. Incometax If, for example, you withhold less than the correct tax from an employee's wages, you are still liable for the full amount. Incometax You must also pay the employer's share of social security and Medicare taxes. Incometax There is no employer share of Additional Medicare Tax. Incometax Form 943. Incometax   Report withheld federal income tax, social security tax, and Medicare tax on Form 943. Incometax Your 2013 Form 943 is due by January 31, 2014 (or February 10, 2014, if you made deposits on time in full payment of the taxes due for the year). Incometax Deposits. Incometax   Generally, you must deposit both the employer and employee shares of social security and Medicare taxes and federal income tax withheld during the year. Incometax However, you may make payments with Form 943 instead of depositing them if you accumulate less than a $2,500 tax liability (“Total taxes after adjustments” line on Form 943) during the year and you pay in full with a timely filed return. Incometax   For more information on deposit rules, see Publication 51 (Circular A). Incometax Electronic deposit requirement. Incometax   You must use electronic funds transfer to make all federal tax deposits. Incometax Generally, electronic funds transfers are made using EFTPS. Incometax If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Incometax Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Incometax EFTPS is a free service provided by the Department of Treasury. Incometax Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Incometax   For more information on making federal tax deposits, see section 7 of Publication 51 (Circular A). Incometax To get more information about EFTPS or to enroll in EFTPS, visit www. Incometax eftps. Incometax gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). Incometax Additional information about EFTPS is also available in Publication 966. Incometax Form W-2. Incometax   By January 31, you must furnish each employee a Form W-2 showing total wages for the previous year and total federal income tax, social security tax, and Medicare tax withheld. Incometax However, if an employee stops working for you and requests the form earlier, you must give it to the employee within 30 days of the later of the following dates. Incometax The date the employee requests the form. Incometax The date you make your final payment of wages to the employee. Incometax Compensation paid to H-2A visa holders. Incometax   Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2. Incometax Compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes, and therefore should not be reported as wages subject to social security tax (line 2), Medicare tax (line 4), or Additional Medicare Tax (line 6) on Form 943, and should not be reported as social security wages (box 3) or Medicare wages (box 5) on Form W-2. Incometax   An employer is not required to withhold federal income tax from compensation it pays to an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. Incometax In this case, the worker must give the employer a completed Form W-4. Incometax Federal income tax withheld should be reported on Form 943, line 8, and in box 2 of Form W-2. Incometax   These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. Incometax For the rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. Incometax Trust fund recovery penalty. Incometax   If you are responsible for withholding, accounting for, depositing, or paying federal withholding taxes and willfully fail to do so, you can be held liable for a penalty equal to the withheld tax not paid. Incometax A responsible person can be an officer of a corporation, a partner, a sole proprietor, or an employee of any form of business. Incometax A trustee or agent with authority over the funds of the business can also be held responsible for the penalty. Incometax   Willfully means voluntarily, consciously, and intentionally. Incometax Paying other expenses of the business instead of the taxes due is acting willfully. Incometax Consequences of treating an employee as an independent contractor. Incometax   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker. Incometax See Publication 15-A for more information. Incometax Federal Unemployment (FUTA) Tax You must pay FUTA tax if you meet either of the following tests. Incometax You paid cash wages of $20,000 or more to farmworkers in any calendar quarter during the current or preceding calendar year. Incometax You employed 10 or more farmworkers for some part of at least 1 day during any 20 or more different calendar weeks during the current or preceding calendar year. Incometax These rules do not apply to exempt services of your spouse, your parents, or your children under age 21. Incometax See Family Employees , earlier. Incometax Alien farmworkers. Incometax   Wages paid to aliens admitted on a temporary basis to the United States to perform farmwork (also known as “H-2A visa workers”) are exempt from FUTA tax. Incometax However, include your employment of these workers and the wages you paid them to determine whether you meet either of the above tests. Incometax Commodity wages. Incometax   Payments in kind for farm labor are not cash wages. Incometax Do not count them to figure whether you are subject to FUTA tax or to figure how much tax you owe. Incometax Tax rate and credit. Incometax   The gross FUTA tax rate is 6. Incometax 0% of the first $7,000 cash wages you pay to each employee during the year. Incometax However, you are given a credit of up to 5. Incometax 4% of the first $7,000 cash wages you pay to each employee for the state unemployment tax you pay. Incometax If your state tax rate (experience rate) is less than 5. Incometax 4%, you may still be allowed the full 5. Incometax 4% credit. Incometax   If you do not pay the state tax, you cannot take the credit. Incometax If you are exempt from state unemployment tax for any reason, the full 6. Incometax 0% rate applies. Incometax See the Instructions for Form 940 for additional information. Incometax More information. Incometax   For more information on FUTA tax, see Publication 51 (Circular A). Incometax Reporting and Paying FUTA Tax The FUTA tax is imposed on you as the employer. Incometax It must not be collected or deducted from the wages of your employees. Incometax Form 940. Incometax   Report FUTA tax on Form 940. Incometax The 2013 Form 940 is due January 31, 2014 (or February 10, 2014, if you timely deposited the full amount of your 2013 FUTA tax). Incometax Deposits. Incometax   If at the end of any calendar quarter you owe, but have not yet deposited, more than $500 in FUTA tax for the year, you must make a deposit by the end of the following month. Incometax If the undeposited tax is $500 or less at the end of a quarter, you do not have to deposit it. Incometax You can add it to the tax for the next quarter. Incometax If the total undeposited tax is more than $500 at the end of the next quarter, a deposit will be required. Incometax If the total undeposited tax at the end of the 4th quarter is $500 or less, you can either make a deposit or pay it with your return by the January 31, 2014, due date. Incometax Electronic deposit requirement. Incometax   You must use electronic funds transfer to make all federal tax deposits. Incometax Generally, electronic funds transfers are made using EFTPS. Incometax If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Incometax Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Incometax EFTPS is a free service provided by the Department of Treasury. Incometax Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Incometax   For more information on making federal tax deposits, see section 7 of Publication 51 (Circular A). Incometax To get more information about EFTPS or to enroll in EFTPS, visit www. Incometax eftps. Incometax gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). Incometax Additional information about EFTPS is also available in Publication 966. Incometax Prev  Up  Next   Home   More Online Publications
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Principal Reduction Alternative Under the Home Affordable Modification Program

Background


To help distressed homeowners lower their monthly mortgage payments, the U.S. Departments of the Treasury and of Housing and Urban Development established the Home Affordable Modification ProgramSM (HAMPSM) for mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac.

Under HAMP, a participating loan servicer must consider a sequence of modification steps for each eligible homeowner’s mortgage loan until the loan’s monthly payment is reduced to 31 percent of the homeowner’s verified monthly gross (pre-tax) income. Sometimes, a change in the mortgage loan’s interest rate is sufficient to reach the 31–percent target. Sometimes additional modification steps of term extension or forbearance are necessary as well. See the Home Affordable Modification Program (HAMP) page on the MakingHomeAffordable.gov website.

(For mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac, eligible homeowners may be offered modifications under related programs also called “HAMP.” Because these related programs do not contain the principal reduction provision that these FAQs address, these FAQs use the term “HAMP” to refer only to the program for mortgage loans that are not owned or guaranteed by Fannie Mae or Freddie Mac.)

Since the last quarter of 2010, if a mortgage loan is being considered for a HAMP modification and if the ratio of the amount owed to the value of the home is greater than 115 percent, then the servicer must consider whether a Principal Reduction AlternativeSM (PRA) principal reduction should be effected as one part of the HAMP modification. See the Principal Reduction Alternative (PRA) page on the MakingHomeAffordable.gov website. 

For HAMP modifications that include a PRA principal reduction, the unpaid principal balance of the modified loan is divided into an interest-bearing principal amount and a non-interest-bearing PRA Forbearance Amount. If the homeowner then achieves a payment history that is sufficiently timely over a three-year period, the entire PRA Forbearance Amount is eventually reduced to zero. 

In connection with every HAMP modification of a loan that is not owned or guaranteed by Fannie Mae or Freddie Mac, to encourage participation in HAMP, the government provides incentives to the investor (that is, the holder of the loan), to the homeowner, and to the servicer. If a HAMP modification of such a mortgage loan includes a PRA principal reduction, the government makes additional incentive payments over three years to the investor. (These additional incentives are called “PRA investor incentive payments.”) The size of the PRA investor incentive payments depends not only on the amount of principal reduced but also on the loan-to-value ratio and the loan’s payment history before the HAMP modification. The PRA investor incentive payments range from 6% to 21% of the principal amount reduced.

For information on tax issues related to the Principal Reduction Alternative, see the questions and answers below.
 


Questions and Answers on Tax Issues Related to the Principal Reduction Alternative


Q1: If the government makes a PRA investor incentive payment to the holder of the mortgage loan, how is that payment analyzed for federal income tax purposes?

A1: The PRA investor incentive payment to the holder is treated as a payment on the loan by the government on behalf of the homeowner. 

Q2: Does a homeowner have income as a result of the government's having paid some of the homeowner’s mortgage loan by making a PRA investor incentive payment to the holder of the loan?

A2: No. This payment by the government on behalf of the homeowner is excludible from the homeowner’s income under the general welfare exclusion. Excluding this amount from the homeowner’s gross income is consistent with the treatment of Pay-for-Performance Success Payments, which are addressed in Revenue Ruling 2009–19

Q3: In a HAMP modification that includes a PRA principal reduction, the holder of the loan reduces the PRA Forbearance Amount by more than the PRA investor incentive payments (which are treated as payments on the loan on behalf of the homeowner). What federal income tax consequences for the homeowner result from that additional reduction by the holder?

A3: To the extent that the reduction in the PRA Forbearance Amount is more than the PRA investor incentive payments, the reduction is from the discharge of indebtedness. The full amount of this discharge of indebtedness is reported to the IRS and the homeowner on Form 1099–C, Cancellation of Debt, regardless of whether the homeowner may exclude any, or all, of it from gross income. See Questions 4 and 5 below for discussion of some exclusions that may apply.

Q4: Does the exclusion for qualified principal residence indebtedness apply to amounts discharged under a PRA principal reduction?

A4: The exclusion for qualified principal residence indebtedness may apply to a discharge of indebtedness under a PRA principal reduction if the amount discharged meets the criteria for qualified principal residence indebtedness. Under current law, this exclusion does not apply to discharges that occur after Dec. 31, 2013. For further discussion of the qualified principal residence exclusion, see the questions and answers on the The Mortgage Forgiveness Debt Relief Act and Debt Cancellation page.
 

Q5: Does the insolvency exclusion apply to amounts discharged under a PRA principal reduction?

A5: The insolvency exclusion may apply to a discharge of indebtedness under a PRA principal reduction to the extent that the taxpayer is insolvent when the discharge occurs. For further discussion of the insolvency exclusion, see page 4 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

 

Page Last Reviewed or Updated: 06-Feb-2014

The Incometax

Incometax 5. Incometax   Manufacturers Taxes Table of Contents Importer. Incometax Use considered sale. Incometax Lease considered sale. Incometax Bonus goods. Incometax Taxable Event ExemptionsRequirements for Exempt Sales Credits or Refunds Sport Fishing EquipmentRelated person. Incometax Bows, Quivers, Broadheads, and Points Arrow ShaftsExemption for certain wooden arrows. Incometax CoalExported. Incometax Taxable TiresQualifying intercity or local bus. Incometax Qualifying school bus. Incometax Gas Guzzler TaxVehicles not subject to tax. Incometax Imported automobiles. Incometax VaccinesConditions to allowance. Incometax Taxable Medical Devices The following discussion of manufacturers taxes applies to the tax on: Sport fishing equipment; Fishing rods and fishing poles; Electric outboard motors; Fishing tackle boxes; Bows, quivers, broadheads, and points; Arrow shafts; Coal; Taxable tires; Gas guzzler automobiles; and Vaccines. Incometax Manufacturer. Incometax   The term “manufacturer” includes a producer or importer. Incometax A manufacturer is any person who produces a taxable article from new or raw material, or from scrap, salvage, or junk material, by processing or changing the form of an article or by combining or assembling two or more articles. Incometax If you furnish the materials and keep title to those materials and to the finished article, you are considered the manufacturer even though another person actually manufactures the taxable article. Incometax   A manufacturer who sells a taxable article in knockdown (unassembled) condition is liable for the tax. Incometax The person who buys these component parts and assembles a taxable article may also be liable for tax as a further manufacturer depending on the labor, material, and overhead required to assemble the completed article if the article is assembled for business use. Incometax Importer. Incometax   An importer is a person who brings a taxable article into the United States, or withdraws a taxable article from a customs bonded warehouse for sale or use in the United States. Incometax Sale. Incometax   A sale is the transfer of the title to, or the substantial incidents of ownership in, an article to a buyer for consideration that may consist of money, services, or other things. Incometax Use considered sale. Incometax   A manufacturer who uses a taxable article is liable for the tax in the same manner as if it were sold. Incometax Lease considered sale. Incometax   The lease of an article (including any renewal or extension of the lease) by the manufacturer is generally considered a taxable sale. Incometax However, for the gas guzzler tax, only the first lease (excluding any renewal or extension) of the automobile by the manufacturer is considered a sale. Incometax Manufacturers taxes based on sale price. Incometax   The manufacturers taxes imposed on the sale of sport fishing equipment, electric outboard motors, and bows are based on the sale price of the article. Incometax The taxes imposed on coal are based either on the sale price or the weight. Incometax   The price for which an article is sold includes the total consideration paid for the article, whether that consideration is in the form of money, services, or other things. Incometax However, you include certain charges made when a taxable article is sold and you exclude others. Incometax To figure the price on which you base the tax, use the following rules. Incometax Include both the following charges in the price. Incometax Any charge for coverings or containers (regardless of their nature). Incometax Any charge incident to placing the article in a condition packed ready for shipment. Incometax Exclude all the following amounts from the price. Incometax The manufacturers excise tax, whether or not it is stated as a separate charge. Incometax The transportation charges pursuant to the sale. Incometax The cost of transportation of goods to a warehouse before their bona fide sale is not excludable. Incometax Delivery, insurance, installation, retail dealer preparation charges, and other charges you incur in placing the article in the hands of the purchaser under a bona fide sale. Incometax Discounts, rebates, and similar allowances actually granted to the purchaser. Incometax Local advertising charges. Incometax A charge made separately when the article is sold and that qualifies as a charge for “local advertising” may, within certain limits, be excluded from the sale price. Incometax Charges for warranty paid at the purchaser's option. Incometax However, a charge for a warranty of an article that the manufacturer requires the purchaser to pay to obtain the article is included in the sale price on which the tax is figured. Incometax Bonus goods. Incometax   Allocate the sale price if you give free nontaxable goods with the purchase of taxable merchandise. Incometax Figure the tax only on the sale price attributable to the taxable articles. Incometax Example. Incometax A manufacturer sells a quantity of taxable articles and gives the purchaser certain nontaxable articles as a bonus. Incometax The sale price of the shipment is $1,500. Incometax The normal sale price is $2,000: $1,500 for the taxable articles and $500 for the nontaxable articles. Incometax Since the taxable items represent 75% of the normal sale price, the tax is based on 75% of the actual sale price, or $1,125 (75% of $1,500). Incometax The remaining $375 is allocated to the nontaxable articles. Incometax Taxable Event Tax attaches when the title to the article sold passes from the manufacturer to the buyer. Incometax When the title passes depends on the intention of the parties as gathered from the contract of sale. Incometax In the absence of expressed intention, the legal rules of presumption followed in the jurisdiction where the sale occurs determine when title passes. Incometax If the taxable article is used by the manufacturer, the tax attaches at the time use begins. Incometax The manufacturer is liable for the tax. Incometax Partial payments. Incometax   The tax applies to each partial payment received when taxable articles are: Leased, Sold conditionally, Sold on installment with chattel mortgage, or Sold on installment with title to pass in the future. Incometax To figure the tax, multiply the partial payment by the tax rate in effect at the time of the payment. Incometax Exemptions The following sales by the manufacturer are exempt from the manufacturers tax. Incometax Sale of an article to a state or local government for the exclusive use of the state or local government. Incometax This exemption does not apply to the taxes on coal, gas guzzlers, and vaccines. Incometax State is defined in Definitions in chapter 1. Incometax Sale of an article to a nonprofit educational organization for its exclusive use. Incometax This exemption does not apply to the taxes on coal, gas guzzlers, and vaccines. Incometax Nonprofit educational organization is defined under Communications Tax in chapter 4. Incometax Sale of an article to a qualified blood collector organization. Incometax This exemption does not apply to gas guzzlers, recreational equipment, and vaccines. Incometax Qualified blood collector organizations are defined under Communications Tax in chapter 4. Incometax Sale of an article for use by the purchaser as supplies for vessels. Incometax This exemption does not apply to the taxes on coal and vaccines. Incometax Supplies for vessels means ships' stores, sea stores, or legitimate equipment on vessels of war of the United States or any foreign nation, vessels employed in the fisheries or whaling business, or vessels actually engaged in foreign trade. Incometax Sale of an article for use by the purchaser for further manufacture, or for resale by the purchaser to a second purchaser for use by the second purchaser for further manufacture. Incometax This exemption does not apply to the tax on coal and tires. Incometax Use for further manufacture means use in the manufacture or production of an article subject to the manufacturers excise taxes. Incometax If you buy articles tax free and resell or use them other than in the manufacture of another article, you are liable for the tax on their resale or use just as if you had manufactured and sold them. Incometax Sale of an article for export or for resale by the purchaser to a second purchaser for export. Incometax The article may be exported to a foreign country or to a possession of the United States. Incometax A vaccine shipped to a possession of the United States is not considered to be exported. Incometax If an article is sold tax free for export and the manufacturer does not receive proof of export, described later, the manufacturer is liable for the tax. Incometax Sales of articles of native Indian handicraft, such as bows and arrow shafts, manufactured by Indians on reservations, in Indian schools, or under U. Incometax S. Incometax jurisdiction in Alaska. Incometax For tire exemptions, see section 4221(e)(2). Incometax Requirements for Exempt Sales The following requirements must be met for a sale to be exempt from the manufacturers tax. Incometax Registration requirements. Incometax   The manufacturer, first purchaser, and second purchaser in the case of resales must be registered. Incometax See the Form 637 instructions for more information. Incometax Exceptions to registration requirements. Incometax   Registration is not required for: State or local governments, Foreign purchasers of articles sold or resold for export, The United States, or Parties to a sale of supplies for vessels and aircraft. Incometax Certification requirement. Incometax   If the purchaser is required to be registered, the purchaser must give the manufacturer its registration number and certify the exempt purpose for which the article will be used. Incometax The information must be in writing and may be noted on the purchase order or other document furnished by the purchaser to the seller in connection with the sale. Incometax   For a sale to a state or local government, an exemption certificate must be signed by an officer or employee authorized by the state or local government. Incometax See Regulations section 48. Incometax 4221-5(c) for the certificate requirements. Incometax   For sales for use as supplies for vessels and aircraft, if the manufacturer and purchaser are not registered, the owner or agent of the vessel must provide an exemption certificate to the manufacturer before or at the time of sale. Incometax See Regulations section 48. Incometax 4221-4(d) for the certificate requirements. Incometax Proof of export requirement. Incometax   Within 6 months of the date of sale or shipment by the manufacturer, whichever is earlier, the manufacturer must receive proof of exportation. Incometax See Regulations section 48. Incometax 4221-3(d) for evidence that qualifies as proof of exportation. Incometax Proof of resale for further manufacture requirement. Incometax   Within 6 months of the date of sale or shipment by the manufacturer, whichever is earlier, the manufacturer must receive proof that the article has been resold for use in further manufacture. Incometax See Regulations section 48. Incometax 4221-2(c) for evidence that qualifies as proof of resale. Incometax Information to be furnished to purchaser. Incometax   The manufacturer must indicate to the purchaser that the articles normally would be subject to tax and are being sold tax free for an exempt purpose because the purchaser has provided the required certificate. Incometax Credits or Refunds The manufacturer may be eligible to obtain a credit or refund of the manufacturers tax for certain uses, sales, exports, and price readjustments. Incometax The claim must set forth in detail the facts upon which the claim is based. Incometax Uses, sales, and exports. Incometax   A credit or refund (without interest) of the manufacturers taxes may be allowable if a tax-paid article is, by any person: Exported, Used or sold for use as supplies for vessels (except for coal and vaccines), Sold to a state or local government for its exclusive use (except for coal, gas guzzlers, and vaccines), Sold to a nonprofit educational organization for its exclusive use (except for coal, gas guzzlers, and vaccines), Sold to a qualified blood collector organization for its exclusive use (except for gas guzzlers, recreational equipment, and vaccines), or Used for further manufacture of another article subject to the manufacturers taxes (except for coal). Incometax Export. Incometax   If a tax-paid article is exported, the exporter or shipper may claim a credit or refund if the manufacturer waives its right to claim the credit or refund. Incometax In the case of a tax-paid article used to make another taxable article, the subsequent manufacturer may claim the credit or refund. Incometax Price readjustments. Incometax   In addition, a credit or refund (without interest) may be allowable for a tax-paid article for which the price is readjusted by reason of return or repossession of the article or a bona fide discount, rebate, or allowance for taxes based on price. Incometax Conditions to allowance. Incometax   To claim a credit or refund in the case of export; supplies for vessels; or sales to a state or local government, nonprofit educational organization, or qualified blood collector organization; the person who paid the tax must certify on the claim that one of the following applies and that the claimant has the required supporting information. Incometax The claimant sold the article at a tax-excluded price. Incometax The person has repaid, or agreed to repay, the tax to the ultimate vendor of the article. Incometax The person has obtained the written consent of the ultimate vendor to make the claim. Incometax The ultimate vendor generally is the seller making the sale that gives rise to the overpayment of tax. Incometax Claim for further manufacture. Incometax   To claim a credit or refund for further manufacture, the claimant must include a statement that contains the following. Incometax The name and address of the manufacturer and the date of payment. Incometax An identification of the article for which the credit or refund is claimed. Incometax The amount of tax paid on the article and the date on which it was paid. Incometax Information indicating that the article was used as material in the manufacture or production of, or as a component part of, a second article manufactured or produced by the manufacturer, or was sold on or in connection with, or with the sale of a second article manufactured or produced by the manufacturer. Incometax An identification of the second article. Incometax   For claims by the exporter or shipper, the claim must contain the proof of export and a statement signed by the person that paid the tax waiving the right to claim a credit or refund. Incometax The statement must include the amount of tax paid, the date of payment, and the office to which it was paid. Incometax Claim for price readjustment. Incometax   To claim a credit or refund for a price readjustment, the person who paid the tax must include with the claim, a statement that contains the following. Incometax A description of the circumstances that gave rise to the price readjustment. Incometax An identification of the article whose price was readjusted. Incometax The price at which the article was sold. Incometax The amount of tax paid on the article and the date on which it was paid. Incometax The name and address of the purchaser. Incometax The amount repaid to the purchaser or credited to the purchaser's account. Incometax Sport Fishing Equipment A tax of 10% of the sale price is imposed on many articles of sport fishing equipment sold by the manufacturer. Incometax This includes any parts or accessories sold on or in connection with the sale of those articles. Incometax Pay this tax with Form 720. Incometax No tax deposits are required. Incometax Sport fishing equipment includes all the following items. Incometax Fishing rods and poles (and component parts), fishing reels, fly fishing lines, and other fishing lines not over 130 pounds test, fishing spears, spear guns, and spear tips. Incometax Items of terminal tackle, including leaders, artificial lures, artificial baits, artificial flies, fishing hooks, bobbers, sinkers, snaps, drayles, and swivels (but not including natural bait or any item of terminal tackle designed for use and ordinarily used on fishing lines not described in (1)). Incometax The following items of fishing supplies and accessories: fish stringers, creels, bags, baskets, and other containers designed to hold fish, portable bait containers, fishing vests, landing nets, gaff hooks, fishing hook disgorgers, and dressing for fishing lines and artificial flies. Incometax Fishing tip-ups and tilts. Incometax Fishing rod belts, fishing rodholders, fishing harnesses, fish fighting chairs, fishing outriggers, and fishing downriggers. Incometax See Revenue Ruling 88-52 in Cumulative Bulletin 1988-1 for a more complete description of the items of taxable equipment. Incometax Fishing rods and fishing poles. Incometax   The tax on fishing rods and fishing poles (and component parts) is 10% of the sales price not to exceed $10 per article. Incometax The tax is paid by the manufacturer, producer, or importer. Incometax Fishing tackle boxes. Incometax   The tax on fishing tackle boxes is 3% of the sales price. Incometax The tax is paid by the manufacturer, producer, or importer. Incometax Electric outboard boat motors. Incometax   A tax of 3% of the sale price is imposed on the sale by the manufacturer of electric outboard motors. Incometax This includes any parts or accessories sold on or in connection with the sale of those articles. Incometax Certain equipment resale. Incometax   The tax on the sale of sport fishing equipment is imposed a second time under the following circumstances. Incometax If the manufacturer sells a taxable article to any person, the manufacturer is liable for the tax. Incometax If the purchaser or any other person then sells it to a person who is related (discussed next) to the manufacturer, that related person is liable for a second tax on any subsequent sale of the article. Incometax The second tax, however, is not imposed if the constructive sale price rules under section 4216(b) apply to the sale by the manufacturer. Incometax   If the second tax is imposed, a credit for tax previously paid by the manufacturer is available provided the related person can document the tax paid. Incometax The documentation requirement is generally satisfied only through submission of copies of actual records of the person that previously paid the tax. Incometax Related person. Incometax   For the tax on sport fishing equipment, a person is a related person of the manufacturer if that person and the manufacturer have a relationship described in section 465(b)(3)(C). Incometax Bows, Quivers, Broadheads, and Points The tax on bows is 11% (. Incometax 11) of the sales price. Incometax The tax is paid by the manufacturer, producer, or importer. Incometax It applies to bows having a peak draw weight of 30 pounds or more. Incometax The tax is also imposed on the sale of any part or accessory suitable for inclusion in or attachment to a taxable bow and any quiver, broadhead, or point suitable for use with arrows described below. Incometax Pay this tax with Form 720. Incometax No tax deposits are required. Incometax Arrow Shafts The tax on arrow shafts is listed on Form 720. Incometax The tax is paid by the manufacturer, producer, or importer of any arrow shaft (whether sold separately or incorporated as part of a finished or unfinished product) of a type used in the manufacture of any arrow that after its assembly meets either of the following conditions. Incometax It measures 18 inches or more in overall length. Incometax It measures less than 18 inches in overall length but is suitable for use with a taxable bow, described earlier. Incometax Exemption for certain wooden arrows. Incometax   After October 3, 2008, the tax does not apply to any shaft made of all natural wood with no laminations or artificial means of enhancing the spine of such shaft (whether sold separately or incorporated as part of a finished or unfinished product) and used in the manufacture of any arrow that after its assembly meets both of the following conditions. Incometax It measures 5/16 of an inch or less in diameter. Incometax It is not suitable for use with a taxable bow, described earlier. Incometax Pay this tax with Form 720. Incometax No tax deposits are required. Incometax Coal A tax is imposed on the first sale of coal mined in the United States. Incometax The producer of the coal is liable for the tax. Incometax The producer is the person who has vested ownership of the coal under state law immediately after the coal is severed from the ground. Incometax Determine vested ownership without regard to any contractual arrangement for the sale or other disposition of the coal or the payment of any royalties between the producer and third parties. Incometax A producer includes any person who extracts coal from coal waste refuse piles (or from the silt waste product that results from the wet washing of coal). Incometax The tax is not imposed on coal extracted from a riverbed by dredging if it can be shown that the coal has been taxed previously. Incometax Tax rates. Incometax   The tax on underground-mined coal is the lower of: $1. Incometax 10 a ton, or 4. Incometax 4% of the sale price. Incometax   The tax on surface-mined coal is the lower of: 55 cents a ton, or 4. Incometax 4% of the sale price. Incometax   Coal will be taxed at the 4. Incometax 4% rate if the selling price is less than $25 a ton for underground-mined coal and less than $12. Incometax 50 a ton for surface-mined coal. Incometax Apply the tax proportionately if a sale or use includes a portion of a ton. Incometax Example. Incometax If you sell 21,000 pounds (10. Incometax 5 tons) of coal from an underground mine for $525, the price per ton is $50. Incometax The tax is $1. Incometax 10 × 10. Incometax 5 tons ($11. Incometax 55). Incometax Coal production. Incometax   Coal is produced from surface mines if all geological matter (trees, earth, rock) above the coal is removed before the coal is mined. Incometax Treat coal removed by auger and coal reclaimed from coal waste refuse piles as produced from a surface mine. Incometax   Treat coal as produced from an underground mine when the coal is not produced from a surface mine. Incometax In some cases, a single mine may yield coal from both surface mining and underground mining. Incometax Determine if the coal is from a surface mine or an underground mine for each ton of coal produced and not on a mine-by-mine basis. Incometax Determining tonnage or selling price. Incometax   The producer pays the tax on coal at the time of sale or use. Incometax In figuring the selling price for applying the tax, the point of sale is f. Incometax o. Incometax b. Incometax (free on board) mine or f. Incometax o. Incometax b. Incometax cleaning plant if you clean the coal before selling it. Incometax This applies even if you sell the coal for a delivered price. Incometax The f. Incometax o. Incometax b. Incometax mine or f. Incometax o. Incometax b. Incometax cleaning plant is the point at which you figure the number of tons sold for applying the applicable tonnage rate, and the point at which you figure the sale price for applying the 4. Incometax 4% rate. Incometax   The tax applies to the full amount of coal sold. Incometax However, the IRS allows a calculated reduction of the taxable weight of the coal for the weight of the moisture in excess of the coal's inherent moisture content. Incometax Include in the sale price any additional charge for a freeze-conditioning additive in figuring the tax. Incometax   Do not include in the sales price the excise tax imposed on coal. Incometax Coal used by the producer. Incometax   The tax on coal applies if the coal is used by the producer in other than a mining process. Incometax A mining process means the same for this purpose as for percentage depletion. Incometax For example, the tax does not apply if, before selling the coal, you break it, clean it, size it, or apply any other process considered mining under the rules for depletion. Incometax In this case, the tax applies only when you sell the coal. Incometax The tax does not apply to coal used as fuel in the coal drying process since it is considered to be used in a mining process. Incometax However, the tax does apply when you use the coal as fuel or as an ingredient in making coke since the coal is not used in a mining process. Incometax   You must use a constructive sale price to figure the tax under the 4. Incometax 4% rate if you use the coal in other than a mining process. Incometax Base your constructive sale price on sales of a like kind and grade of coal by you or other producers made f. Incometax o. Incometax b. Incometax mine or cleaning plant. Incometax Normally, you use the same constructive price used to figure your percentage depletion deduction. Incometax Blending. Incometax   If you blend surface-mined coal with underground-mined coal during the cleaning process, you must figure the excise tax on the sale of the blended, cleaned coal. Incometax Figure the tax separately for each type of coal in the blend. Incometax Base the tax on the amount of each type in the blend if you can determine the proportion of each type of coal contained in the final blend. Incometax Base the tax on the ratio of each type originally put into the cleaning process if you cannot determine the proportion of each type of coal in the blend. Incometax However, the tax is limited to 4. Incometax 4% of the sale price per ton of the blended coal. Incometax Exemption from tax. Incometax   The tax does not apply to sales of lignite and imported coal. Incometax The only other exemption from the tax on the sale of coal is for coal exported as discussed next. Incometax Exported. Incometax   The tax does not apply to the sale of coal if the coal is in the stream of export when sold by the producer and the coal is actually exported. Incometax   Coal is in the stream of export when sold by the producer if the sale is a step in the exportation of the coal to its ultimate destination in a foreign country. Incometax For example, coal is in the stream of export when: The coal is loaded on an export vessel and title is transferred from the producer to a foreign purchaser, or The producer sells the coal to an export broker in the United States under terms of a contract showing that the coal is to be shipped to a foreign country. Incometax   Proof of export includes any of the following items. Incometax A copy of the export bill of lading issued by the delivering carrier. Incometax A certificate signed by the export carrier's agent or representative showing actual exportation of the coal. Incometax A certificate of landing signed by a customs officer of the foreign country to which the coal is exported. Incometax If the foreign country does not have a customs administrator, a statement of the foreign consignee showing receipt of the coal. Incometax Taxable Tires Taxable tires are divided into three categories for reporting and figuring the tax as described below. Incometax A tax is imposed on taxable tires sold by the manufacturer, producer, or importer at the rate of $. Incometax 0945 ($. Incometax 04725 in the case of a biasply tire or super single tire) for each 10 pounds of the maximum rated load capacity over 3,500 pounds. Incometax The three categories for reporting the tax and the tax rate are listed below. Incometax Taxable tires other than biasply or super single tires at $. Incometax 0945. Incometax Taxable tires, biasply or super single tires (other than super single tires designed for steering) at $. Incometax 04725. Incometax Taxable tires, super single tires designed for steering at $. Incometax 0945. Incometax A taxable tire is any tire of the type used on highway vehicles if wholly or partially made of rubber and if marked according to federal regulations for highway use. Incometax A biasply tire is a pneumatic tire on which the ply cords that extend to the beads are laid at alternate angles substantially less than 90 degrees to the centerline of the tread. Incometax A super single tire is a tire greater than 13 inches in cross section width designed to replace 2 tires in a dual fitment. Incometax Special rule, manufacturer's retail stores. Incometax   The excise tax on taxable tires is imposed at the time the taxable tires are delivered to the manufacturer-owned retail stores, not at the time of sale. Incometax Tires on imported articles. Incometax   The importer of an article equipped with taxable tires is treated as the manufacturer of the tires and is liable for the taxable tire excise tax when the article is sold (except in the case of an automobile bus chassis or body with tires). Incometax Tires exempt from tax. Incometax   The tax on taxable tires does not apply to the following items. Incometax Domestically recapped or retreaded tires if the tires have been sold previously in the United States and were taxable tires at the time of sale. Incometax Tire carcasses not suitable for commercial use. Incometax Tires for use on qualifying intercity, local, and school buses. Incometax For tax-free treatment, the registration requirements discussed earlier under Requirements for Exempt Sales apply. Incometax Tires sold for the exclusive use of the Department of Defense or the Coast Guard. Incometax Tires of a type used exclusively on mobile machinery. Incometax A taxable tire used on mobile machinery is not exempt from tax. Incometax Qualifying intercity or local bus. Incometax   This is any bus used mainly (more than 50%) to transport the general public for a fee and that either operates on a schedule along regular routes or seats at least 20 adults (excluding the driver). Incometax Qualifying school bus. Incometax   This is any bus substantially all the use (85% or more) of which is to transport students and employees of schools. Incometax Credit or refund. Incometax   A credit or refund (without interest) is allowable on tax-paid tires if the tires have been: Exported; Sold to a state or local government for its exclusive use; Sold to a nonprofit educational organization for its exclusive use (as defined under Communications Tax in chapter 4); Sold to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in connection with a vehicle the organization certifies will be primarily used in the collection, storage, or transportation of blood; Used or sold for use as supplies for vessels; or Sold in connection with qualified intercity, local, or school buses. Incometax   Also, a credit or refund (without interest) is allowable on tax-paid tires sold by any person on, or in connection with, any other article that is sold or used in an activity listed above. Incometax   The person who paid the tax is eligible to make the claim. Incometax Gas Guzzler Tax Tax is imposed on the sale by the manufacturer of automobiles of a model type that has a fuel economy standard as measured by the Environmental Protection Agency (EPA) of less than 22. Incometax 5 miles per gallon. Incometax If you import an automobile for personal use, you may be liable for this tax. Incometax Figure the tax on Form 6197, as discussed later. Incometax The tax rate is based on fuel economy rating. Incometax The tax rates for the gas guzzler tax are shown on Form 6197. Incometax A person that lengthens an existing automobile is the manufacturer of an automobile. Incometax Automobiles. Incometax   An automobile (including limousines) means any four-wheeled vehicle that is: Rated at an unloaded gross vehicle weight of 6,000 pounds or less, Propelled by an engine powered by gasoline or diesel fuel, and Intended for use mainly on public streets, roads, and highways. Incometax Vehicles not subject to tax. Incometax   For the gas guzzler tax, the following vehicles are not considered automobiles. Incometax Limousines with a gross unloaded vehicle weight of more than 6,000 pounds. Incometax Vehicles operated exclusively on a rail or rails. Incometax Vehicles sold for use and used primarily: As ambulances or combination ambulance-hearses, For police or other law enforcement purposes by federal, state, or local governments, or For firefighting purposes. Incometax Vehicles treated under 49 U. Incometax S. Incometax C. Incometax 32901 (1978) as non-passenger automobiles. Incometax This includes limousines manufactured primarily to transport more than 10 persons. Incometax   The manufacturer can sell a vehicle described in item (3) tax free only when the sale is made directly to a purchaser for the described emergency use and the manufacturer and purchaser (other than a state or local government) are registered. Incometax   Treat an Indian tribal government as a state only if the police or other law enforcement purposes are an essential tribal government function. Incometax Model type. Incometax   Model type is a particular class of automobile as determined by EPA regulations. Incometax Fuel economy. Incometax   Fuel economy is the average number of miles an automobile travels on a gallon of gasoline (or diesel fuel) rounded to the nearest 0. Incometax 1 mile as figured by the EPA. Incometax Imported automobiles. Incometax   The tax also applies to automobiles that do not have a prototype-based fuel economy rating assigned by the EPA. Incometax An automobile imported into the United States without a certificate of conformity to United States emission standards and that has no assigned fuel economy rating must be either: Converted by installation of emission controls to conform in all material respects to an automobile already certified for sale in the United States, or Modified by installation of emission control components and individually tested to demonstrate emission compliance. Incometax   An imported automobile that has been converted to conform to an automobile already certified for sale in the United States may use the fuel economy rating assigned to that certified automobile. Incometax   A fuel economy rating is not generally available for modified imported automobiles because the EPA does not require a highway fuel economy test on them. Incometax A separate highway fuel economy test would be required to devise a fuel economy rating (otherwise the automobile is presumed to fall within the lowest fuel economy rating category). Incometax   For more information about fuel economy ratings for imported automobiles, see Revenue Ruling 86-20 and Revenue Procedure 86-9 in Cumulative Bulletin 1986-1, and Revenue Procedure 87-10 in Cumulative Bulletin 1987-1. Incometax Exemptions. Incometax   No one is exempt from the gas guzzler tax, including the federal government, state and local governments, qualified blood collector organizations, and nonprofit educational organizations. Incometax However, see Vehicles not subject to tax, earlier. Incometax Form 6197. Incometax   Use Form 6197 to figure your tax liability for each quarter. Incometax Attach Form 6197 to your Form 720 for the quarter. Incometax See the Form 6197 instructions for more information and the one-time filing rules. Incometax Credit or refund. Incometax   If the manufacturer paid the tax on a vehicle that is used or resold for an emergency use (see item (3) under Vehicles not subject to tax), the manufacturer can claim a credit or refund. Incometax For information about how to file for credits or refunds, see the Instructions for Form 720 or Form 8849. Incometax Vaccines Tax is imposed on certain vaccines sold by the manufacturer in the United States. Incometax A taxable vaccine means any of the following vaccines. Incometax Any vaccine containing diphtheria toxoid. Incometax Any vaccine containing tetanus toxoid. Incometax Any vaccine containing pertussis bacteria, extracted or partial cell bacteria, or specific pertussis antigens. Incometax Any vaccine containing polio virus. Incometax Any vaccine against measles. Incometax Any vaccine against mumps. Incometax Any vaccine against rubella. Incometax Any vaccine against hepatitis A. Incometax Any vaccine against hepatitis B. Incometax Any vaccine against chicken pox. Incometax Any vaccine against rotavirus gastroenteritis. Incometax Any HIB vaccine. Incometax Any conjugate vaccine against streptococcus pneumoniae. Incometax Any trivalent vaccine against influenza or any other vaccine against influenza. Incometax Any meningococcal vaccine. Incometax Any vaccine against the human papillomavirus. Incometax The effective date for the tax on any vaccine against influenza, other than trivalent influenza vaccines, is the later of August 1, 2013, or the date the Secretary of Health and Human Services lists a vaccine against seasonal influenza for purposes of compensation for any vaccine-related injury or death through the Vaccine Injury Compensation Trust Fund. Incometax The tax is $. Incometax 75 per dose of each taxable vaccine. Incometax The tax per dose on a vaccine that contains more than one taxable vaccine is $. Incometax 75 times the number of taxable vaccines. Incometax Taxable use. Incometax   Any manufacturer (including a governmental entity) that uses a taxable vaccine before it is sold will be liable for the tax in the same manner as if the vaccine was sold by the manufacturer. Incometax Credit or refund. Incometax   A credit or refund (without interest) is available if the vaccine is: Returned to the person who paid the tax (other than for resale), or Destroyed. Incometax The claim for a credit or refund must be filed within 6 months after the vaccine is returned or destroyed. Incometax Conditions to allowance. Incometax   To claim a credit or refund, the person who paid the tax must have repaid or agreed to repay the tax to the ultimate purchaser of the vaccine or obtained the written consent of such purchaser to allowance of the credit or refund. Incometax Taxable Medical Devices Taxable medical devices. Incometax   The tax on the sale of certain medical devices by the manufacturer, producer, or importer of the device is 2. Incometax 3% (. Incometax 023) of the sales price. Incometax A taxable medical device is a device that is listed as a device with the Food and Drug Administration (FDA) under section 510(j) of the Federal Food, Drug, and Cosmetic Act and 21 CFR part 807, pursuant to FDA requirements. Incometax There are specific exemptions for eyeglasses, contact lenses, and hearing aids. Incometax There is also an exemption for devices that are determined by the Secretary to be of a type that are generally purchased by the general public at retail for individual use (this exemption is known as the retail exemption). Incometax See T. Incometax D. Incometax 9604 for information on how to determine whether a device falls within the retail exemption, and examples of how a taxpayer might evaluate a given device. Incometax More information. Incometax   For more information on the medical device tax, see section 4191, T. Incometax D. Incometax 9604, and Notice 2012-77. Incometax You can find T. Incometax D. Incometax 9604 and Notice 2012-77 on pages 730 and 781, respectively, of I. Incometax R. Incometax B. Incometax 2012-52 at www. Incometax irs. Incometax gov/pub/irs-irbs/irb12-52. Incometax pdf. Incometax Prev  Up  Next   Home   More Online Publications