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1040 Es Form

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1040 Es Form

1040 es form 4. 1040 es form   General Business Credits Table of Contents Introduction Useful Items - You may want to see: Business Credits How To Claim the Credit Introduction Your general business credit for the year consists of your carryforward of business credits from prior years plus the total of your current year business credits. 1040 es form In addition, your general business credit for the current year may be increased later by the carryback of business credits from later years. 1040 es form You subtract this credit directly from your tax. 1040 es form Useful Items - You may want to see: Form (and Instructions) 3800 General Business Credit 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. 1040 es form Business Credits All of the following credits are part of the general business credit. 1040 es form The form you use to figure each credit is shown in parentheses. 1040 es form You will also have to complete Form 3800. 1040 es form Alternative fuel vehicle refueling property credit (Form 8911). 1040 es form   This credit applies to the cost of any qualified fuel vehicle refueling property you placed in service. 1040 es form For more information, see Form 8911. 1040 es form Alternative motor vehicle credit (Form 8910). 1040 es form   For more information, see Form 8910. 1040 es form Biodiesel and renewable diesel fuels credit (Form 8864). 1040 es form   For more information, see Form 8864. 1040 es form Biofuel producer credit (Form 6478). 1040 es form    For more information, see Form 6478. 1040 es form Carbon dioxide sequestration credit (Form 8933). 1040 es form   This credit is for carbon dioxide which is captured at a qualified facility and disposed of in a secure geological storage or used in a qualified enhanced oil or natural gas recovery project. 1040 es form For more information, see Form 8933. 1040 es form Credit for employer social security and Medicare taxes paid on certain employee tips (Form 8846). 1040 es form   This credit is generally equal to your (employer's) portion of social security and Medicare taxes paid on tips received by employees of your food and beverage establishment where tipping is customary. 1040 es form The credit applies regardless of whether the food is consumed on or off your business premises. 1040 es form For more information, see Form 8846. 1040 es form Credit for employer differential wage payments (Form 8932). 1040 es form   This credit provides certain small businesses with an incentive to continue to pay wages to an employee performing services on active duty in the uniformed services of the United States for a period of more than 30 days. 1040 es form For more information, see Form 8932. 1040 es form Credit for employer-provided childcare facilities and services (Form 8882). 1040 es form   This credit applies to the qualified expenses you paid for employee childcare and qualified expenses you paid for childcare resource and referral services. 1040 es form For more information, see Form 8882. 1040 es form Credit for increasing research activities (Form 6765). 1040 es form   This credit is designed to encourage businesses to increase the amounts they spend on research and experimental activities, including energy research. 1040 es form For more information, see Form 6765. 1040 es form Credit for small employer health insurance premiums (Form 8941). 1040 es form   This credit applies to the cost of certain health insurance coverage you provide to certain employees. 1040 es form For more information, see Form 8941. 1040 es form Credit for small employer pension plan startup costs (Form 8881). 1040 es form   This credit applies to pension plan startup costs of a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. 1040 es form For more information, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). 1040 es form Disabled access credit (Form 8826). 1040 es form   This credit is a nonrefundable tax credit for an eligible small business that pays or incurs expenses to provide access to persons who have disabilities. 1040 es form You must pay or incur the expenses to enable your business to comply with the Americans with Disabilities Act of 1990. 1040 es form For more information, see Form 8826. 1040 es form Distilled spirits credit (Form 8906). 1040 es form   This credit is available to distillers and importers of distilled spirits and eligible wholesalers of distilled spirits. 1040 es form For more information, see Form 8906. 1040 es form Empowerment zone employment credit (Form 8844). 1040 es form   You may qualify for this credit if you have employees and are engaged in a business in an empowerment zone for which the credit is available. 1040 es form For more information, see Form 8844. 1040 es form Energy efficient appliance credit (Form 8909). 1040 es form   This credit is available for manufacturers of eligible appliances. 1040 es form For more information, see Form 8909. 1040 es form Energy efficient home credit (Form 8908). 1040 es form   This credit is available for eligible contractors of certain homes sold for use as a residence. 1040 es form For more information, see Form 8908. 1040 es form Indian employment credit (Form 8845). 1040 es form   This credit applies to qualified wages and health insurance costs you paid or incurred for qualified employees. 1040 es form For more information, see Form 8845. 1040 es form Investment credit (Form 3468). 1040 es form   The investment credit is the total of the following credits. 1040 es form Rehabilitation credit. 1040 es form Energy credit. 1040 es form Qualifying advanced coal project credit. 1040 es form Qualifying gasification project credit. 1040 es form Qualifying advanced energy project credit. 1040 es form   For more information, see Form 3468. 1040 es form Low sulfur diesel fuel production credit (Form 8896). 1040 es form    For more information, see Form 8896. 1040 es form Low-income housing credit (Form 8586). 1040 es form   This credit generally applies to each new qualified low-income building placed in service after 1986. 1040 es form For more information, see Form 8586. 1040 es form Mine rescue team training credit (Form 8923). 1040 es form   This credit applies to training program costs you pay or incur for certain mine rescue team employees. 1040 es form For more information, see Form 8923. 1040 es form New markets credit (Form 8874). 1040 es form   This credit is for qualified equity investments made in qualified community development entities. 1040 es form For more information, see Form 8874. 1040 es form Nonconventional source fuel credit (Form 8907). 1040 es form   This credit is for qualified coke and coke gas you produced and sold to an unrelated person during the tax year. 1040 es form For more information, see Form 8907. 1040 es form Orphan drug credit (Form 8820). 1040 es form   This credit applies to qualified expenses incurred in testing certain drugs for rare diseases and conditions. 1040 es form For more information, see Form 8820. 1040 es form Qualified plug-in electric drive motor vehicle credit (Form 8936). 1040 es form   This credit is for certain new qualified plug-in electric vehicles placed in service during the tax year. 1040 es form For more information, see Form 8936. 1040 es form Qualified railroad track maintenance credit (Form 8900). 1040 es form   This credit applies with respect to qualified railroad track maintenance expenditures paid or incurred during the tax year. 1040 es form For more information, see Form 8900. 1040 es form Renewable electricity, refined coal, and Indian coal production credit (Form 8835). 1040 es form   This credit is for the sale of electricity, refined coal, or Indian coal produced in the United States or U. 1040 es form S. 1040 es form possessions from qualified energy resources at a qualified facility. 1040 es form For more information, see Form 8835. 1040 es form Work opportunity credit (Form 5884). 1040 es form   This credit provides businesses with an incentive to hire individuals from targeted groups that have a particularly high unemployment rate or other special employment needs. 1040 es form For more information, see Form 5884. 1040 es form How To Claim the Credit To claim a general business credit, you will first have to get the forms you need to claim your current year business credits. 1040 es form In addition to the credit form, you also need to file Form 3800. 1040 es form Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Floods in Nebraska

Updated 11/21/11 to add the Omaha Indian Reservation and Thurston county.
Updated 9/8/11 to add Lincoln, Nemaha and Richardson counties.

MIL-2011-06-NE, Aug. 17, 2011

Victims of flooding beginning on May 24, 2011 in parts of Nebraska may qualify for tax relief from the Internal Revenue Service.

The President has declared Boyd, Burt, Cass, Dakota, Dixon, Douglas, Knox, Lincoln, Nemaha, Richardson, Sarpy, Thurston and Washington counties and the Omaha Indian Reservation a federal disaster area. Individuals who reside or have a business in these localities may qualify for tax relief.

As a result, the IRS has postponed until Aug. 1, 2011, certain deadlines occurring from May 24 to Aug. 1 that affect taxpayers who live or have a business in the disaster area. This includes the June 15 deadline for making estimated tax payments.

In addition, the IRS is abating the failure-to-deposit penalties for employment and excise tax deposits due on or after May 24 and on or before June 8, 2011, as long as the deposits were made by June 8, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The areas listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS has given affected taxpayers until Aug. 1, 2011, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after May 24 and on or before Aug. 1, 2011.

The IRS also gives affected taxpayers until Aug. 1 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after May 24 and on or before Aug. 1.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after May 24 and on or before June 8, provided the taxpayer made these deposits by June 8.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation, "Nebraska Flooding," at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information: Recent IRS Disaster Relief Announcements
 

 

Page Last Reviewed or Updated: 20-Feb-2014

The 1040 Es Form

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