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1040x online form Publication 15-A - Main Content Table of Contents 1. 1040x online form Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. 1040x online form Employee or Independent Contractor?Common-Law Rules Industry Examples 3. 1040x online form Employees of Exempt OrganizationsSocial security and Medicare taxes. 1040x online form FUTA tax. 1040x online form 4. 1040x online form Religious Exemptions and Special Rules for MinistersForm W-2. 1040x online form Self-employed. 1040x online form Employees. 1040x online form 5. 1040x online 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. 1040x online 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. 1040x online form Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. 1040x online form Pensions and AnnuitiesFederal Income Tax Withholding 9. 1040x online form Alternative Methods for Figuring WithholdingTerm of continuous employment. 1040x online 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. 1040x online form Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. 1040x online 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. 1040x online form The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. 1040x online form This discussion explains these four categories. 1040x online 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. 1040x online 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. 1040x online form However, in some cases you may be required to withhold under the backup withholding requirements on these payments. 1040x online form See Publication 15 (Circular E) for information on backup withholding. 1040x online 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. 1040x online form However, whether such people are employees or independent contractors depends on the facts in each case. 1040x online 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. 1040x online 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. 1040x online form This is so even when you give the employee freedom of action. 1040x online form What matters is that you have the right to control the details of how the services are performed. 1040x online form For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. 1040x online form If you have an employer-employee relationship, it makes no difference how it is labeled. 1040x online form The substance of the relationship, not the label, governs the worker's status. 1040x online form It does not matter whether the individual is employed full time or part time. 1040x online form For employment tax purposes, no distinction is made between classes of employees. 1040x online form Superintendents, managers, and other supervisory personnel are all employees. 1040x online 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. 1040x online form A director of a corporation is not an employee with respect to services performed as a director. 1040x online form You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. 1040x online form However, the wages of certain employees may be exempt from one or more of these taxes. 1040x online form See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). 1040x online form Leased employees. 1040x online form   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form Additional information. 1040x online 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. 1040x online 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. 1040x online 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 . 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. 1040x online form The work performed for you must be the salesperson's principal business activity. 1040x online form See Salesperson in section 2. 1040x online form Social security and Medicare taxes. 1040x online form   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. 1040x online form The service contract states or implies that substantially all the services are to be performed personally by them. 1040x online 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). 1040x online form The services are performed on a continuing basis for the same payer. 1040x online form Federal unemployment (FUTA) tax. 1040x online 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. 1040x online 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. 1040x online form Income tax. 1040x online form   Do not withhold federal income tax from the wages of statutory employees. 1040x online form Reporting payments to statutory employees. 1040x online form   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. 1040x online form Show your payments to the employee as “other compensation” in box 1. 1040x online 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. 1040x online form The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. 1040x online 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. 1040x online 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. 1040x online form H-2A agricultural workers. 1040x online form   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. 1040x online form Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. 1040x online 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. 1040x online form Direct sellers. 1040x online form   Direct sellers include persons falling within any of the following three groups. 1040x online 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. 1040x online 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. 1040x online 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). 1040x online 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. 1040x online form Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. 1040x online form Licensed real estate agents. 1040x online form   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. 1040x online form Companion sitters. 1040x online form   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. 1040x online 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. 1040x online form Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. 1040x online form Misclassification of Employees Consequences of treating an employee as an independent contractor. 1040x online 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. 1040x online form See section 2 in Publication 15 (Circular E) for more information. 1040x online form Relief provision. 1040x online 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. 1040x online form To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. 1040x online 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. 1040x online form Technical service specialists. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form The common-law rules control whether the specialist is treated as an employee or an independent contractor. 1040x online 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. 1040x online form Test proctors and room supervisors. 1040x online 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. 1040x online form Voluntary Classification Settlement Program (VCSP). 1040x online 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. 1040x online form To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). 1040x online form For more information, visit IRS. 1040x online form gov and enter “VCSP” in the search box. 1040x online form 2. 1040x online 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. 1040x online form An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form These facts are discussed next. 1040x online form Behavioral control. 1040x online 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. 1040x online form   An employee is generally subject to the business' instructions about when, where, and how to work. 1040x online form All of the following are examples of types of instructions about how to do work. 1040x online form When and where to do the work. 1040x online form What tools or equipment to use. 1040x online form What workers to hire or to assist with the work. 1040x online form Where to purchase supplies and services. 1040x online form What work must be performed by a specified  individual. 1040x online form What order or sequence to follow. 1040x online form   The amount of instruction needed varies among different jobs. 1040x online 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. 1040x online form A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. 1040x online 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. 1040x online form Training that the business gives to the worker. 1040x online form   An employee may be trained to perform services in a particular manner. 1040x online form Independent contractors ordinarily use their own methods. 1040x online form Financial control. 1040x online 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. 1040x online form   Independent contractors are more likely to have unreimbursed expenses than are employees. 1040x online form Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. 1040x online form However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. 1040x online form The extent of the worker's investment. 1040x online form   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. 1040x online form However, a significant investment is not necessary for independent contractor status. 1040x online form The extent to which the worker makes his or her services available to the relevant market. 1040x online form   An independent contractor is generally free to seek out business opportunities. 1040x online form Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. 1040x online form How the business pays the worker. 1040x online form   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. 1040x online form This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. 1040x online form An independent contractor is often paid a flat fee or on a time and materials basis for the job. 1040x online form However, it is common in some professions, such as law, to pay independent contractors hourly. 1040x online form The extent to which the worker can realize a profit or loss. 1040x online form   An independent contractor can make a profit or loss. 1040x online form Type of relationship. 1040x online form   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. 1040x online form Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. 1040x online form The permanency of the relationship. 1040x online 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. 1040x online form The extent to which services performed by the worker are a key aspect of the regular business of the company. 1040x online 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. 1040x online 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. 1040x online form This would indicate an employer-employee relationship. 1040x online form IRS help. 1040x online 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. 1040x online form Industry Examples The following examples may help you properly classify your workers. 1040x online form Building and Construction Industry Example 1. 1040x online form Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. 1040x online form She did not advance funds to help him carry on the work. 1040x online form She makes direct payments to the suppliers for all necessary materials. 1040x online form She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. 1040x online form She pays them an hourly rate and exercises almost constant supervision over the work. 1040x online form Jerry is not free to transfer his assistants to other jobs. 1040x online form He may not work on other jobs while working for Wilma. 1040x online form He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. 1040x online form He and his assistants perform personal services for hourly wages. 1040x online form Jerry Jones and his assistants are employees of Wilma White. 1040x online form Example 2. 1040x online form Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. 1040x online form He uses his own tools and performs services in the order designated by the corporation and according to its specifications. 1040x online 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. 1040x online form He does not have a place of business or hold himself out to perform similar services for others. 1040x online form Either party can end the services at any time. 1040x online form Milton Manning is an employee of the corporation. 1040x online form Example 3. 1040x online form Wallace Black agreed with the Sawdust Co. 1040x online form to supply the construction labor for a group of houses. 1040x online form The company agreed to pay all construction costs. 1040x online form However, he supplies all the tools and equipment. 1040x online form He performs personal services as a carpenter and mechanic for an hourly wage. 1040x online form He also acts as superintendent and foreman and engages other individuals to assist him. 1040x online form The company has the right to select, approve, or discharge any helper. 1040x online form A company representative makes frequent inspections of the construction site. 1040x online form When a house is finished, Wallace is paid a certain percentage of its costs. 1040x online form He is not responsible for faults, defects of construction, or wasteful operation. 1040x online form At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. 1040x online 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. 1040x online form Wallace Black and his assistants are employees of the Sawdust Co. 1040x online form Example 4. 1040x online form Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. 1040x online form A signed contract established a flat amount for the services rendered by Bill Plum. 1040x online form Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. 1040x online form He hires his own roofers who are treated as employees for federal employment tax purposes. 1040x online form If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. 1040x online form Bill Plum, doing business as Plum Roofing, is an independent contractor. 1040x online form Example 5. 1040x online form Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. 1040x online form She is to receive $1,280 every 2 weeks for the next 10 weeks. 1040x online form This is not considered payment by the hour. 1040x online form Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. 1040x online form She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. 1040x online form Vera is an independent contractor. 1040x online form Trucking Industry Example. 1040x online form Rose Trucking contracts to deliver material for Forest, Inc. 1040x online form , at $140 per ton. 1040x online form Rose Trucking is not paid for any articles that are not delivered. 1040x online form At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. 1040x online form All operating expenses, including insurance coverage, are paid by Jan Rose. 1040x online form All equipment is owned or rented by Jan and she is responsible for all maintenance. 1040x online form None of the drivers are provided by Forest, Inc. 1040x online form Jan Rose, operating as Rose Trucking, is an independent contractor. 1040x online form Computer Industry Example. 1040x online form Steve Smith, a computer programmer, is laid off when Megabyte, Inc. 1040x online form , downsizes. 1040x online form Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. 1040x online 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. 1040x online form Megabyte provides Steve with no instructions beyond the specifications for the product itself. 1040x online 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. 1040x online form Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. 1040x online form Steve works at home and is not expected or allowed to attend meetings of the software development group. 1040x online form Steve is an independent contractor. 1040x online form Automobile Industry Example 1. 1040x online form Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. 1040x online form She works six days a week and is on duty in Bob's showroom on certain assigned days and times. 1040x online form She appraises trade-ins, but her appraisals are subject to the sales manager's approval. 1040x online form Lists of prospective customers belong to the dealer. 1040x online form She is required to develop leads and report results to the sales manager. 1040x online form Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. 1040x online form She is paid a commission and is eligible for prizes and bonuses offered by Bob. 1040x online form Bob also pays the cost of health insurance and group-term life insurance for Donna. 1040x online form Donna is an employee of Bob Blue. 1040x online form Example 2. 1040x online form Sam Sparks performs auto repair services in the repair department of an auto sales company. 1040x online form He works regular hours and is paid on a percentage basis. 1040x online form He has no investment in the repair department. 1040x online 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. 1040x online form Sam is an employee of the sales company. 1040x online form Example 3. 1040x online form An auto sales agency furnishes space for Helen Bach to perform auto repair services. 1040x online form She provides her own tools, equipment, and supplies. 1040x online 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. 1040x online 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. 1040x online form Helen is an independent contractor and the helpers are her employees. 1040x online form Attorney Example. 1040x online 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. 1040x online form Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. 1040x online form Donna has a part-time receptionist who also does the bookkeeping. 1040x online form She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. 1040x online form For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. 1040x online form Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. 1040x online 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. 1040x online form Donna is an independent contractor. 1040x online form Taxicab Driver Example. 1040x online form Tom Spruce rents a cab from Taft Cab Co. 1040x online form for $150 per day. 1040x online form He pays the costs of maintaining and operating the cab. 1040x online form Tom Spruce keeps all fares that he receives from customers. 1040x online 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. 1040x online form Tom Spruce is an independent contractor. 1040x online form Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. 1040x online 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). 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form 3. 1040x online form Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. 1040x online 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. 1040x online form However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. 1040x online form Section 501(c)(3) organizations. 1040x online 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. 1040x online form These organizations are usually corporations and are exempt from federal income tax under section 501(a). 1040x online form Social security and Medicare taxes. 1040x online 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. 1040x online form The organization pays an employee less than $100 in a calendar year. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form 28 or more in a year. 1040x online 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. 1040x online form See Members of recognized religious sects opposed to insurance in section 4. 1040x online form FUTA tax. 1040x online 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. 1040x online form This exemption cannot be waived. 1040x online form Do not file Form 940 to report wages paid by these organizations or pay the tax. 1040x online form Note. 1040x online 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. 1040x online form Other than section 501(c)(3) organizations. 1040x online 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. 1040x online 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. 1040x online form Two special rules for social security, Medicare, and FUTA taxes apply. 1040x online 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. 1040x online 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. 1040x online form The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). 1040x online form 4. 1040x online form Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. 1040x online 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. 1040x online form For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. 1040x online form Ministers. 1040x online form   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. 1040x online 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. 1040x online form   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form For more information, see Publication 517. 1040x online form Form W-2. 1040x online form   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. 1040x online form Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). 1040x online form Do not include a parsonage allowance (excludable housing allowance) in this amount. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form For more information on ministers, see Publication 517. 1040x online form Exemptions for ministers and others. 1040x online 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. 1040x online 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. 1040x online form The exemption applies only to qualified services performed for the religious organization. 1040x online form See Revenue Procedure 91-20, 1991-1 C. 1040x online form B. 1040x online form 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. 1040x online 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. 1040x online form See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. 1040x online form Members of recognized religious sects opposed to insurance. 1040x online 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. 1040x online 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). 1040x online form If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. 1040x online form Religious opposition based on the teachings of the sect is the only legal basis for the exemption. 1040x online form In addition, your religious sect (or division) must have existed since December 31, 1950. 1040x online form Self-employed. 1040x online 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. 1040x online form Employees. 1040x online 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. 1040x online form This applies to partnerships only if each partner is a member of the sect. 1040x online 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. 1040x online form To get the exemption, the employee must file Form 4029. 1040x online 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. 1040x online form 5. 1040x online form Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. 1040x online form Publication 15-B discusses fringe benefits. 1040x online form The following topics supplement those discussions. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. 1040x online form These rules generally apply to temporary work assignments both inside and outside the U. 1040x online form S. 1040x online 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. 1040x online 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. 1040x online form Excludable employee achievement awards also are not subject to FUTA tax. 1040x online form Limits. 1040x online form   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. 1040x online form A higher limit of $1,600 applies to qualified plan awards. 1040x online form Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form These amounts are reportable on Form W-2. 1040x online 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. 1040x online form Any amounts that you pay for room and board are not excludable from the recipient's gross income. 1040x online form A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. 1040x online form For more information, see Publication 970, Tax Benefits for Education. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. 1040x online 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. 1040x online form It does not matter whether the separation is temporary or permanent. 1040x online 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. 1040x online form To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. 1040x online form Benefits are paid only to unemployed former employees who are laid off by the employer. 1040x online form Eligibility for benefits depends on meeting prescribed conditions after termination. 1040x online 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. 1040x online form The right to benefits does not accrue until a prescribed period after termination. 1040x online form Benefits are not attributable to the performance of particular services. 1040x online form No employee has any right to the benefits until qualified and eligible to receive benefits. 1040x online form Benefits may not be paid in a lump sum. 1040x online form Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. 1040x online 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. 1040x online 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. 1040x online form Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. 1040x online form See Regulations section 1. 1040x online form 280G-1 for more information. 1040x online form No deduction is allowed to the corporation for any excess parachute payment. 1040x online 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. 1040x online form A parachute payment for purposes of section 280G is any payment that meets all of the following. 1040x online form The payment is in the nature of compensation. 1040x online form The payment is to, or for the benefit of, a disqualified individual. 1040x online 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. 1040x online 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. 1040x online form The payment has an aggregate present value of at least three times the individual's base amount. 1040x online 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. 1040x online form An excess parachute payment amount is the excess of any parachute payment over the base amount. 1040x online form For more information, see Regulations section 1. 1040x online form 280G-1. 1040x online form The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. 1040x online form If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. 1040x online form Example. 1040x online form An officer of a corporation receives a golden parachute payment of $400,000. 1040x online form This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. 1040x online form The excess parachute payment is $300,000 ($400,000 minus $100,000). 1040x online form The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). 1040x online form Reporting golden parachute payments. 1040x online form   Golden parachute payments to employees must be reported on Form W-2. 1040x online form See the General Instructions for Forms W-2 and W-3 for details. 1040x online form For nonemployee reporting of these payments, see Box 7. 1040x online form Nonemployee Compensation in the Instructions for Form 1099-MISC. 1040x online form Exempt payments. 1040x online form   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. 1040x online form See section 280G(b)(5) and (6) for more information. 1040x online 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. 1040x online form This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. 1040x online form This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. 1040x online form Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). 1040x online form The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. 1040x online form You can get these rates by calling 1-800-829-4933 or by visiting IRS. 1040x online form gov. 1040x online form For more information, see section 7872 and its related regulations. 1040x online 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. 1040x online 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. 1040x online form Do not include these amounts in the income of the transferors. 1040x online form These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. 1040x online 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. 1040x online 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. 1040x online form Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. 1040x online 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. 1040x online form Specific rules for reporting are provided in the instructions to the forms. 1040x online form The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. 1040x online 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. 1040x online form For more information about nonqualified deferred compensation plans, see Regulations sections 1. 1040x online form 409A-1 through 1. 1040x online form 409A-6. 1040x online form Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. 1040x online form Notice 2008-113, 2008-51 I. 1040x online form R. 1040x online form B. 1040x online form 1305, is available at www. 1040x online form irs. 1040x online form gov/irb/2008-51_IRB/ar12. 1040x online form html. 1040x online form Also see Notice 2010-6, 2010-3 I. 1040x online form R. 1040x online form B. 1040x online form 275, available at www. 1040x online form irs. 1040x online form gov/irb/2010-03_IRB/ar08. 1040x online form html and Notice 2010-80, 2010-51 I. 1040x online form R. 1040x online form B. 1040x online form 853, available at www. 1040x online form irs. 1040x online form gov/irb/2010-51_IRB/ar08. 1040x online form html. 1040x online form Social security, Medicare, and FUTA taxes. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. 1040x online 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. 1040x online form For more information, see Regulations sections 31. 1040x online form 3121(v)(2)-1 and 31. 1040x online form 3306(r)(2)-1. 1040x online 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. 1040x online 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. 1040x online form See Regulations section 31. 1040x online form 3121(a)(5)-2 for the definition of a salary reduction agreement. 1040x online 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. 1040x online form These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. 1040x online 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. 1040x online form See Publication 560 for more information about SEPs. 1040x online form Salary reduction simplified employee pensions (SARSEP) repealed. 1040x online form   You may not establish a SARSEP after 1996. 1040x online form However, SARSEPs established before January 1, 1997, may continue to receive contributions. 1040x online 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. 1040x online form An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. 1040x online form However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. 1040x online form For more information about SIMPLE retirement plans, see Publication 560. 1040x online form 6. 1040x online form Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. 1040x online form Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. 1040x online form gov in December 2014. 1040x online form Special rules apply to the reporting of sick pay payments to employees. 1040x online 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. 1040x online form Sick pay is usually subject to social security, Medicare, and FUTA taxes. 1040x online form For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. 1040x online form Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. 1040x online 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. 1040x online form It may be paid by either the employer or a third party, such as an insurance company. 1040x online form Sick pay includes both short- and long-term benefits. 1040x online form It is often expressed as a percentage of the employee's regular wages. 1040x online form Payments That Are Not Sick Pay Sick pay does not include the following payments. 1040x online form Disability retirement payments. 1040x online form Disability retirement payments are not sick pay and are not discussed in this section. 1040x online form Those payments are subject to the rules for federal income tax withholding from pensions and annuities. 1040x online form See section 8. 1040x online form Workers' compensation. 1040x online 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. 1040x online form But see Payments in the nature of workers' compensation—public employees next. 1040x online form Payments in the nature of workers' compensation—public employees. 1040x online 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. 1040x online 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. 1040x online form Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. 1040x online form For more information, see Regulations section 31. 1040x online form 3121(a)(2)-1. 1040x online form Medical expense payments. 1040x online 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. 1040x online form Payments unrelated to absence from work. 1040x online form Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. 1040x online 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. 1040x online form Example. 1040x online form Donald was injured in a car accident and lost an eye. 1040x online form Under a policy paid for by Donald's employer, Delta Insurance Co. 1040x online form paid Donald $20,000 as compensation for the loss of his eye. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form Definition of employer. 1040x online 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. 1040x online form Note. 1040x online 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). 1040x online form Third-Party Payers of Sick Pay Employer's agent. 1040x online 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. 1040x online form A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. 1040x online form For example, if a third party provides administrative services only, the third party is your agent. 1040x online 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. 1040x online form Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. 1040x online 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. 1040x online form This responsibility remains with you. 1040x online 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. 1040x online 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. 1040x online form Third party not employer's agent. 1040x online 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. 1040x online 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. 1040x online form This liability is transferred if the third party takes the following steps. 1040x online form Withholds the employee social security and Medicare taxes from the sick pay payments. 1040x online form Makes timely deposits of the employee social security and Medicare taxes. 1040x online form Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. 1040x online 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. 1040x online 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. 1040x online 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. 1040x online form For multi-employer plans, see the special rule discussed next. 1040x online form Multi-employer plan timing rule. 1040x online 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. 1040x online form If the third-party insurer making the payments complies wi
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Railroad Retirement Board (RRB)

The Railroad Retirement Board administers retirement and survivor, unemployment and sickness benefits for U.S. railroad workers and their families.

Contact the Agency or Department

Website: Railroad Retirement Board (RRB)

Contact In-Person: Railroad Retirement Board Local Offices

Address: 844 North Rush Street
Chicago, IL 60611-2092

Phone Number: (312) 751-4701 (Directory)

Toll-free: (877) 772-5772

TTY: (312) 751-4701

The 1040x Online Form

1040x online form 33. 1040x online form   Credit for the Elderly or the Disabled Table of Contents Introduction Useful Items - You may want to see: Are You Eligible for the Credit?Qualified Individual Income Limits How to Claim the CreditCredit Figured for You Credit Figured by You Introduction If you qualify, you may be able to reduce the tax you owe by taking the credit for the elderly or the disabled which is figured on Schedule R (Form 1040A or 1040). 1040x online form This chapter explains the following. 1040x online form Who qualifies for the credit for the elderly or the disabled. 1040x online form How to claim the credit. 1040x online form You may be able to take the credit for the elderly or the disabled if: You are age 65 or older at the end of 2013, or You retired on permanent and total disability and have taxable disability income. 1040x online form Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 554 Tax Guide for Seniors Form (and Instruction) Schedule R (Form 1040A or 1040) Credit for the Elderly or the Disabled Are You Eligible for the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. 1040x online form You are a qualified individual. 1040x online form Your income is not more than certain limits. 1040x online form You can use Figure 33-A and Table 33-1 as guides to see if you are eligible for the credit. 1040x online form Use Figure 33-A first to see if you are a qualified individual. 1040x online form If you are, go to Table 33-1 to make sure your income is not too high to take the credit. 1040x online form You can take the credit only if you file Form 1040 or Form 1040A. 1040x online form You cannot take the credit if you file Form 1040EZ. 1040x online form Qualified Individual You are a qualified individual for this credit if you are a U. 1040x online form S. 1040x online form citizen or resident alien, and either of the following applies. 1040x online form You were age 65 or older at the end of 2013. 1040x online form You were under age 65 at the end of 2013 and all three of the following statements are true. 1040x online form You retired on permanent and total disability (explained later). 1040x online form You received taxable disability income for 2013. 1040x online form On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). 1040x online form Age 65. 1040x online form   You are considered to be age 65 on the day before your 65th birthday. 1040x online form Therefore, if you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. 1040x online form U. 1040x online form S. 1040x online form Citizen or Resident Alien You must be a U. 1040x online form S. 1040x online form citizen or resident alien (or be treated as a resident alien) to take the credit. 1040x online form Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. 1040x online form Exceptions. 1040x online form   You may be able to take the credit if you are a nonresident alien who is married to a U. 1040x online form S. 1040x online form citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. 1040x online form S. 1040x online form resident alien. 1040x online form If you make that choice, both you and your spouse are taxed on your worldwide incomes. 1040x online form If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. 1040x online form S. 1040x online form citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. 1040x online form S. 1040x online form resident alien for the entire year. 1040x online form In that case, you may be allowed to take the credit. 1040x online form For information on these choices, see chapter 1 of Publication 519, U. 1040x online form S. 1040x online form Tax Guide for Aliens. 1040x online form Married Persons Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. 1040x online form However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. 1040x online form Head of household. 1040x online form   You can file as head of household and qualify to take the credit, even if your spouse lived with you during the first 6 months of the year, if you meet certain tests. 1040x online form See Head of Household in chapter 2 for the tests you must meet. 1040x online form Under Age 65 If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability (discussed next) and have taxable disability income (discussed later under Disability income ). 1040x online form You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the close of the tax year. 1040x online form Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. 1040x online form If you retired on disability before 1977, and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. 1040x online form Permanent and total disability. 1040x online form    You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. 1040x online form A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. 1040x online form See Physician's statement , later. 1040x online form Substantial gainful activity. 1040x online form   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. 1040x online form Full-time work (or part-time work done at your employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. 1040x online form   Substantial gainful activity is not work you do to take care of yourself or your home. 1040x online form It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. 1040x online form However, doing this kind of work may show that you are able to engage in substantial gainful activity. 1040x online form    The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. 1040x online form Sheltered employment. 1040x online form   Certain work offered at qualified locations to physically or mentally impaired persons is considered sheltered employment. 1040x online form These qualified locations are in sheltered workshops, hospitals, and similar institutions, homebound programs, and Department of Veterans Affairs (VA) sponsored homes. 1040x online form   Compared to commercial employment, pay is lower for sheltered employment. 1040x online form Therefore, one usually does not look for sheltered employment if he or she can get other employment. 1040x online form The fact that one has accepted sheltered employment is not proof of the person's ability to engage in substantial gainful activity. 1040x online form Physician's statement. 1040x online form   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. 1040x online form You can use the statement in the Instructions for Schedule R. 1040x online form    Figure 33-A. 1040x online form Are You a Qualified Individual? This image is too large to be displayed in the current screen. 1040x online form Please click the link to view the image. 1040x online form Figure 33-A Are You a Qualified Individual?   You do not have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records. 1040x online form Veterans. 1040x online form   If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. 1040x online form VA Form 21-0172 must be signed by a person authorized by the VA to do so. 1040x online form You can get this form from your local VA regional office. 1040x online form Physician's statement obtained in earlier year. 1040x online form   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. 1040x online form For a detailed explanation of the conditions you must meet, see the instructions for Schedule R, Part II. 1040x online form If you meet the required conditions, check the box on your Schedule R, Part II, line 2. 1040x online form   If you checked box 4, 5, or 6 in Part I of Schedule R, enter in the space above the box on line 2 in Part II the first name(s) of the spouse(s) for whom the box is checked. 1040x online form Table 33-1. 1040x online form Income Limits IF your filing status is . 1040x online form . 1040x online form . 1040x online form THEN, even if you qualify (see Figure 33-A ), you CANNOT take the credit if. 1040x online form . 1040x online form . 1040x online form   Your adjusted gross income (AGI)* is equal to or more than. 1040x online form . 1040x online form . 1040x online form     OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. 1040x online form . 1040x online form . 1040x online form   single, head of household, or qualifying widow(er) with dependent child   $17,500     $5,000   married filing jointly and only one spouse qualifies in Figure 33-A   $20,000     $5,000   married filing jointly and both spouses qualify in Figure 33-A   $25,000     $7,500   married filing separately and you lived apart from your spouse for all of 2013   $12,500     $3,750   * AGI is the amount on Form 1040A, line 22, or Form 1040, line 38. 1040x online form Disability income. 1040x online form   If you are under age 65, you must also have taxable disability income to qualify for the credit. 1040x online form Disability income must meet both of the following requirements. 1040x online form It must be paid under your employer's accident or health plan or pension plan. 1040x online form It must be included in your income as wages (or payments instead of wages) for the time you are absent from work because of permanent and total disability. 1040x online form Payments that are not disability income. 1040x online form   Any payment you receive from a plan that does not provide for disability retirement is not disability income. 1040x online form Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. 1040x online form   For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. 1040x online form Mandatory retirement age is the age set by your employer at which you would have had to retire, had you not become disabled. 1040x online form Income Limits To determine if you can claim the credit, you must consider two income limits. 1040x online form The first limit is the amount of your adjusted gross income (AGI). 1040x online form The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. 1040x online form The limits are shown in Table 33-1. 1040x online form If your AGI and nontaxable pensions, annuities, or disability income are less than the income limits, you may be able to claim the credit. 1040x online form See How to Claim the Credit , later. 1040x online form If either your AGI or your nontaxable pensions, annuities, or disability income are equal to or more than the income limits, you cannot take the credit. 1040x online form How to Claim the Credit You can figure the credit yourself or the Internal Revenue Service will figure it for you. 1040x online form Credit Figured for You If you choose to have the IRS figure the credit for you, read the following discussion for the form you will file (Form 1040 or 1040A). 1040x online form If you want the IRS to figure your tax, see chapter 30. 1040x online form Form 1040. 1040x online form   If you want the IRS to figure your credit, see Form 1040 Line Entries under Tax Figured by IRS in chapter 30. 1040x online form Form 1040A. 1040x online form   If you want the IRS to figure your credit, see Form 1040A Line Entries under Tax Figured by IRS in chapter 30. 1040x online form Credit Figured by You If you choose to figure the credit yourself, fill out the front of Schedule R. 1040x online form Next, fill out Schedule R, Part III. 1040x online form If you file Form 1040A, enter the amount from Schedule R, line 22, on Form 1040A, line 30. 1040x online form If you file Form 1040, include the amount from Schedule R, line 22, on line 53; check box c, and enter “Sch R” on the line next to that box. 1040x online form For a step-by-step discussion about filling out Part III of Schedule R, see Figuring the Credit Yourself in Publication 524. 1040x online form Limit on credit. 1040x online form   The amount of the credit you can claim is generally limited to the amount of your tax. 1040x online form Use the Credit Limit Worksheet in the Instructions for Schedule R to determine if your credit is limited. 1040x online form Prev  Up  Next   Home   More Online Publications