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Amending tax return turbotax 7. Amending tax return turbotax   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. Amending tax return turbotax Custodian account for your child. Amending tax return turbotax Penalty for failure to supply SSN. Amending tax return turbotax Reporting backup withholding. Amending tax return turbotax Savings account with parent as trustee. Amending tax return turbotax Interest not reported on Form 1099-INT. Amending tax return turbotax Nominees. Amending tax return turbotax Incorrect amount. Amending tax return turbotax Information reporting requirement. Amending tax return turbotax Taxable InterestInterest subject to penalty for early withdrawal. Amending tax return turbotax Money borrowed to invest in certificate of deposit. Amending tax return turbotax U. Amending tax return turbotax S. Amending tax return turbotax Savings Bonds Education Savings Bond Program U. Amending tax return turbotax S. Amending tax return turbotax Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. Amending tax return turbotax How To Report Interest IncomeSchedule B (Form 1040A or 1040). Amending tax return turbotax Reporting tax-exempt interest. Amending tax return turbotax U. Amending tax return turbotax S. Amending tax return turbotax savings bond interest previously reported. Amending tax return turbotax Reminder Foreign-source income. Amending tax return turbotax  If you are a U. Amending tax return turbotax S. Amending tax return turbotax citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. Amending tax return turbotax S. Amending tax return turbotax law. Amending tax return turbotax This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. Amending tax return turbotax Introduction This chapter discusses the following topics. Amending tax return turbotax Different types of interest income. Amending tax return turbotax What interest is taxable and what interest is nontaxable. Amending tax return turbotax When to report interest income. Amending tax return turbotax How to report interest income on your tax return. Amending tax return turbotax In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Amending tax return turbotax Exceptions to this rule are discussed later in this chapter. Amending tax return turbotax You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. Amending tax return turbotax See Money borrowed to invest in certificate of deposit , later, and chapter 28. Amending tax return turbotax Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. Amending tax return turbotax S. Amending tax return turbotax Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. Amending tax return turbotax S. Amending tax return turbotax Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. Amending tax return turbotax Recordkeeping. Amending tax return turbotax You should keep a list showing sources and interest amounts received during the year. Amending tax return turbotax Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. Amending tax return turbotax Tax on unearned income of certain children. Amending tax return turbotax    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Amending tax return turbotax If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Amending tax return turbotax If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Amending tax return turbotax   Some parents can choose to include the child's interest and dividends on the parent's return. Amending tax return turbotax If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Amending tax return turbotax   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Amending tax return turbotax Beneficiary of an estate or trust. Amending tax return turbotax   Interest you receive as a beneficiary of an estate or trust is generally taxable income. Amending tax return turbotax You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Amending tax return turbotax , from the fiduciary. Amending tax return turbotax Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Amending tax return turbotax Social security number (SSN). Amending tax return turbotax   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. Amending tax return turbotax This includes payers of interest. Amending tax return turbotax If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. Amending tax return turbotax SSN for joint account. Amending tax return turbotax   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. Amending tax return turbotax (For information on who owns the funds in a joint account, see Joint accounts , later. Amending tax return turbotax ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. Amending tax return turbotax This is because only one name and SSN can be shown on Form 1099. Amending tax return turbotax   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. Amending tax return turbotax For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. Amending tax return turbotax Custodian account for your child. Amending tax return turbotax   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. Amending tax return turbotax For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. Amending tax return turbotax Penalty for failure to supply SSN. Amending tax return turbotax   If you do not give your SSN to the payer of interest, you may have to pay a penalty. Amending tax return turbotax See Failure to supply SSN under Penalties in chapter 1. Amending tax return turbotax Backup withholding also may apply. Amending tax return turbotax Backup withholding. Amending tax return turbotax   Your interest income is generally not subject to regular withholding. Amending tax return turbotax However, it may be subject to backup withholding to ensure that income tax is collected on the income. Amending tax return turbotax Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Amending tax return turbotax   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Amending tax return turbotax For more information, see Backup Withholding in chapter 4. Amending tax return turbotax Reporting backup withholding. Amending tax return turbotax   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. Amending tax return turbotax The Form 1099-INT will show any backup withholding as “Federal income tax withheld. Amending tax return turbotax ” Joint accounts. Amending tax return turbotax   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. Amending tax return turbotax Income from property given to a child. Amending tax return turbotax   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. Amending tax return turbotax   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. Amending tax return turbotax Savings account with parent as trustee. Amending tax return turbotax   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. Amending tax return turbotax The savings account legally belongs to the child. Amending tax return turbotax The parents are not legally permitted to use any of the funds to support the child. Amending tax return turbotax Form 1099-INT. Amending tax return turbotax   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. Amending tax return turbotax This form shows you the interest you received during the year. Amending tax return turbotax Keep this form for your records. Amending tax return turbotax You do not have to attach it to your tax return. Amending tax return turbotax   Report on your tax return the total interest income you receive for the tax year. Amending tax return turbotax Interest not reported on Form 1099-INT. Amending tax return turbotax   Even if you do not receive Form 1099-INT, you must still report all of your interest income. Amending tax return turbotax For example, you may receive distributive shares of interest from partnerships or S corporations. Amending tax return turbotax This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. Amending tax return turbotax , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Amending tax return turbotax Nominees. Amending tax return turbotax   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. Amending tax return turbotax   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. Amending tax return turbotax Incorrect amount. Amending tax return turbotax   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Amending tax return turbotax The new Form 1099-INT you receive will be marked “Corrected. Amending tax return turbotax ” Form 1099-OID. Amending tax return turbotax   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. Amending tax return turbotax For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. Amending tax return turbotax Exempt-interest dividends. Amending tax return turbotax   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. Amending tax return turbotax (However, see Information reporting requirement , next. Amending tax return turbotax ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Amending tax return turbotax You do not reduce your basis for distributions that are exempt-interest dividends. Amending tax return turbotax Information reporting requirement. Amending tax return turbotax   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. Amending tax return turbotax This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. Amending tax return turbotax Note. Amending tax return turbotax Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Amending tax return turbotax See Alternative Minimum Tax (AMT) in chapter 30 for more information. Amending tax return turbotax Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. Amending tax return turbotax Interest on VA dividends. Amending tax return turbotax   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. Amending tax return turbotax This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. Amending tax return turbotax Individual retirement arrangements (IRAs). Amending tax return turbotax   Interest on a Roth IRA generally is not taxable. Amending tax return turbotax Interest on a traditional IRA is tax deferred. Amending tax return turbotax You generally do not include it in your income until you make withdrawals from the IRA. Amending tax return turbotax See chapter 17. Amending tax return turbotax Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. Amending tax return turbotax The following are some sources of taxable interest. Amending tax return turbotax Dividends that are actually interest. Amending tax return turbotax   Certain distributions commonly called dividends are actually interest. Amending tax return turbotax You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. Amending tax return turbotax  The “dividends” will be shown as interest income on Form 1099-INT. Amending tax return turbotax Money market funds. Amending tax return turbotax   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. Amending tax return turbotax Generally, amounts you receive from money market funds should be reported as dividends, not as interest. Amending tax return turbotax Certificates of deposit and other deferred interest accounts. Amending tax return turbotax   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. Amending tax return turbotax You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. Amending tax return turbotax The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. Amending tax return turbotax If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. Amending tax return turbotax Interest subject to penalty for early withdrawal. Amending tax return turbotax   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. Amending tax return turbotax You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. Amending tax return turbotax See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. Amending tax return turbotax Money borrowed to invest in certificate of deposit. Amending tax return turbotax   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. Amending tax return turbotax You must report the total interest you earn on the certificate in your income. Amending tax return turbotax If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. Amending tax return turbotax See Interest Expenses in chapter 3 of Publication 550. Amending tax return turbotax Example. Amending tax return turbotax You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. Amending tax return turbotax The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. Amending tax return turbotax The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. Amending tax return turbotax The bank also gives you a statement showing that you paid $310 interest for 2013. Amending tax return turbotax You must include the $575 in your income. Amending tax return turbotax If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. Amending tax return turbotax Gift for opening account. Amending tax return turbotax   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. Amending tax return turbotax   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. Amending tax return turbotax For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. Amending tax return turbotax The value is determined by the cost to the financial institution. Amending tax return turbotax Example. Amending tax return turbotax You open a savings account at your local bank and deposit $800. Amending tax return turbotax The account earns $20 interest. Amending tax return turbotax You also receive a $15 calculator. Amending tax return turbotax If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. Amending tax return turbotax You must report $35 interest income on your tax return. Amending tax return turbotax Interest on insurance dividends. Amending tax return turbotax   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. Amending tax return turbotax However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. Amending tax return turbotax Prepaid insurance premiums. Amending tax return turbotax   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. Amending tax return turbotax U. Amending tax return turbotax S. Amending tax return turbotax obligations. Amending tax return turbotax   Interest on U. Amending tax return turbotax S. Amending tax return turbotax obligations, such as U. Amending tax return turbotax S. Amending tax return turbotax Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Amending tax return turbotax Interest on tax refunds. Amending tax return turbotax   Interest you receive on tax refunds is taxable income. Amending tax return turbotax Interest on condemnation award. Amending tax return turbotax   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. Amending tax return turbotax Installment sale payments. Amending tax return turbotax   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. Amending tax return turbotax That interest is taxable when you receive it. Amending tax return turbotax If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. Amending tax return turbotax See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. Amending tax return turbotax Interest on annuity contract. Amending tax return turbotax   Accumulated interest on an annuity contract you sell before its maturity date is taxable. Amending tax return turbotax Usurious interest. Amending tax return turbotax   Usurious interest is interest charged at an illegal rate. Amending tax return turbotax This is taxable as interest unless state law automatically changes it to a payment on the principal. Amending tax return turbotax Interest income on frozen deposits. Amending tax return turbotax   Exclude from your gross income interest on frozen deposits. Amending tax return turbotax A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. Amending tax return turbotax   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). Amending tax return turbotax If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. Amending tax return turbotax   The interest you exclude is treated as credited to your account in the following year. Amending tax return turbotax You must include it in income in the year you can withdraw it. Amending tax return turbotax Example. Amending tax return turbotax $100 of interest was credited on your frozen deposit during the year. Amending tax return turbotax You withdrew $80 but could not withdraw any more as of the end of the year. Amending tax return turbotax You must include $80 in your income and exclude $20 from your income for the year. Amending tax return turbotax You must include the $20 in your income for the year you can withdraw it. Amending tax return turbotax Bonds traded flat. Amending tax return turbotax   If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. Amending tax return turbotax The defaulted or unpaid interest is not income and is not taxable as interest if paid later. Amending tax return turbotax When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Amending tax return turbotax Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. Amending tax return turbotax See Bonds Sold Between Interest Dates , later, for more information. Amending tax return turbotax Below-market loans. Amending tax return turbotax   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Amending tax return turbotax See Below-Market Loans in chapter 1 of Publication 550 for more information. Amending tax return turbotax U. Amending tax return turbotax S. Amending tax return turbotax Savings Bonds This section provides tax information on U. Amending tax return turbotax S. Amending tax return turbotax savings bonds. Amending tax return turbotax It explains how to report the interest income on these bonds and how to treat transfers of these bonds. Amending tax return turbotax For other information on U. Amending tax return turbotax S. Amending tax return turbotax savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. Amending tax return turbotax O. Amending tax return turbotax Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. Amending tax return turbotax O. Amending tax return turbotax Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. Amending tax return turbotax O. Amending tax return turbotax Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. Amending tax return turbotax treasurydirect. Amending tax return turbotax gov/indiv/indiv. Amending tax return turbotax htm. Amending tax return turbotax Accrual method taxpayers. Amending tax return turbotax   If you use an accrual method of accounting, you must report interest on U. Amending tax return turbotax S. Amending tax return turbotax savings bonds each year as it accrues. Amending tax return turbotax You cannot postpone reporting interest until you receive it or until the bonds mature. Amending tax return turbotax Accrual methods of accounting are explained in chapter 1 under Accounting Methods . Amending tax return turbotax Cash method taxpayers. Amending tax return turbotax   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. Amending tax return turbotax S. Amending tax return turbotax savings bonds when you receive it. Amending tax return turbotax The cash method of accounting is explained in chapter 1 under Accounting Methods. Amending tax return turbotax But see Reporting options for cash method taxpayers , later. Amending tax return turbotax Series HH bonds. Amending tax return turbotax    These bonds were issued at face value. Amending tax return turbotax Interest is paid twice a year by direct deposit to your bank account. Amending tax return turbotax If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. Amending tax return turbotax   Series HH bonds were first offered in 1980 and last offered in August 2004. Amending tax return turbotax Before 1980, series H bonds were issued. Amending tax return turbotax Series H bonds are treated the same as series HH bonds. Amending tax return turbotax If you are a cash method taxpayer, you must report the interest when you receive it. Amending tax return turbotax   Series H bonds have a maturity period of 30 years. Amending tax return turbotax Series HH bonds mature in 20 years. Amending tax return turbotax The last series H bonds matured in 2009. Amending tax return turbotax Series EE and series I bonds. Amending tax return turbotax   Interest on these bonds is payable when you redeem the bonds. Amending tax return turbotax The difference between the purchase price and the redemption value is taxable interest. Amending tax return turbotax Series EE bonds. Amending tax return turbotax   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. Amending tax return turbotax   Before July 1980, series E bonds were issued. Amending tax return turbotax The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. Amending tax return turbotax Paper series EE and series E bonds are issued at a discount. Amending tax return turbotax The face value is payable to you at maturity. Amending tax return turbotax Electronic series EE bonds are issued at their face value. Amending tax return turbotax The face value plus accrued interest is payable to you at maturity. Amending tax return turbotax As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. Amending tax return turbotax   Owners of paper series EE bonds can convert them to electronic bonds. Amending tax return turbotax These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). Amending tax return turbotax Series I bonds. Amending tax return turbotax   Series I bonds were first offered in 1998. Amending tax return turbotax These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. Amending tax return turbotax The face value plus all accrued interest is payable to you at maturity. Amending tax return turbotax Reporting options for cash method taxpayers. Amending tax return turbotax   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. Amending tax return turbotax Method 1. Amending tax return turbotax Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. Amending tax return turbotax (However, see Savings bonds traded , later. Amending tax return turbotax )  Note. Amending tax return turbotax Series EE bonds issued in 1983 matured in 2013. Amending tax return turbotax If you have used method 1, you generally must report the interest on these bonds on your 2013 return. Amending tax return turbotax The last series E bonds were issued in 1980 and matured in 2010. Amending tax return turbotax If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. Amending tax return turbotax Method 2. Amending tax return turbotax Choose to report the increase in redemption value as interest each year. Amending tax return turbotax You must use the same method for all series EE, series E, and series I bonds you own. Amending tax return turbotax If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. Amending tax return turbotax    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. Amending tax return turbotax To learn how, see Education Savings Bond Program, later. Amending tax return turbotax Change from method 1. Amending tax return turbotax   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. Amending tax return turbotax In the year of change you must report all interest accrued to date and not previously reported for all your bonds. Amending tax return turbotax   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. Amending tax return turbotax Change from method 2. Amending tax return turbotax   To change from method 2 to method 1, you must request permission from the IRS. Amending tax return turbotax Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. Amending tax return turbotax You have typed or printed the following number at the top: “131. Amending tax return turbotax ” It includes your name and social security number under “131. Amending tax return turbotax ” It includes the year of change (both the beginning and ending dates). Amending tax return turbotax It identifies the savings bonds for which you are requesting this change. Amending tax return turbotax It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. Amending tax return turbotax   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Amending tax return turbotax   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. Amending tax return turbotax On the statement, type or print “Filed pursuant to section 301. Amending tax return turbotax 9100-2. Amending tax return turbotax ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). Amending tax return turbotax    By the date you file the original statement with your return, you must also send a signed copy to the address below. Amending tax return turbotax   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. Amending tax return turbotax O. Amending tax return turbotax Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. Amending tax return turbotax   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW  Washington, DC 20224   Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115, Application for Change in Accounting Method. Amending tax return turbotax In that case, follow the form instructions for an automatic change. Amending tax return turbotax No user fee is required. Amending tax return turbotax Co-owners. Amending tax return turbotax   If a U. Amending tax return turbotax S. Amending tax return turbotax savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. Amending tax return turbotax One co-owner's funds used. Amending tax return turbotax    If you used your funds to buy the bond, you must pay the tax on the interest. Amending tax return turbotax This is true even if you let the other co-owner redeem the bond and keep all the proceeds. Amending tax return turbotax Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. Amending tax return turbotax The co-owner who redeemed the bond is a “nominee. Amending tax return turbotax ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. Amending tax return turbotax Both co-owners' funds used. Amending tax return turbotax   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. Amending tax return turbotax Community property. Amending tax return turbotax   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. Amending tax return turbotax If you file separate returns, each of you generally must report one-half of the bond interest. Amending tax return turbotax For more information about community property, see Publication 555. Amending tax return turbotax Table 7-1. Amending tax return turbotax   These rules are also shown in Table 7-1. Amending tax return turbotax Ownership transferred. Amending tax return turbotax   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. Amending tax return turbotax But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. Amending tax return turbotax   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. Amending tax return turbotax Purchased jointly. Amending tax return turbotax   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. Amending tax return turbotax The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. Amending tax return turbotax This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. Amending tax return turbotax   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. Amending tax return turbotax But the new co-owner will report only his or her share of the interest earned after the transfer. Amending tax return turbotax   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. Amending tax return turbotax    Table 7-1. Amending tax return turbotax Who Pays the Tax on U. Amending tax return turbotax S. Amending tax return turbotax Savings Bond Interest IF . Amending tax return turbotax . Amending tax return turbotax . Amending tax return turbotax THEN the interest must be reported by . Amending tax return turbotax . Amending tax return turbotax . Amending tax return turbotax you buy a bond in your name and the name of another person as co-owners, using only your own funds you. Amending tax return turbotax you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. Amending tax return turbotax you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. Amending tax return turbotax you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. Amending tax return turbotax If you file separate returns, both you and your spouse generally report one-half of the interest. Amending tax return turbotax Example 1. Amending tax return turbotax You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. Amending tax return turbotax The bond was issued to you and your spouse as co-owners. Amending tax return turbotax You both postpone reporting interest on the bond. Amending tax return turbotax You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Amending tax return turbotax At that time neither you nor your spouse has to report the interest earned to the date of reissue. Amending tax return turbotax Example 2. Amending tax return turbotax You bought a $1,000 series EE savings bond entirely with your own funds. Amending tax return turbotax The bond was issued to you and your spouse as co-owners. Amending tax return turbotax You both postpone reporting interest on the bond. Amending tax return turbotax You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. Amending tax return turbotax You must report half the interest earned to the date of reissue. Amending tax return turbotax Transfer to a trust. Amending tax return turbotax   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. Amending tax return turbotax However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. Amending tax return turbotax You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. Amending tax return turbotax   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. Amending tax return turbotax See Savings bonds traded , later. Amending tax return turbotax Decedents. Amending tax return turbotax   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. Amending tax return turbotax This is explained in chapter 1 of Publication 550. Amending tax return turbotax Savings bonds traded. Amending tax return turbotax   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. Amending tax return turbotax (You cannot trade series I bonds for series HH bonds. Amending tax return turbotax After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. Amending tax return turbotax ) Any cash you received is income up to the amount of the interest earned on the bonds traded. Amending tax return turbotax When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. Amending tax return turbotax Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. Amending tax return turbotax Example. Amending tax return turbotax You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. Amending tax return turbotax You reported the $223 as taxable income on your tax return. Amending tax return turbotax At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. Amending tax return turbotax You hold the series HH bonds until maturity, when you receive $2,500. Amending tax return turbotax You must report $300 as interest income in the year of maturity. Amending tax return turbotax This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). Amending tax return turbotax (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. Amending tax return turbotax ) Choice to report interest in year of trade. Amending tax return turbotax   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. Amending tax return turbotax If you made this choice, it is treated as a change from method 1. Amending tax return turbotax See Change from method 1 under Series EE and series I bonds, earlier. Amending tax return turbotax Form 1099-INT for U. Amending tax return turbotax S. Amending tax return turbotax savings bonds interest. Amending tax return turbotax   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. Amending tax return turbotax Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. Amending tax return turbotax However, your Form 1099-INT may show more interest than you have to include on your income tax return. Amending tax return turbotax For example, this may happen if any of the following are true. Amending tax return turbotax You chose to report the increase in the redemption value of the bond each year. Amending tax return turbotax The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. Amending tax return turbotax You received the bond from a decedent. Amending tax return turbotax The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. Amending tax return turbotax Ownership of the bond was transferred. Amending tax return turbotax The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. Amending tax return turbotax You were named as a co-owner, and the other co-owner contributed funds to buy the bond. Amending tax return turbotax The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. Amending tax return turbotax (See Co-owners , earlier in this chapter, for more information about the reporting requirements. Amending tax return turbotax ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. Amending tax return turbotax The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. Amending tax return turbotax (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Amending tax return turbotax , for the year of distribution. Amending tax return turbotax )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. Amending tax return turbotax Publication 550 includes examples showing how to report these amounts. Amending tax return turbotax    Interest on U. Amending tax return turbotax S. Amending tax return turbotax savings bonds is exempt from state and local taxes. Amending tax return turbotax The Form 1099-INT you receive will indicate the amount that is for U. Amending tax return turbotax S. Amending tax return turbotax savings bond interest in box 3. Amending tax return turbotax Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. Amending tax return turbotax S. Amending tax return turbotax savings bonds during the year if you pay qualified higher educational expenses during the same year. Amending tax return turbotax This exclusion is known as the Education Savings Bond Program. Amending tax return turbotax You do not qualify for this exclusion if your filing status is married filing separately. Amending tax return turbotax Form 8815. Amending tax return turbotax   Use Form 8815 to figure your exclusion. Amending tax return turbotax Attach the form to your Form 1040 or Form 1040A. Amending tax return turbotax Qualified U. Amending tax return turbotax S. Amending tax return turbotax savings bonds. Amending tax return turbotax   A qualified U. Amending tax return turbotax S. Amending tax return turbotax savings bond is a series EE bond issued after 1989 or a series I bond. Amending tax return turbotax The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). Amending tax return turbotax You must be at least 24 years old before the bond's issue date. Amending tax return turbotax For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. Amending tax return turbotax    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. Amending tax return turbotax Beneficiary. Amending tax return turbotax   You can designate any individual (including a child) as a beneficiary of the bond. Amending tax return turbotax Verification by IRS. Amending tax return turbotax   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. Amending tax return turbotax Qualified expenses. Amending tax return turbotax   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. Amending tax return turbotax   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. Amending tax return turbotax   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Amending tax return turbotax Eligible educational institutions. Amending tax return turbotax   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the U. Amending tax return turbotax S. Amending tax return turbotax Department of Education. Amending tax return turbotax Reduction for certain benefits. Amending tax return turbotax   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. Amending tax return turbotax Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). Amending tax return turbotax Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. Amending tax return turbotax Expenses used to figure the tax-free portion of distributions from a qualified tuition program. Amending tax return turbotax Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. Amending tax return turbotax Any expense used in figuring the American Opportunity and lifetime learning credits. Amending tax return turbotax Amount excludable. Amending tax return turbotax   If the total proceeds (interest and principal) from the qualified U. Amending tax return turbotax S. Amending tax return turbotax savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. Amending tax return turbotax If the proceeds are more than the expenses, you may be able to exclude only part of the interest. Amending tax return turbotax   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. Amending tax return turbotax The numerator of the fraction is the qualified higher educational expenses you paid during the year. Amending tax return turbotax The denominator of the fraction is the total proceeds you received during the year. Amending tax return turbotax Example. Amending tax return turbotax In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. Amending tax return turbotax S. Amending tax return turbotax savings bond they bought in April 1997. Amending tax return turbotax They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. Amending tax return turbotax In 2013, they paid $4,000 of their daughter's college tuition. Amending tax return turbotax They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. Amending tax return turbotax They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. Amending tax return turbotax They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. Amending tax return turbotax Modified adjusted gross income limit. Amending tax return turbotax   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. Amending tax return turbotax You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. Amending tax return turbotax   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. Amending tax return turbotax   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. Amending tax return turbotax If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. Amending tax return turbotax   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. Amending tax return turbotax Recordkeeping. Amending tax return turbotax If you claim the interest exclusion, you must keep a written record of the qualified U. Amending tax return turbotax S. Amending tax return turbotax savings bonds you redeem. Amending tax return turbotax Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. Amending tax return turbotax You can use Form 8818 to record this information. Amending tax return turbotax You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. Amending tax return turbotax U. Amending tax return turbotax S. Amending tax return turbotax Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. Amending tax return turbotax S. Amending tax return turbotax Government. Amending tax return turbotax Taxation of interest. Amending tax return turbotax   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. Amending tax return turbotax You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. Amending tax return turbotax   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. Amending tax return turbotax Treasury bills. Amending tax return turbotax   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. Amending tax return turbotax They are generally issued at a discount in the amount of $100 and multiples of $100. Amending tax return turbotax The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. Amending tax return turbotax Generally, you report this interest income when the bill is paid at maturity. Amending tax return turbotax If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. Amending tax return turbotax Treasury notes and bonds. Amending tax return turbotax   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. Amending tax return turbotax Maturity periods for Treasury bonds are longer than 10 years. Amending tax return turbotax Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. Amending tax return turbotax Generally, you report this interest for the year paid. Amending tax return turbotax For more information, see U. Amending tax return turbotax S. Amending tax return turbotax Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. Amending tax return turbotax For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. Amending tax return turbotax O. Amending tax return turbotax Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. Amending tax return turbotax treasurydirect. Amending tax return turbotax gov/indiv/indiv. Amending tax return turbotax htm. Amending tax return turbotax For information on series EE, series I, and series HH savings bonds, see U. Amending tax return turbotax S. Amending tax return turbotax Savings Bonds , earlier. Amending tax return turbotax Treasury inflation-protected securities (TIPS). Amending tax return turbotax   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. Amending tax return turbotax For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. Amending tax return turbotax Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. Amending tax return turbotax You must report that part of the sales price as interest income for the year of sale. Amending tax return turbotax If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. Amending tax return turbotax When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. Amending tax return turbotax See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. Amending tax return turbotax Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. Amending tax return turbotax But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. Amending tax return turbotax For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. Amending tax return turbotax Annuity. Amending tax return turbotax   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. Amending tax return turbotax See chapter 10 for information on pension and annuity income from nonqualified plans. Amending tax return turbotax State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. Amending tax return turbotax Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. Amending tax return turbotax Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. Amending tax return turbotax For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. Amending tax return turbotax Information reporting requirement. Amending tax return turbotax   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. Amending tax return turbotax This is an information reporting requirement only. Amending tax return turbotax It does not change tax-exempt interest to taxable interest. Amending tax return turbotax Original Issue Discount (OID) Original issue discount (OID) is a form of interest. Amending tax return turbotax You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. Amending tax return turbotax A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. Amending tax return turbotax OID is the difference between the stated redemption price at maturity and the issue price. Amending tax return turbotax All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Amending tax return turbotax Zero coupon bonds are one example of these instruments. Amending tax return turbotax The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). Amending tax return turbotax See Discount on Short-Term Obligations in chapter 1 of Publication 550. Amending tax return turbotax De minimis OID. Amending tax return turbotax   You can treat the discount as zero if it is less than one-fourth of 1% (. Amending tax return turbotax 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Amending tax return turbotax This small discount is known as “de minimis” OID. Amending tax return turbotax Example 1. Amending tax return turbotax You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Amending tax return turbotax One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Amending tax return turbotax Because the $20 discount is less than $25, the OID is treated as zero. Amending tax return turbotax (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. Amending tax return turbotax ) Example 2. Amending tax return turbotax The facts are the same as in Example 1, except that the bond was issued at $950. Amending tax return turbotax The OID is $50. Amending tax return turbotax Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. Amending tax return turbotax Debt instrument bought after original issue. Amending tax return turbotax   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. Amending tax return turbotax If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. Amending tax return turbotax See Market Discount Bonds in chapter 1 of Publication 550. Amending tax return turbotax Exceptions to reporting OID. Amending tax return turbotax   The OID rules discussed in this chapter do not apply to the following debt instruments. Amending tax return turbotax Tax-exempt obligations. Amending tax return turbotax (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). Amending tax return turbotax U. Amending tax return turbotax S. Amending tax return turbotax savings bonds. Amending tax return turbotax Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). Amending tax return turbotax Obligations issued by an individual before March 2, 1984. Amending tax return turbotax Loans between individuals if all the following are true. Amending tax return turbotax The lender is not in the business of lending money. Amending tax return turbotax The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. Amending tax return turbotax Avoiding any federal tax is not one of the principal purposes of the loan. Amending tax return turbotax Form 1099-OID. Amending tax return turbotax   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. Amending tax return turbotax Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. Amending tax return turbotax It also will show, in box 2, the stated interest you must include in your income. Amending tax return turbotax A copy of Form 1099-OID will be sent to the IRS. Amending tax return turbotax Do not file your copy with your return. Amending tax return turbotax Keep it for your records. Amending tax return turbotax   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. Amending tax return turbotax But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. Amending tax return turbotax Form 1099-OID not received. Amending tax return turbotax   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. Amending tax return turbotax gov that list total OID on certain debt instruments and have information that will help you figure OID. Amending tax return turbotax For the latest OID tables, go to www. Amending tax return turbotax irs. Amending tax return turbotax gov and enter “OID tables” in the Search box. Amending tax return turbotax If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. Amending tax return turbotax Nominee. Amending tax return turbotax   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. Amending tax return turbotax Refiguring OID shown on Form 1099-OID. Amending tax return turbotax   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. Amending tax return turbotax You bought the debt instrument after its original issue and paid a premium or an acquisition premium. Amending tax return turbotax The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). Amending tax return turbotax For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. Amending tax return turbotax Refiguring periodic interest shown on Form 1099-OID. Amending tax return turbotax   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. Amending tax return turbotax Certificates of deposit (CDs). Amending tax return turbotax   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. Amending tax return turbotax   This also applies to similar deposit arrangements with banks, building and loan associations, etc. Amending tax return turbotax , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. Amending tax return turbotax Bearer CDs. Amending tax return turbotax   CDs issued after 1982 generally must be in registered form. Amending tax return turbotax Bearer CDs are CDs not in registered form. Amending tax return turbotax They are not issued in the depositor's name and are transferable from one individual to another. Amending tax return turbotax   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. Amending tax return turbotax More information. Amending tax return turbotax   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. Amending tax return turbotax When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. Amending tax return turbotax Cash method. Amending tax return turbotax   Most individual taxpayers use the cash method. Amending tax return turbotax If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. Amending tax return turbotax However, there are special rules for reporting the discount on certain debt instruments. Amending tax return turbotax See U. Amending tax return turbotax S. Amending tax return turbotax Savings Bonds and Original Issue Discount (OID) , earlier. Amending tax return turbotax Example. Amending tax return turbotax On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. Amending tax return turbotax You are not in the business of lending money. Amending tax return turbotax The note stated that principal and interest would be due on August 31, 2013. Amending tax return turbotax In 2013, you received $2,508. Amending tax return turbotax 80 ($2,000 principal and $508. Amending tax return turbotax 80 interest). Amending tax return turbotax If you use the cash method, you must include in income on your 2013 return the $508. Amending tax return turbotax 80 interest you received in that year. Amending tax return turbotax Constructive receipt. Amending tax return turbotax   You constructively receive income when it is credited to your account or made available to you. Amending tax return turbotax You do not need to have physical possession of it. Amending tax return turbotax For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. Amending tax return turbotax This is true even if they are not yet entered in your passbook. Amending tax return turbotax   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. Amending tax return turbotax Accrual method. Amending tax return turbotax   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Amending tax return turbotax Interest is earned over the term of the debt instrument. Amending tax return turbotax Example. Amending tax return turbotax If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. Amending tax return turbotax You would report the interest as follows: 2011, $80; 2012, $249. Amending tax return turbotax 60; and 2013, $179. Amending tax return turbotax 20. Amending tax return turbotax Coupon bonds. Amending tax return turbotax   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. Amending tax return turbotax It does not matter when you mail the coupon for payment. Amending tax return turbotax How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. Amending tax return turbotax You cannot use Form 1040EZ if your taxable interest income is more than $1,500. Amending tax return turbotax Instead, you must use Form 1040A or Form 1040. Amending tax return turbotax Form 1040A. Amending tax return turbotax   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. Amending tax return turbotax Your taxable interest income is more than $1,500. Amending tax return turbotax You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Amending tax return turbotax You received interest from a seller-financed mortgage, and the buyer used the property as a home. Amending tax return turbotax You received a Form 1099-INT for U. Amending tax return turbotax S. Amending tax return turbotax savings bond interest that includes amounts you reported before 2013. Amending tax return turbotax You received, as a nominee, interest that actually belongs to someone else. Amending tax return turbotax You received a Form 1099-INT for interest on frozen deposits. Amending tax return turbotax You are reporting OID in an amount less than the amount shown on Form 1099-OID. Amending tax return turbotax You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Amending tax return turbotax You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). Amending tax return turbotax List each payer's name and the amount of interest income received from each payer on line 1. Amending tax return turbotax If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Amending tax return turbotax   You cannot use Form 1040A if you must use Form 1040, as described next. Amending tax return turbotax Form 1040. Amending tax return turbotax   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. Amending tax return turbotax Schedule B (Form 1040A or 1040). Amending tax return turbotax   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. Amending tax return turbotax Your taxable interest income is more than $1,500. Amending tax return turbotax You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). Amending tax return turbotax You received interest from a seller-financed mortgage, and the buyer used the property as a home. Amending tax return turbotax You received a Form 1099-INT for U. Amending tax return turbotax S. Amending tax return turbotax savings bond interest that includes amounts you reported before 2013. Amending tax return turbotax You received, as a nominee, interest that actually belongs to someone else. Amending tax return turbotax You received a Form 1099-INT for interest on frozen deposits. Amending tax return turbotax You received a Form 1099-INT for interest on a bond you bought between interest payment dates. Amending tax return turbotax You are reporting OID in an amount less than the amount shown on Form 1099-OID. Amending tax return turbotax Statement (2) in the preceding list under Form 1040 is true. Amending tax return turbotax In Part I, line 1, list each payer's name and the amount received from each. Amending tax return turbotax If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. Amending tax return turbotax Reporting tax-exempt interest. Amending tax return turbotax   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. Amending tax return turbotax Add these amounts to any other tax-exempt interest you received. Amending tax return turbotax Report the total on line 8b of Form 1040A or 1040. Amending tax return turbotax   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. Amending tax return turbotax Do not add tax-exempt interest in the total on Form 1040EZ, line 2. Amending tax return turbotax   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. Amending tax return turbotax These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Amending tax return turbotax Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. Amending tax return turbotax    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. Amending tax return turbotax Form 1099-INT. Amending tax return turbotax   Your taxable interest income, except for interest from U. Amending tax return turbotax S. Amending tax return turbotax savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. Amending tax return turbotax Add this amount to any other taxable interest income you received. Amending tax return turbotax You must report all of your taxable interest income even if you do not receive a Form 1099-INT. Amending tax return turbotax Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. Amending tax return turbotax Your identifying number may be truncated on any paper Form 1099-INT you receive. Amending tax return turbotax   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. Amending tax return turbotax See Penalty on early withdrawal of savings in chapter 1 of Publication 550. Amending tax return turbotax   Box 3 of Form 1099-INT shows the interest income you received from U. Amending tax return turbotax S. Amending tax return turbotax savings bonds, Treasury bills, Treasury notes, and Treasury bonds. Amending tax return turbotax Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. Amending tax return turbotax If part of the amount shown in box 3 was previously included in your interest income, see U. Amending tax return turbotax S. Amending tax return turbotax savings bond interest previously reported , later. Amending tax return turbotax   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. Amending tax return turbotax Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). Amending tax return turbotax   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. Amending tax return turbotax See chapter 28 for more information about investment expenses. Amending tax return turbotax   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. Amending tax return turbotax You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). Amending tax return turbotax To take the credit, you may have to file Form 1116, Foreign Tax Credit. Amending tax return turbotax For more information, see Publication 514, Foreign Tax Credit for Individuals. Amending tax return turbotax U. Amending tax return turbotax S. Amending tax return turbotax savings bond interest previously reported. Amending tax return turbotax   If you received a Form 1099-INT for U. Amending tax return turbotax S. Amending tax return turbotax savings bond interest, the form may show interest you do not have to report. Amending tax return turbotax See Form 1099-INT for U. Amending tax return turbotax S. Amending tax return turbotax savings bonds interest , earlier, under U. Amending tax return turbotax S. Amending tax return turbotax Savings Bonds. Amending tax return turbotax   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. Amending tax return turbotax Then follow these steps. Amending tax return turbotax Several lines above line 2, enter a subtotal of all interest listed on line 1. Amending tax return turbotax Below the subtotal enter “U. Amending tax return turbotax S. Amending tax return turbotax Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. Amending tax return turbotax Subtract these amounts from the subtotal and enter the result on line 2. Amending tax return turbotax More information. Amending tax return turbotax   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. Amending tax return turbotax Prev  Up  Next   Home   More Online Publications
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Amending tax return turbotax Publication 15-A - Main Content Table of Contents 1. Amending tax return turbotax Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Amending tax return turbotax Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Amending tax return turbotax Employees of Exempt OrganizationsSocial security and Medicare taxes. Amending tax return turbotax FUTA tax. Amending tax return turbotax 4. Amending tax return turbotax Religious Exemptions and Special Rules for MinistersForm W-2. Amending tax return turbotax Self-employed. Amending tax return turbotax Employees. Amending tax return turbotax 5. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Amending tax return turbotax Pensions and AnnuitiesFederal Income Tax Withholding 9. Amending tax return turbotax Alternative Methods for Figuring WithholdingTerm of continuous employment. Amending tax return turbotax 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. Amending tax return turbotax Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Amending tax return turbotax 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. Amending tax return turbotax The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Amending tax return turbotax This discussion explains these four categories. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Amending tax return turbotax See Publication 15 (Circular E) for information on backup withholding. Amending tax return turbotax 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. Amending tax return turbotax However, whether such people are employees or independent contractors depends on the facts in each case. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax This is so even when you give the employee freedom of action. Amending tax return turbotax What matters is that you have the right to control the details of how the services are performed. Amending tax return turbotax For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. Amending tax return turbotax If you have an employer-employee relationship, it makes no difference how it is labeled. Amending tax return turbotax The substance of the relationship, not the label, governs the worker's status. Amending tax return turbotax It does not matter whether the individual is employed full time or part time. Amending tax return turbotax For employment tax purposes, no distinction is made between classes of employees. Amending tax return turbotax Superintendents, managers, and other supervisory personnel are all employees. Amending tax return turbotax 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. Amending tax return turbotax A director of a corporation is not an employee with respect to services performed as a director. Amending tax return turbotax You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. Amending tax return turbotax However, the wages of certain employees may be exempt from one or more of these taxes. Amending tax return turbotax See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Amending tax return turbotax Leased employees. Amending tax return turbotax   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Amending tax return turbotax 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. Amending tax return turbotax   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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. Amending tax return turbotax Additional information. Amending tax return turbotax   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. Amending tax return turbotax 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. Amending tax return turbotax 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 . Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Amending tax return turbotax The work performed for you must be the salesperson's principal business activity. Amending tax return turbotax See Salesperson in section 2. Amending tax return turbotax Social security and Medicare taxes. Amending tax return turbotax   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Amending tax return turbotax The service contract states or implies that substantially all the services are to be performed personally by them. Amending tax return turbotax 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). Amending tax return turbotax The services are performed on a continuing basis for the same payer. Amending tax return turbotax Federal unemployment (FUTA) tax. Amending tax return turbotax   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. Amending tax return turbotax 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. Amending tax return turbotax Income tax. Amending tax return turbotax   Do not withhold federal income tax from the wages of statutory employees. Amending tax return turbotax Reporting payments to statutory employees. Amending tax return turbotax   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Amending tax return turbotax Show your payments to the employee as “other compensation” in box 1. Amending tax return turbotax 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. Amending tax return turbotax The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax H-2A agricultural workers. Amending tax return turbotax   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Amending tax return turbotax Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Amending tax return turbotax 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. Amending tax return turbotax Direct sellers. Amending tax return turbotax   Direct sellers include persons falling within any of the following three groups. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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). Amending tax return turbotax   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. Amending tax return turbotax Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Amending tax return turbotax Licensed real estate agents. Amending tax return turbotax   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Amending tax return turbotax Companion sitters. Amending tax return turbotax   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Amending tax return turbotax 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. Amending tax return turbotax Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Amending tax return turbotax Misclassification of Employees Consequences of treating an employee as an independent contractor. Amending tax return turbotax   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. Amending tax return turbotax See section 2 in Publication 15 (Circular E) for more information. Amending tax return turbotax Relief provision. Amending tax return turbotax   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. Amending tax return turbotax To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Amending tax return turbotax You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Amending tax return turbotax Technical service specialists. Amending tax return turbotax   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. Amending tax return turbotax 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. Amending tax return turbotax   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. Amending tax return turbotax The common-law rules control whether the specialist is treated as an employee or an independent contractor. Amending tax return turbotax 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. Amending tax return turbotax Test proctors and room supervisors. Amending tax return turbotax   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. Amending tax return turbotax Voluntary Classification Settlement Program (VCSP). Amending tax return turbotax   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. Amending tax return turbotax To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Amending tax return turbotax For more information, visit IRS. Amending tax return turbotax gov and enter “VCSP” in the search box. Amending tax return turbotax 2. Amending tax return turbotax 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. Amending tax return turbotax An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Amending tax return turbotax 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. Amending tax return turbotax In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Amending tax return turbotax 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. Amending tax return turbotax These facts are discussed next. Amending tax return turbotax Behavioral control. Amending tax return turbotax   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. Amending tax return turbotax   An employee is generally subject to the business' instructions about when, where, and how to work. Amending tax return turbotax All of the following are examples of types of instructions about how to do work. Amending tax return turbotax When and where to do the work. Amending tax return turbotax What tools or equipment to use. Amending tax return turbotax What workers to hire or to assist with the work. Amending tax return turbotax Where to purchase supplies and services. Amending tax return turbotax What work must be performed by a specified  individual. Amending tax return turbotax What order or sequence to follow. Amending tax return turbotax   The amount of instruction needed varies among different jobs. Amending tax return turbotax 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. Amending tax return turbotax A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Amending tax return turbotax 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. Amending tax return turbotax Training that the business gives to the worker. Amending tax return turbotax   An employee may be trained to perform services in a particular manner. Amending tax return turbotax Independent contractors ordinarily use their own methods. Amending tax return turbotax Financial control. Amending tax return turbotax   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. Amending tax return turbotax   Independent contractors are more likely to have unreimbursed expenses than are employees. Amending tax return turbotax Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Amending tax return turbotax However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Amending tax return turbotax The extent of the worker's investment. Amending tax return turbotax   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Amending tax return turbotax However, a significant investment is not necessary for independent contractor status. Amending tax return turbotax The extent to which the worker makes his or her services available to the relevant market. Amending tax return turbotax   An independent contractor is generally free to seek out business opportunities. Amending tax return turbotax Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Amending tax return turbotax How the business pays the worker. Amending tax return turbotax   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Amending tax return turbotax This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Amending tax return turbotax An independent contractor is often paid a flat fee or on a time and materials basis for the job. Amending tax return turbotax However, it is common in some professions, such as law, to pay independent contractors hourly. Amending tax return turbotax The extent to which the worker can realize a profit or loss. Amending tax return turbotax   An independent contractor can make a profit or loss. Amending tax return turbotax Type of relationship. Amending tax return turbotax   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Amending tax return turbotax Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Amending tax return turbotax The permanency of the relationship. Amending tax return turbotax 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. Amending tax return turbotax The extent to which services performed by the worker are a key aspect of the regular business of the company. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax This would indicate an employer-employee relationship. Amending tax return turbotax IRS help. Amending tax return turbotax   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. Amending tax return turbotax Industry Examples The following examples may help you properly classify your workers. Amending tax return turbotax Building and Construction Industry Example 1. Amending tax return turbotax Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Amending tax return turbotax She did not advance funds to help him carry on the work. Amending tax return turbotax She makes direct payments to the suppliers for all necessary materials. Amending tax return turbotax She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Amending tax return turbotax She pays them an hourly rate and exercises almost constant supervision over the work. Amending tax return turbotax Jerry is not free to transfer his assistants to other jobs. Amending tax return turbotax He may not work on other jobs while working for Wilma. Amending tax return turbotax He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Amending tax return turbotax He and his assistants perform personal services for hourly wages. Amending tax return turbotax Jerry Jones and his assistants are employees of Wilma White. Amending tax return turbotax Example 2. Amending tax return turbotax Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Amending tax return turbotax He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Amending tax return turbotax The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Amending tax return turbotax He does not have a place of business or hold himself out to perform similar services for others. Amending tax return turbotax Either party can end the services at any time. Amending tax return turbotax Milton Manning is an employee of the corporation. Amending tax return turbotax Example 3. Amending tax return turbotax Wallace Black agreed with the Sawdust Co. Amending tax return turbotax to supply the construction labor for a group of houses. Amending tax return turbotax The company agreed to pay all construction costs. Amending tax return turbotax However, he supplies all the tools and equipment. Amending tax return turbotax He performs personal services as a carpenter and mechanic for an hourly wage. Amending tax return turbotax He also acts as superintendent and foreman and engages other individuals to assist him. Amending tax return turbotax The company has the right to select, approve, or discharge any helper. Amending tax return turbotax A company representative makes frequent inspections of the construction site. Amending tax return turbotax When a house is finished, Wallace is paid a certain percentage of its costs. Amending tax return turbotax He is not responsible for faults, defects of construction, or wasteful operation. Amending tax return turbotax At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Amending tax return turbotax The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Amending tax return turbotax Wallace Black and his assistants are employees of the Sawdust Co. Amending tax return turbotax Example 4. Amending tax return turbotax Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Amending tax return turbotax A signed contract established a flat amount for the services rendered by Bill Plum. Amending tax return turbotax Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Amending tax return turbotax He hires his own roofers who are treated as employees for federal employment tax purposes. Amending tax return turbotax If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Amending tax return turbotax Bill Plum, doing business as Plum Roofing, is an independent contractor. Amending tax return turbotax Example 5. Amending tax return turbotax Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Amending tax return turbotax She is to receive $1,280 every 2 weeks for the next 10 weeks. Amending tax return turbotax This is not considered payment by the hour. Amending tax return turbotax Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Amending tax return turbotax She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Amending tax return turbotax Vera is an independent contractor. Amending tax return turbotax Trucking Industry Example. Amending tax return turbotax Rose Trucking contracts to deliver material for Forest, Inc. Amending tax return turbotax , at $140 per ton. Amending tax return turbotax Rose Trucking is not paid for any articles that are not delivered. Amending tax return turbotax At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Amending tax return turbotax All operating expenses, including insurance coverage, are paid by Jan Rose. Amending tax return turbotax All equipment is owned or rented by Jan and she is responsible for all maintenance. Amending tax return turbotax None of the drivers are provided by Forest, Inc. Amending tax return turbotax Jan Rose, operating as Rose Trucking, is an independent contractor. Amending tax return turbotax Computer Industry Example. Amending tax return turbotax Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Amending tax return turbotax , downsizes. Amending tax return turbotax Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Amending tax return turbotax 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. Amending tax return turbotax Megabyte provides Steve with no instructions beyond the specifications for the product itself. Amending tax return turbotax 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. Amending tax return turbotax Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Amending tax return turbotax Steve works at home and is not expected or allowed to attend meetings of the software development group. Amending tax return turbotax Steve is an independent contractor. Amending tax return turbotax Automobile Industry Example 1. Amending tax return turbotax Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Amending tax return turbotax She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Amending tax return turbotax She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Amending tax return turbotax Lists of prospective customers belong to the dealer. Amending tax return turbotax She is required to develop leads and report results to the sales manager. Amending tax return turbotax Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Amending tax return turbotax She is paid a commission and is eligible for prizes and bonuses offered by Bob. Amending tax return turbotax Bob also pays the cost of health insurance and group-term life insurance for Donna. Amending tax return turbotax Donna is an employee of Bob Blue. Amending tax return turbotax Example 2. Amending tax return turbotax Sam Sparks performs auto repair services in the repair department of an auto sales company. Amending tax return turbotax He works regular hours and is paid on a percentage basis. Amending tax return turbotax He has no investment in the repair department. Amending tax return turbotax 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. Amending tax return turbotax Sam is an employee of the sales company. Amending tax return turbotax Example 3. Amending tax return turbotax An auto sales agency furnishes space for Helen Bach to perform auto repair services. Amending tax return turbotax She provides her own tools, equipment, and supplies. Amending tax return turbotax She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. Amending tax return turbotax 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. Amending tax return turbotax Helen is an independent contractor and the helpers are her employees. Amending tax return turbotax Attorney Example. Amending tax return turbotax 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. Amending tax return turbotax Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Amending tax return turbotax Donna has a part-time receptionist who also does the bookkeeping. Amending tax return turbotax She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Amending tax return turbotax For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Amending tax return turbotax Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Amending tax return turbotax 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. Amending tax return turbotax Donna is an independent contractor. Amending tax return turbotax Taxicab Driver Example. Amending tax return turbotax Tom Spruce rents a cab from Taft Cab Co. Amending tax return turbotax for $150 per day. Amending tax return turbotax He pays the costs of maintaining and operating the cab. Amending tax return turbotax Tom Spruce keeps all fares that he receives from customers. Amending tax return turbotax Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. Amending tax return turbotax Tom Spruce is an independent contractor. Amending tax return turbotax Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Amending tax return turbotax 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). Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 3. Amending tax return turbotax Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Amending tax return turbotax Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. Amending tax return turbotax However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Amending tax return turbotax Section 501(c)(3) organizations. Amending tax return turbotax   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. Amending tax return turbotax These organizations are usually corporations and are exempt from federal income tax under section 501(a). Amending tax return turbotax Social security and Medicare taxes. Amending tax return turbotax   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. Amending tax return turbotax The organization pays an employee less than $100 in a calendar year. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax   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. Amending tax return turbotax 28 or more in a year. Amending tax return turbotax 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. Amending tax return turbotax See Members of recognized religious sects opposed to insurance in section 4. Amending tax return turbotax FUTA tax. Amending tax return turbotax   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. Amending tax return turbotax This exemption cannot be waived. Amending tax return turbotax Do not file Form 940 to report wages paid by these organizations or pay the tax. Amending tax return turbotax Note. Amending tax return turbotax 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. Amending tax return turbotax Other than section 501(c)(3) organizations. Amending tax return turbotax   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. Amending tax return turbotax However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. Amending tax return turbotax Two special rules for social security, Medicare, and FUTA taxes apply. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Amending tax return turbotax 4. Amending tax return turbotax Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Amending tax return turbotax An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. Amending tax return turbotax For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Amending tax return turbotax Ministers. Amending tax return turbotax   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Amending tax return turbotax 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. Amending tax return turbotax   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax For more information, see Publication 517. Amending tax return turbotax Form W-2. Amending tax return turbotax   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Amending tax return turbotax Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Amending tax return turbotax Do not include a parsonage allowance (excludable housing allowance) in this amount. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax For more information on ministers, see Publication 517. Amending tax return turbotax Exemptions for ministers and others. Amending tax return turbotax   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. Amending tax return turbotax 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. Amending tax return turbotax The exemption applies only to qualified services performed for the religious organization. Amending tax return turbotax See Revenue Procedure 91-20, 1991-1 C. Amending tax return turbotax B. Amending tax return turbotax 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Amending tax return turbotax   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. Amending tax return turbotax See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Amending tax return turbotax Members of recognized religious sects opposed to insurance. Amending tax return turbotax   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. Amending tax return turbotax 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). Amending tax return turbotax If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Amending tax return turbotax Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Amending tax return turbotax In addition, your religious sect (or division) must have existed since December 31, 1950. Amending tax return turbotax Self-employed. Amending tax return turbotax   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. Amending tax return turbotax Employees. Amending tax return turbotax   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. Amending tax return turbotax This applies to partnerships only if each partner is a member of the sect. Amending tax return turbotax 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. Amending tax return turbotax To get the exemption, the employee must file Form 4029. Amending tax return turbotax   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. Amending tax return turbotax 5. Amending tax return turbotax Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Amending tax return turbotax Publication 15-B discusses fringe benefits. Amending tax return turbotax The following topics supplement those discussions. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Amending tax return turbotax These rules generally apply to temporary work assignments both inside and outside the U. Amending tax return turbotax S. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax Excludable employee achievement awards also are not subject to FUTA tax. Amending tax return turbotax Limits. Amending tax return turbotax   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Amending tax return turbotax A higher limit of $1,600 applies to qualified plan awards. Amending tax return turbotax Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Amending tax return turbotax 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. Amending tax return turbotax   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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax These amounts are reportable on Form W-2. Amending tax return turbotax 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. Amending tax return turbotax Any amounts that you pay for room and board are not excludable from the recipient's gross income. Amending tax return turbotax A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Amending tax return turbotax For more information, see Publication 970, Tax Benefits for Education. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Amending tax return turbotax 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. Amending tax return turbotax It does not matter whether the separation is temporary or permanent. Amending tax return turbotax 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. Amending tax return turbotax To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Amending tax return turbotax Benefits are paid only to unemployed former employees who are laid off by the employer. Amending tax return turbotax Eligibility for benefits depends on meeting prescribed conditions after termination. Amending tax return turbotax 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. Amending tax return turbotax The right to benefits does not accrue until a prescribed period after termination. Amending tax return turbotax Benefits are not attributable to the performance of particular services. Amending tax return turbotax No employee has any right to the benefits until qualified and eligible to receive benefits. Amending tax return turbotax Benefits may not be paid in a lump sum. Amending tax return turbotax Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Amending tax return turbotax Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. Amending tax return turbotax 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. Amending tax return turbotax Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Amending tax return turbotax See Regulations section 1. Amending tax return turbotax 280G-1 for more information. Amending tax return turbotax No deduction is allowed to the corporation for any excess parachute payment. Amending tax return turbotax To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. Amending tax return turbotax A parachute payment for purposes of section 280G is any payment that meets all of the following. Amending tax return turbotax The payment is in the nature of compensation. Amending tax return turbotax The payment is to, or for the benefit of, a disqualified individual. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax The payment has an aggregate present value of at least three times the individual's base amount. Amending tax return turbotax The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. Amending tax return turbotax An excess parachute payment amount is the excess of any parachute payment over the base amount. Amending tax return turbotax For more information, see Regulations section 1. Amending tax return turbotax 280G-1. Amending tax return turbotax The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Amending tax return turbotax If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Amending tax return turbotax Example. Amending tax return turbotax An officer of a corporation receives a golden parachute payment of $400,000. Amending tax return turbotax This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Amending tax return turbotax The excess parachute payment is $300,000 ($400,000 minus $100,000). Amending tax return turbotax The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Amending tax return turbotax Reporting golden parachute payments. Amending tax return turbotax   Golden parachute payments to employees must be reported on Form W-2. Amending tax return turbotax See the General Instructions for Forms W-2 and W-3 for details. Amending tax return turbotax For nonemployee reporting of these payments, see Box 7. Amending tax return turbotax Nonemployee Compensation in the Instructions for Form 1099-MISC. Amending tax return turbotax Exempt payments. Amending tax return turbotax   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Amending tax return turbotax See section 280G(b)(5) and (6) for more information. Amending tax return turbotax 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. Amending tax return turbotax This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Amending tax return turbotax This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Amending tax return turbotax Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Amending tax return turbotax The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Amending tax return turbotax You can get these rates by calling 1-800-829-4933 or by visiting IRS. Amending tax return turbotax gov. Amending tax return turbotax For more information, see section 7872 and its related regulations. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax Do not include these amounts in the income of the transferors. Amending tax return turbotax These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Amending tax return turbotax 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. Amending tax return turbotax Specific rules for reporting are provided in the instructions to the forms. Amending tax return turbotax The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Amending tax return turbotax 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. Amending tax return turbotax For more information about nonqualified deferred compensation plans, see Regulations sections 1. Amending tax return turbotax 409A-1 through 1. Amending tax return turbotax 409A-6. Amending tax return turbotax Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Amending tax return turbotax Notice 2008-113, 2008-51 I. Amending tax return turbotax R. Amending tax return turbotax B. Amending tax return turbotax 1305, is available at www. Amending tax return turbotax irs. Amending tax return turbotax gov/irb/2008-51_IRB/ar12. Amending tax return turbotax html. Amending tax return turbotax Also see Notice 2010-6, 2010-3 I. Amending tax return turbotax R. Amending tax return turbotax B. Amending tax return turbotax 275, available at www. Amending tax return turbotax irs. Amending tax return turbotax gov/irb/2010-03_IRB/ar08. Amending tax return turbotax html and Notice 2010-80, 2010-51 I. Amending tax return turbotax R. Amending tax return turbotax B. Amending tax return turbotax 853, available at www. Amending tax return turbotax irs. Amending tax return turbotax gov/irb/2010-51_IRB/ar08. Amending tax return turbotax html. Amending tax return turbotax Social security, Medicare, and FUTA taxes. Amending tax return turbotax   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. Amending tax return turbotax   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. Amending tax return turbotax 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. Amending tax return turbotax You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Amending tax return turbotax 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. Amending tax return turbotax For more information, see Regulations sections 31. Amending tax return turbotax 3121(v)(2)-1 and 31. Amending tax return turbotax 3306(r)(2)-1. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax See Regulations section 31. Amending tax return turbotax 3121(a)(5)-2 for the definition of a salary reduction agreement. Amending tax return turbotax 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. Amending tax return turbotax These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Amending tax return turbotax However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. Amending tax return turbotax See Publication 560 for more information about SEPs. Amending tax return turbotax Salary reduction simplified employee pensions (SARSEP) repealed. Amending tax return turbotax   You may not establish a SARSEP after 1996. Amending tax return turbotax However, SARSEPs established before January 1, 1997, may continue to receive contributions. Amending tax return turbotax 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. Amending tax return turbotax An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Amending tax return turbotax However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Amending tax return turbotax For more information about SIMPLE retirement plans, see Publication 560. Amending tax return turbotax 6. Amending tax return turbotax Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Amending tax return turbotax Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Amending tax return turbotax gov in December 2014. Amending tax return turbotax Special rules apply to the reporting of sick pay payments to employees. Amending tax return turbotax How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. Amending tax return turbotax Sick pay is usually subject to social security, Medicare, and FUTA taxes. Amending tax return turbotax For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Amending tax return turbotax Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Amending tax return turbotax 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. Amending tax return turbotax It may be paid by either the employer or a third party, such as an insurance company. Amending tax return turbotax Sick pay includes both short- and long-term benefits. Amending tax return turbotax It is often expressed as a percentage of the employee's regular wages. Amending tax return turbotax Payments That Are Not Sick Pay Sick pay does not include the following payments. Amending tax return turbotax Disability retirement payments. Amending tax return turbotax Disability retirement payments are not sick pay and are not discussed in this section. Amending tax return turbotax Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Amending tax return turbotax See section 8. Amending tax return turbotax Workers' compensation. Amending tax return turbotax 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. Amending tax return turbotax But see Payments in the nature of workers' compensation—public employees next. Amending tax return turbotax Payments in the nature of workers' compensation—public employees. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Amending tax return turbotax For more information, see Regulations section 31. Amending tax return turbotax 3121(a)(2)-1. Amending tax return turbotax Medical expense payments. Amending tax return turbotax 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. Amending tax return turbotax Payments unrelated to absence from work. Amending tax return turbotax Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Amending tax return turbotax 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. Amending tax return turbotax Example. Amending tax return turbotax Donald was injured in a car accident and lost an eye. Amending tax return turbotax Under a policy paid for by Donald's employer, Delta Insurance Co. Amending tax return turbotax paid Donald $20,000 as compensation for the loss of his eye. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax Definition of employer. Amending tax return turbotax   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. Amending tax return turbotax Note. Amending tax return turbotax 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). Amending tax return turbotax Third-Party Payers of Sick Pay Employer's agent. Amending tax return turbotax   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. Amending tax return turbotax A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Amending tax return turbotax For example, if a third party provides administrative services only, the third party is your agent. Amending tax return turbotax 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. Amending tax return turbotax Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Amending tax return turbotax   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. Amending tax return turbotax This responsibility remains with you. Amending tax return turbotax However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. Amending tax return turbotax 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. Amending tax return turbotax Third party not employer's agent. Amending tax return turbotax   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. Amending tax return turbotax   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. Amending tax return turbotax This liability is transferred if the third party takes the following steps. Amending tax return turbotax Withholds the employee social security and Medicare taxes from the sick pay payments. Amending tax return turbotax Makes timely deposits of the employee social security and Medicare taxes. Amending tax return turbotax Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax 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. Amending tax return turbotax For multi-employer plans, see the special rule discussed next. Amending tax return turbotax Multi-employer plan timing rule. Amending tax return turbotax   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. Amending tax return turbotax If the third-party insurer making the payments complies wi