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Claim Social Security Income Taxes

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Claim Social Security Income Taxes

Claim social security income taxes Publication 15-A - Main Content Table of Contents 1. Claim social security income taxes Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Claim social security income taxes Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Claim social security income taxes Employees of Exempt OrganizationsSocial security and Medicare taxes. Claim social security income taxes FUTA tax. Claim social security income taxes 4. Claim social security income taxes Religious Exemptions and Special Rules for MinistersForm W-2. Claim social security income taxes Self-employed. Claim social security income taxes Employees. Claim social security income taxes 5. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Claim social security income taxes Pensions and AnnuitiesFederal Income Tax Withholding 9. Claim social security income taxes Alternative Methods for Figuring WithholdingTerm of continuous employment. Claim social security income taxes 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. Claim social security income taxes Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Claim social security income taxes 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. Claim social security income taxes The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Claim social security income taxes This discussion explains these four categories. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Claim social security income taxes See Publication 15 (Circular E) for information on backup withholding. Claim social security income taxes 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. Claim social security income taxes However, whether such people are employees or independent contractors depends on the facts in each case. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes This is so even when you give the employee freedom of action. Claim social security income taxes What matters is that you have the right to control the details of how the services are performed. Claim social security income taxes For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. Claim social security income taxes If you have an employer-employee relationship, it makes no difference how it is labeled. Claim social security income taxes The substance of the relationship, not the label, governs the worker's status. Claim social security income taxes It does not matter whether the individual is employed full time or part time. Claim social security income taxes For employment tax purposes, no distinction is made between classes of employees. Claim social security income taxes Superintendents, managers, and other supervisory personnel are all employees. Claim social security income taxes 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. Claim social security income taxes A director of a corporation is not an employee with respect to services performed as a director. Claim social security income taxes You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. Claim social security income taxes However, the wages of certain employees may be exempt from one or more of these taxes. Claim social security income taxes See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Claim social security income taxes Leased employees. Claim social security income taxes   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Claim social security income taxes 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. Claim social security income taxes   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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. Claim social security income taxes Additional information. Claim social security income taxes   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. Claim social security income taxes 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. Claim social security income taxes 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 . Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Claim social security income taxes The work performed for you must be the salesperson's principal business activity. Claim social security income taxes See Salesperson in section 2. Claim social security income taxes Social security and Medicare taxes. Claim social security income taxes   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Claim social security income taxes The service contract states or implies that substantially all the services are to be performed personally by them. Claim social security income taxes 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). Claim social security income taxes The services are performed on a continuing basis for the same payer. Claim social security income taxes Federal unemployment (FUTA) tax. Claim social security income taxes   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. Claim social security income taxes 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. Claim social security income taxes Income tax. Claim social security income taxes   Do not withhold federal income tax from the wages of statutory employees. Claim social security income taxes Reporting payments to statutory employees. Claim social security income taxes   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Claim social security income taxes Show your payments to the employee as “other compensation” in box 1. Claim social security income taxes 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. Claim social security income taxes The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes H-2A agricultural workers. Claim social security income taxes   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Claim social security income taxes Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Claim social security income taxes 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. Claim social security income taxes Direct sellers. Claim social security income taxes   Direct sellers include persons falling within any of the following three groups. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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). Claim social security income taxes   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. Claim social security income taxes Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Claim social security income taxes Licensed real estate agents. Claim social security income taxes   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Claim social security income taxes Companion sitters. Claim social security income taxes   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Claim social security income taxes 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. Claim social security income taxes Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Claim social security income taxes Misclassification of Employees Consequences of treating an employee as an independent contractor. Claim social security income taxes   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. Claim social security income taxes See section 2 in Publication 15 (Circular E) for more information. Claim social security income taxes Relief provision. Claim social security income taxes   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. Claim social security income taxes To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Claim social security income taxes You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Claim social security income taxes Technical service specialists. Claim social security income taxes   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. Claim social security income taxes 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. Claim social security income taxes   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. Claim social security income taxes The common-law rules control whether the specialist is treated as an employee or an independent contractor. Claim social security income taxes 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. Claim social security income taxes Test proctors and room supervisors. Claim social security income taxes   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. Claim social security income taxes Voluntary Classification Settlement Program (VCSP). Claim social security income taxes   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. Claim social security income taxes To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Claim social security income taxes For more information, visit IRS. Claim social security income taxes gov and enter “VCSP” in the search box. Claim social security income taxes 2. Claim social security income taxes 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. Claim social security income taxes An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Claim social security income taxes 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. Claim social security income taxes In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Claim social security income taxes 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. Claim social security income taxes These facts are discussed next. Claim social security income taxes Behavioral control. Claim social security income taxes   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. Claim social security income taxes   An employee is generally subject to the business' instructions about when, where, and how to work. Claim social security income taxes All of the following are examples of types of instructions about how to do work. Claim social security income taxes When and where to do the work. Claim social security income taxes What tools or equipment to use. Claim social security income taxes What workers to hire or to assist with the work. Claim social security income taxes Where to purchase supplies and services. Claim social security income taxes What work must be performed by a specified  individual. Claim social security income taxes What order or sequence to follow. Claim social security income taxes   The amount of instruction needed varies among different jobs. Claim social security income taxes 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. Claim social security income taxes A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Claim social security income taxes 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. Claim social security income taxes Training that the business gives to the worker. Claim social security income taxes   An employee may be trained to perform services in a particular manner. Claim social security income taxes Independent contractors ordinarily use their own methods. Claim social security income taxes Financial control. Claim social security income taxes   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. Claim social security income taxes   Independent contractors are more likely to have unreimbursed expenses than are employees. Claim social security income taxes Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Claim social security income taxes However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Claim social security income taxes The extent of the worker's investment. Claim social security income taxes   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Claim social security income taxes However, a significant investment is not necessary for independent contractor status. Claim social security income taxes The extent to which the worker makes his or her services available to the relevant market. Claim social security income taxes   An independent contractor is generally free to seek out business opportunities. Claim social security income taxes Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Claim social security income taxes How the business pays the worker. Claim social security income taxes   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Claim social security income taxes This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Claim social security income taxes An independent contractor is often paid a flat fee or on a time and materials basis for the job. Claim social security income taxes However, it is common in some professions, such as law, to pay independent contractors hourly. Claim social security income taxes The extent to which the worker can realize a profit or loss. Claim social security income taxes   An independent contractor can make a profit or loss. Claim social security income taxes Type of relationship. Claim social security income taxes   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Claim social security income taxes Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Claim social security income taxes The permanency of the relationship. Claim social security income taxes 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. Claim social security income taxes The extent to which services performed by the worker are a key aspect of the regular business of the company. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes This would indicate an employer-employee relationship. Claim social security income taxes IRS help. Claim social security income taxes   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. Claim social security income taxes Industry Examples The following examples may help you properly classify your workers. Claim social security income taxes Building and Construction Industry Example 1. Claim social security income taxes Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Claim social security income taxes She did not advance funds to help him carry on the work. Claim social security income taxes She makes direct payments to the suppliers for all necessary materials. Claim social security income taxes She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Claim social security income taxes She pays them an hourly rate and exercises almost constant supervision over the work. Claim social security income taxes Jerry is not free to transfer his assistants to other jobs. Claim social security income taxes He may not work on other jobs while working for Wilma. Claim social security income taxes He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Claim social security income taxes He and his assistants perform personal services for hourly wages. Claim social security income taxes Jerry Jones and his assistants are employees of Wilma White. Claim social security income taxes Example 2. Claim social security income taxes Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Claim social security income taxes He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Claim social security income taxes The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Claim social security income taxes He does not have a place of business or hold himself out to perform similar services for others. Claim social security income taxes Either party can end the services at any time. Claim social security income taxes Milton Manning is an employee of the corporation. Claim social security income taxes Example 3. Claim social security income taxes Wallace Black agreed with the Sawdust Co. Claim social security income taxes to supply the construction labor for a group of houses. Claim social security income taxes The company agreed to pay all construction costs. Claim social security income taxes However, he supplies all the tools and equipment. Claim social security income taxes He performs personal services as a carpenter and mechanic for an hourly wage. Claim social security income taxes He also acts as superintendent and foreman and engages other individuals to assist him. Claim social security income taxes The company has the right to select, approve, or discharge any helper. Claim social security income taxes A company representative makes frequent inspections of the construction site. Claim social security income taxes When a house is finished, Wallace is paid a certain percentage of its costs. Claim social security income taxes He is not responsible for faults, defects of construction, or wasteful operation. Claim social security income taxes At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Claim social security income taxes The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Claim social security income taxes Wallace Black and his assistants are employees of the Sawdust Co. Claim social security income taxes Example 4. Claim social security income taxes Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Claim social security income taxes A signed contract established a flat amount for the services rendered by Bill Plum. Claim social security income taxes Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Claim social security income taxes He hires his own roofers who are treated as employees for federal employment tax purposes. Claim social security income taxes If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Claim social security income taxes Bill Plum, doing business as Plum Roofing, is an independent contractor. Claim social security income taxes Example 5. Claim social security income taxes Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Claim social security income taxes She is to receive $1,280 every 2 weeks for the next 10 weeks. Claim social security income taxes This is not considered payment by the hour. Claim social security income taxes Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Claim social security income taxes She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Claim social security income taxes Vera is an independent contractor. Claim social security income taxes Trucking Industry Example. Claim social security income taxes Rose Trucking contracts to deliver material for Forest, Inc. Claim social security income taxes , at $140 per ton. Claim social security income taxes Rose Trucking is not paid for any articles that are not delivered. Claim social security income taxes At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Claim social security income taxes All operating expenses, including insurance coverage, are paid by Jan Rose. Claim social security income taxes All equipment is owned or rented by Jan and she is responsible for all maintenance. Claim social security income taxes None of the drivers are provided by Forest, Inc. Claim social security income taxes Jan Rose, operating as Rose Trucking, is an independent contractor. Claim social security income taxes Computer Industry Example. Claim social security income taxes Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Claim social security income taxes , downsizes. Claim social security income taxes Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Claim social security income taxes 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. Claim social security income taxes Megabyte provides Steve with no instructions beyond the specifications for the product itself. Claim social security income taxes 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. Claim social security income taxes Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Claim social security income taxes Steve works at home and is not expected or allowed to attend meetings of the software development group. Claim social security income taxes Steve is an independent contractor. Claim social security income taxes Automobile Industry Example 1. Claim social security income taxes Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Claim social security income taxes She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Claim social security income taxes She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Claim social security income taxes Lists of prospective customers belong to the dealer. Claim social security income taxes She is required to develop leads and report results to the sales manager. Claim social security income taxes Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Claim social security income taxes She is paid a commission and is eligible for prizes and bonuses offered by Bob. Claim social security income taxes Bob also pays the cost of health insurance and group-term life insurance for Donna. Claim social security income taxes Donna is an employee of Bob Blue. Claim social security income taxes Example 2. Claim social security income taxes Sam Sparks performs auto repair services in the repair department of an auto sales company. Claim social security income taxes He works regular hours and is paid on a percentage basis. Claim social security income taxes He has no investment in the repair department. Claim social security income taxes 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. Claim social security income taxes Sam is an employee of the sales company. Claim social security income taxes Example 3. Claim social security income taxes An auto sales agency furnishes space for Helen Bach to perform auto repair services. Claim social security income taxes She provides her own tools, equipment, and supplies. Claim social security income taxes She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. Claim social security income taxes 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. Claim social security income taxes Helen is an independent contractor and the helpers are her employees. Claim social security income taxes Attorney Example. Claim social security income taxes 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. Claim social security income taxes Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Claim social security income taxes Donna has a part-time receptionist who also does the bookkeeping. Claim social security income taxes She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Claim social security income taxes For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Claim social security income taxes Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Claim social security income taxes 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. Claim social security income taxes Donna is an independent contractor. Claim social security income taxes Taxicab Driver Example. Claim social security income taxes Tom Spruce rents a cab from Taft Cab Co. Claim social security income taxes for $150 per day. Claim social security income taxes He pays the costs of maintaining and operating the cab. Claim social security income taxes Tom Spruce keeps all fares that he receives from customers. Claim social security income taxes Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. Claim social security income taxes Tom Spruce is an independent contractor. Claim social security income taxes Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Claim social security income taxes 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). Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 3. Claim social security income taxes Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Claim social security income taxes Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. Claim social security income taxes However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Claim social security income taxes Section 501(c)(3) organizations. Claim social security income taxes   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. Claim social security income taxes These organizations are usually corporations and are exempt from federal income tax under section 501(a). Claim social security income taxes Social security and Medicare taxes. Claim social security income taxes   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. Claim social security income taxes The organization pays an employee less than $100 in a calendar year. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes   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. Claim social security income taxes 28 or more in a year. Claim social security income taxes 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. Claim social security income taxes See Members of recognized religious sects opposed to insurance in section 4. Claim social security income taxes FUTA tax. Claim social security income taxes   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. Claim social security income taxes This exemption cannot be waived. Claim social security income taxes Do not file Form 940 to report wages paid by these organizations or pay the tax. Claim social security income taxes Note. Claim social security income taxes 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. Claim social security income taxes Other than section 501(c)(3) organizations. Claim social security income taxes   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. Claim social security income taxes However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. Claim social security income taxes Two special rules for social security, Medicare, and FUTA taxes apply. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Claim social security income taxes 4. Claim social security income taxes Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Claim social security income taxes An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. Claim social security income taxes For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Claim social security income taxes Ministers. Claim social security income taxes   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Claim social security income taxes 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. Claim social security income taxes   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes For more information, see Publication 517. Claim social security income taxes Form W-2. Claim social security income taxes   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Claim social security income taxes Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Claim social security income taxes Do not include a parsonage allowance (excludable housing allowance) in this amount. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes For more information on ministers, see Publication 517. Claim social security income taxes Exemptions for ministers and others. Claim social security income taxes   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. Claim social security income taxes 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. Claim social security income taxes The exemption applies only to qualified services performed for the religious organization. Claim social security income taxes See Revenue Procedure 91-20, 1991-1 C. Claim social security income taxes B. Claim social security income taxes 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Claim social security income taxes   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. Claim social security income taxes See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Claim social security income taxes Members of recognized religious sects opposed to insurance. Claim social security income taxes   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. Claim social security income taxes 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). Claim social security income taxes If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Claim social security income taxes Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Claim social security income taxes In addition, your religious sect (or division) must have existed since December 31, 1950. Claim social security income taxes Self-employed. Claim social security income taxes   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. Claim social security income taxes Employees. Claim social security income taxes   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. Claim social security income taxes This applies to partnerships only if each partner is a member of the sect. Claim social security income taxes 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. Claim social security income taxes To get the exemption, the employee must file Form 4029. Claim social security income taxes   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. Claim social security income taxes 5. Claim social security income taxes Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Claim social security income taxes Publication 15-B discusses fringe benefits. Claim social security income taxes The following topics supplement those discussions. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Claim social security income taxes These rules generally apply to temporary work assignments both inside and outside the U. Claim social security income taxes S. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes Excludable employee achievement awards also are not subject to FUTA tax. Claim social security income taxes Limits. Claim social security income taxes   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Claim social security income taxes A higher limit of $1,600 applies to qualified plan awards. Claim social security income taxes Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Claim social security income taxes 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. Claim social security income taxes   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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes These amounts are reportable on Form W-2. Claim social security income taxes 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. Claim social security income taxes Any amounts that you pay for room and board are not excludable from the recipient's gross income. Claim social security income taxes A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Claim social security income taxes For more information, see Publication 970, Tax Benefits for Education. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Claim social security income taxes 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. Claim social security income taxes It does not matter whether the separation is temporary or permanent. Claim social security income taxes 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. Claim social security income taxes To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Claim social security income taxes Benefits are paid only to unemployed former employees who are laid off by the employer. Claim social security income taxes Eligibility for benefits depends on meeting prescribed conditions after termination. Claim social security income taxes 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. Claim social security income taxes The right to benefits does not accrue until a prescribed period after termination. Claim social security income taxes Benefits are not attributable to the performance of particular services. Claim social security income taxes No employee has any right to the benefits until qualified and eligible to receive benefits. Claim social security income taxes Benefits may not be paid in a lump sum. Claim social security income taxes Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Claim social security income taxes Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. Claim social security income taxes 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. Claim social security income taxes Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Claim social security income taxes See Regulations section 1. Claim social security income taxes 280G-1 for more information. Claim social security income taxes No deduction is allowed to the corporation for any excess parachute payment. Claim social security income taxes To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. Claim social security income taxes A parachute payment for purposes of section 280G is any payment that meets all of the following. Claim social security income taxes The payment is in the nature of compensation. Claim social security income taxes The payment is to, or for the benefit of, a disqualified individual. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes The payment has an aggregate present value of at least three times the individual's base amount. Claim social security income taxes The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. Claim social security income taxes An excess parachute payment amount is the excess of any parachute payment over the base amount. Claim social security income taxes For more information, see Regulations section 1. Claim social security income taxes 280G-1. Claim social security income taxes The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Claim social security income taxes If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Claim social security income taxes Example. Claim social security income taxes An officer of a corporation receives a golden parachute payment of $400,000. Claim social security income taxes This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Claim social security income taxes The excess parachute payment is $300,000 ($400,000 minus $100,000). Claim social security income taxes The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Claim social security income taxes Reporting golden parachute payments. Claim social security income taxes   Golden parachute payments to employees must be reported on Form W-2. Claim social security income taxes See the General Instructions for Forms W-2 and W-3 for details. Claim social security income taxes For nonemployee reporting of these payments, see Box 7. Claim social security income taxes Nonemployee Compensation in the Instructions for Form 1099-MISC. Claim social security income taxes Exempt payments. Claim social security income taxes   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Claim social security income taxes See section 280G(b)(5) and (6) for more information. Claim social security income taxes 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. Claim social security income taxes This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Claim social security income taxes This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Claim social security income taxes Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Claim social security income taxes The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Claim social security income taxes You can get these rates by calling 1-800-829-4933 or by visiting IRS. Claim social security income taxes gov. Claim social security income taxes For more information, see section 7872 and its related regulations. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes Do not include these amounts in the income of the transferors. Claim social security income taxes These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Claim social security income taxes 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. Claim social security income taxes Specific rules for reporting are provided in the instructions to the forms. Claim social security income taxes The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Claim social security income taxes 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. Claim social security income taxes For more information about nonqualified deferred compensation plans, see Regulations sections 1. Claim social security income taxes 409A-1 through 1. Claim social security income taxes 409A-6. Claim social security income taxes Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Claim social security income taxes Notice 2008-113, 2008-51 I. Claim social security income taxes R. Claim social security income taxes B. Claim social security income taxes 1305, is available at www. Claim social security income taxes irs. Claim social security income taxes gov/irb/2008-51_IRB/ar12. Claim social security income taxes html. Claim social security income taxes Also see Notice 2010-6, 2010-3 I. Claim social security income taxes R. Claim social security income taxes B. Claim social security income taxes 275, available at www. Claim social security income taxes irs. Claim social security income taxes gov/irb/2010-03_IRB/ar08. Claim social security income taxes html and Notice 2010-80, 2010-51 I. Claim social security income taxes R. Claim social security income taxes B. Claim social security income taxes 853, available at www. Claim social security income taxes irs. Claim social security income taxes gov/irb/2010-51_IRB/ar08. Claim social security income taxes html. Claim social security income taxes Social security, Medicare, and FUTA taxes. Claim social security income taxes   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. Claim social security income taxes   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. Claim social security income taxes 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. Claim social security income taxes You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Claim social security income taxes 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. Claim social security income taxes For more information, see Regulations sections 31. Claim social security income taxes 3121(v)(2)-1 and 31. Claim social security income taxes 3306(r)(2)-1. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes See Regulations section 31. Claim social security income taxes 3121(a)(5)-2 for the definition of a salary reduction agreement. Claim social security income taxes 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. Claim social security income taxes These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Claim social security income taxes However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. Claim social security income taxes See Publication 560 for more information about SEPs. Claim social security income taxes Salary reduction simplified employee pensions (SARSEP) repealed. Claim social security income taxes   You may not establish a SARSEP after 1996. Claim social security income taxes However, SARSEPs established before January 1, 1997, may continue to receive contributions. Claim social security income taxes 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. Claim social security income taxes An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Claim social security income taxes However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Claim social security income taxes For more information about SIMPLE retirement plans, see Publication 560. Claim social security income taxes 6. Claim social security income taxes Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Claim social security income taxes Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Claim social security income taxes gov in December 2014. Claim social security income taxes Special rules apply to the reporting of sick pay payments to employees. Claim social security income taxes How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. Claim social security income taxes Sick pay is usually subject to social security, Medicare, and FUTA taxes. Claim social security income taxes For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Claim social security income taxes Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Claim social security income taxes 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. Claim social security income taxes It may be paid by either the employer or a third party, such as an insurance company. Claim social security income taxes Sick pay includes both short- and long-term benefits. Claim social security income taxes It is often expressed as a percentage of the employee's regular wages. Claim social security income taxes Payments That Are Not Sick Pay Sick pay does not include the following payments. Claim social security income taxes Disability retirement payments. Claim social security income taxes Disability retirement payments are not sick pay and are not discussed in this section. Claim social security income taxes Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Claim social security income taxes See section 8. Claim social security income taxes Workers' compensation. Claim social security income taxes 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. Claim social security income taxes But see Payments in the nature of workers' compensation—public employees next. Claim social security income taxes Payments in the nature of workers' compensation—public employees. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Claim social security income taxes For more information, see Regulations section 31. Claim social security income taxes 3121(a)(2)-1. Claim social security income taxes Medical expense payments. Claim social security income taxes 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. Claim social security income taxes Payments unrelated to absence from work. Claim social security income taxes Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Claim social security income taxes 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. Claim social security income taxes Example. Claim social security income taxes Donald was injured in a car accident and lost an eye. Claim social security income taxes Under a policy paid for by Donald's employer, Delta Insurance Co. Claim social security income taxes paid Donald $20,000 as compensation for the loss of his eye. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes Definition of employer. Claim social security income taxes   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. Claim social security income taxes Note. Claim social security income taxes 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). Claim social security income taxes Third-Party Payers of Sick Pay Employer's agent. Claim social security income taxes   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. Claim social security income taxes A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Claim social security income taxes For example, if a third party provides administrative services only, the third party is your agent. Claim social security income taxes 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. Claim social security income taxes Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Claim social security income taxes   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. Claim social security income taxes This responsibility remains with you. Claim social security income taxes However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. Claim social security income taxes 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. Claim social security income taxes Third party not employer's agent. Claim social security income taxes   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. Claim social security income taxes   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. Claim social security income taxes This liability is transferred if the third party takes the following steps. Claim social security income taxes Withholds the employee social security and Medicare taxes from the sick pay payments. Claim social security income taxes Makes timely deposits of the employee social security and Medicare taxes. Claim social security income taxes Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes 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. Claim social security income taxes For multi-employer plans, see the special rule discussed next. Claim social security income taxes Multi-employer plan timing rule. Claim social security income taxes   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. Claim social security income taxes If the third-party insurer making the payments complies wi
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The Claim Social Security Income Taxes

Claim social security income taxes Index Symbols 403(b) plans, 403(b) Plans A Accounting methods, Nonaccrual-Experience Method Acquisition date: Special depreciation allowance, Acquisition date test. Claim social security income taxes Special Liberty Zone depreciation allowance, Acquisition date test. Claim social security income taxes Annuities, tax-sheltered 403(b) plans, 403(b) Plans Assistance (see Tax help) Automobile (see Passenger automobile) B Bonds: New York Liberty, Tax Incentives for New York Liberty Zone Qualified zone academy, Issuance of Qualified Zone Academy Bonds C Car (see Passenger automobile) Car expenses, Car Expenses Catch-up contributions, 403(b), 403(b) Plans Child and dependent care, Child and Dependent Care Expenses Church employees and ministers, Years of service for church employees and ministers. Claim social security income taxes Clean-fuel vehicle, Electric and Clean-Fuel Vehicles Comments, Comments and suggestions. Claim social security income taxes Credit: Child and dependent care, Child and Dependent Care Expenses Credit for pension plan startup, Credit For Pension Plan Startup Costs Electric vehicles, Electric and Clean-Fuel Vehicles Indian employment, Indian Employment Credit Extended Renewable electricity production, Renewable Electricity Production Credit Welfare-to-work, Welfare-to-Work Credit Extended Work opportunity, Work Opportunity Credit Expanded in New York Liberty Zone , Work Opportunity Credit Extended D Deduction limit, automobile, Passenger Automobiles Deemed IRAs, Deemed IRAs Depletion, Depletion Depreciation: New property, Special Depreciation Allowance Property on reservations, Depreciation of Property Used on Indian Reservations Special depreciation allowance, Special Depreciation Allowance Special Liberty Zone depreciation allowance, Special Liberty Zone Depreciation Allowance Supplement to Publication 946, Depreciation E Election: Deemed not to claim special allowance, Deemed election. Claim social security income taxes Not to claim special allowance, Election Not To Claim the Allowance Not to claim special Liberty Zone allowance, Election Not To Claim the Liberty Zone Allowance Electric vehicle, Electric and Clean-Fuel Vehicles Eligible educator, Deduction for Educator Expenses Estimated tax payments, Adjusting your withholding or estimated tax payments for 2002. Claim social security income taxes Excepted property: Special depreciation allowance, Excepted Property Special Liberty Zone depreciation allowance, Excepted property. Claim social security income taxes F Foreign missionaries, Foreign missionaries. Claim social security income taxes Form 1099, Electronic Form 1099 Free tax services, How To Get Tax Help H Help (see Tax help) I Indian employment credit, Indian Employment Credit Extended Indian reservations, depreciation rules, Depreciation of Property Used on Indian Reservations IRAs, Deemed IRAs L Leasehold improvement property, defined, Qualified leasehold improvement property. Claim social security income taxes Liberty Zone leasehold improvement property: Defined, Qualified New York Liberty Zone leasehold improvement property. Claim social security income taxes Depreciated as 5-year property, Liberty Zone Leasehold Improvement Property Returns filed before June 1, 2002, Returns Filed Before June 1, 2002 Liberty Zone property: Increased section 179 dollar limit, Increased Dollar Limit Reduced section 179 dollar limit, Reduced Dollar Limit M Marginal production, Depletion More information (see Tax help) N Net operating losses, New 5-Year Carryback Rule for Net Operating Losses (NOLs), New 5-Year Carryback Rule for Net Operating Losses (NOLs) New York Liberty Zone: Area defined, New York Liberty Zone Benefits Leasehold improvement property, Liberty Zone Leasehold Improvement Property Section 179 deduction, Increased Section 179 Deduction Special depreciation, Special Liberty Zone Depreciation Allowance Tax incentives, Tax Incentives for New York Liberty Zone Work opportunity credit, Work Opportunity Credit Expanded in New York Liberty Zone NOLs, New 5-Year Carryback Rule for Net Operating Losses (NOLs), New 5-Year Carryback Rule for Net Operating Losses (NOLs) Nonaccrual-experience method, Nonaccrual-Experience Method Nonresidential real property, Nonresidential real property and residential rental property. Claim social security income taxes P Passenger automobile, limit on, Passenger Automobiles Pension plan startup costs, Credit For Pension Plan Startup Costs Placed in service date, Placed in service date test. Claim social security income taxes , Placed in service date test. Claim social security income taxes Plans, tax-sheltered annuities, 403(b) plans, 403(b) Plans Publications (see Tax help) Q Qualified leasehold improvement property, defined, Qualified leasehold improvement property. Claim social security income taxes Qualified Liberty Zone leasehold improvement property, Qualified New York Liberty Zone leasehold improvement property. Claim social security income taxes Qualified property: Increased section 179 deduction, Qualified property. Claim social security income taxes Special depreciation allowance, Qualified Property Special Liberty Zone depreciation allowance, Qualified Liberty Zone Property Qualified zone academy bonds, Issuance of Qualified Zone Academy Bonds R Recapture, section 179 deduction, Recapture Rules Renewable electricity, Renewable Electricity Production Credit Residential rental property, Nonresidential real property and residential rental property. Claim social security income taxes Rollovers, 403(b) plans, Rollovers to and from 403(b) plans. Claim social security income taxes S Section 1256 contracts, Wash Sale Rules Do Not Apply to Section 1256 Contracts Section 179 deduction: Increased dollar limit for Liberty Zone property, Increased Dollar Limit Reduced dollar limit for Liberty Zone property, Reduced Dollar Limit Returns filed before June 1, 2002, Returns Filed Before June 1, 2002 Simplified employee pensions (SEPs), Simplified Employee Pensions (SEPs) Special depreciation allowance: Election not to claim, Election Not To Claim the Allowance Excepted property, Excepted Property Qualified property, Qualified Property Requirements for claiming, Qualified Property Returns filed before June 1, 2002, Rules for Returns Filed Before June 1, 2002 Tests for qualification, Tests To Be Met Special Liberty Zone depreciation allowance: Election not to claim, Election Not To Claim the Liberty Zone Allowance Excepted property, Excepted property. Claim social security income taxes Qualified property, Qualified Liberty Zone Property Requirements for claiming, Qualified Liberty Zone Property Returns filed before June 1, 2002, Returns filed before June 1, 2002. Claim social security income taxes Tests for qualification, Tests to be met. Claim social security income taxes Substantial use, special Liberty Zone depreciation allowance, Substantial use test. Claim social security income taxes Suggestions, Comments and suggestions. Claim social security income taxes T Tax help, How To Get Tax Help Tax-sheltered annuity plans, 403(b) plans, 403(b) Plans Taxpayer Advocate, Contacting your Taxpayer Advocate. Claim social security income taxes Teachers, classroom materials, Deduction for Educator Expenses Tests for qualification, Tests To Be Met, Tests to be met. Claim social security income taxes TTY/TDD information, How To Get Tax Help W Wash sale rules, Wash Sale Rules Do Not Apply to Section 1256 Contracts Welfare-to-work credit, Welfare-to-Work Credit Extended Withholding, Adjusting your withholding or estimated tax payments for 2002. Claim social security income taxes Work opportunity credit, Work Opportunity Credit Expanded in New York Liberty Zone , Work Opportunity Credit Extended Y Years of service, church employees and ministers, Years of service for church employees and ministers. Claim social security income taxes Prev  Up     Home   More Online Publications