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File 2012 Taxes Free

File 2012 taxes free 5. File 2012 taxes free   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. File 2012 taxes free Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. File 2012 taxes free   If you are a U. File 2012 taxes free S. File 2012 taxes free citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. File 2012 taxes free S. File 2012 taxes free law. File 2012 taxes free This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. File 2012 taxes free This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). File 2012 taxes free If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. File 2012 taxes free For details, see Publication 54, Tax Guide for U. File 2012 taxes free S. File 2012 taxes free Citizens and Resident Aliens Abroad. File 2012 taxes free Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. File 2012 taxes free The following topics are included. File 2012 taxes free Bonuses and awards. File 2012 taxes free Special rules for certain employees. File 2012 taxes free Sickness and injury benefits. File 2012 taxes free The chapter explains what income is included in the employee's gross income and what is not included. File 2012 taxes free Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. File 2012 taxes free Form W-2. File 2012 taxes free    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. File 2012 taxes free Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. File 2012 taxes free   If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. File 2012 taxes free These wages must be included on line 7 of Form 1040. File 2012 taxes free See Form 8919 for more information. File 2012 taxes free Childcare providers. File 2012 taxes free    If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. File 2012 taxes free If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. File 2012 taxes free You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. File 2012 taxes free Babysitting. File 2012 taxes free   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. File 2012 taxes free Miscellaneous Compensation This section discusses different types of employee compensation. File 2012 taxes free Advance commissions and other earnings. File 2012 taxes free   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. File 2012 taxes free    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. File 2012 taxes free If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. File 2012 taxes free See Repayments in chapter 12. File 2012 taxes free Allowances and reimbursements. File 2012 taxes free    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. File 2012 taxes free If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. File 2012 taxes free Back pay awards. File 2012 taxes free    Include in income amounts you are awarded in a settlement or judgment for back pay. File 2012 taxes free These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. File 2012 taxes free They should be reported to you by your employer on Form W-2. File 2012 taxes free Bonuses and awards. File 2012 taxes free   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. File 2012 taxes free These include prizes such as vacation trips for meeting sales goals. File 2012 taxes free If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. File 2012 taxes free However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. File 2012 taxes free Employee achievement award. File 2012 taxes free   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. File 2012 taxes free However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. File 2012 taxes free Your employer can tell you whether your award is a qualified plan award. File 2012 taxes free Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. File 2012 taxes free   However, the exclusion does not apply to the following awards: A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. File 2012 taxes free A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. File 2012 taxes free Example. File 2012 taxes free Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. File 2012 taxes free Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. File 2012 taxes free However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income. File 2012 taxes free Differential wage payments. File 2012 taxes free   This is any payment made to you by an employer for any period during which you are, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages you would have received from the employer during that period. File 2012 taxes free These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. File 2012 taxes free The payments are reported as wages on Form W-2. File 2012 taxes free Government cost-of-living allowances. File 2012 taxes free   Most payments received by U. File 2012 taxes free S. File 2012 taxes free Government civilian employees for working abroad are taxable. File 2012 taxes free However, certain cost-of-living allowances are tax free. File 2012 taxes free Publication 516, U. File 2012 taxes free S. File 2012 taxes free Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. File 2012 taxes free Nonqualified deferred compensation plans. File 2012 taxes free   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. File 2012 taxes free This amount is shown on Form W-2, box 12, using code Y. File 2012 taxes free This amount is not included in your income. File 2012 taxes free   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. File 2012 taxes free This amount is included in your wages shown on Form W-2, box 1. File 2012 taxes free It is also shown on Form W-2, box 12, using code Z. File 2012 taxes free Note received for services. File 2012 taxes free    If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. File 2012 taxes free When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. File 2012 taxes free Do not include that part again in your income. File 2012 taxes free Include the rest of the payment in your income in the year of payment. File 2012 taxes free   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. File 2012 taxes free Severance pay. File 2012 taxes free   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. File 2012 taxes free Accrued leave payment. File 2012 taxes free    If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. File 2012 taxes free   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. File 2012 taxes free You can reduce gross wages by the amount you repaid in the same tax year in which you received it. File 2012 taxes free Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2. File 2012 taxes free Outplacement services. File 2012 taxes free   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. File 2012 taxes free    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). File 2012 taxes free Sick pay. File 2012 taxes free   Pay you receive from your employer while you are sick or injured is part of your salary or wages. File 2012 taxes free In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. File 2012 taxes free A state sickness or disability fund. File 2012 taxes free An association of employers or employees. File 2012 taxes free An insurance company, if your employer paid for the plan. File 2012 taxes free However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. File 2012 taxes free For more information, see Publication 525. File 2012 taxes free Social security and Medicare taxes paid by employer. File 2012 taxes free   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. File 2012 taxes free The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. File 2012 taxes free However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. File 2012 taxes free Stock appreciation rights. File 2012 taxes free   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. File 2012 taxes free When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. File 2012 taxes free You include the cash payment in your income in the year you use the right. File 2012 taxes free Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. File 2012 taxes free Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. File 2012 taxes free Accounting period. File 2012 taxes free   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. File 2012 taxes free Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. File 2012 taxes free The general rule: benefits are reported for a full calendar year (January 1–December 31). File 2012 taxes free The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. File 2012 taxes free For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. File 2012 taxes free  Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. File 2012 taxes free   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). File 2012 taxes free Form W-2. File 2012 taxes free   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. File 2012 taxes free Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). File 2012 taxes free However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). File 2012 taxes free Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. File 2012 taxes free Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . File 2012 taxes free For information on the items covered in this section, other than Long-term care coverage, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. File 2012 taxes free Long-term care coverage. File 2012 taxes free    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. File 2012 taxes free However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. File 2012 taxes free This amount will be reported as wages in box 1 of your Form W-2. File 2012 taxes free   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. File 2012 taxes free Archer MSA contributions. File 2012 taxes free    Contributions by your employer to your Archer MSA generally are not included in your income. File 2012 taxes free Their total will be reported in box 12 of Form W-2 with code R. File 2012 taxes free You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. File 2012 taxes free File the form with your return. File 2012 taxes free Health flexible spending arrangement (health FSA). File 2012 taxes free   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. File 2012 taxes free Note. File 2012 taxes free Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. File 2012 taxes free The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. File 2012 taxes free For more information, see Notice 2012-40, 2012-26 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 1046, available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2012-26 IRB/ar09. File 2012 taxes free html. File 2012 taxes free Health reimbursement arrangement (HRA). File 2012 taxes free   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. File 2012 taxes free Health savings accounts (HSA). File 2012 taxes free   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. File 2012 taxes free Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. File 2012 taxes free Contributions made by your employer are not included in your income. File 2012 taxes free Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. File 2012 taxes free Distributions not used for qualified medical expenses are included in your income. File 2012 taxes free See Publication 969 for the requirements of an HSA. File 2012 taxes free   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. File 2012 taxes free The contributions are treated as a distribution of money and are not included in the partner's gross income. File 2012 taxes free Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. File 2012 taxes free In both situations, the partner can deduct the contribution made to the partner's HSA. File 2012 taxes free   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. File 2012 taxes free The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. File 2012 taxes free Qualified HSA funding distribution. File 2012 taxes free   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. File 2012 taxes free See Publication 590 for the requirements for these qualified HSA funding distributions. File 2012 taxes free Failure to maintain eligibility. File 2012 taxes free   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. File 2012 taxes free If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. File 2012 taxes free This income is also subject to an additional 10% tax. File 2012 taxes free Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. File 2012 taxes free See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. File 2012 taxes free Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. File 2012 taxes free They also are included as social security and Medicare wages in boxes 3 and 5. File 2012 taxes free However, they are not included as wages in box 1. File 2012 taxes free To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. File 2012 taxes free File the form with your return. File 2012 taxes free De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. File 2012 taxes free In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. File 2012 taxes free Holiday gifts. File 2012 taxes free   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. File 2012 taxes free However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. File 2012 taxes free Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. File 2012 taxes free For more information, see Publication 970, Tax Benefits for Education. File 2012 taxes free Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. File 2012 taxes free However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. File 2012 taxes free For exceptions, see Entire cost excluded , and Entire cost taxed , later. File 2012 taxes free If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. File 2012 taxes free Also, it is shown separately in box 12 with code C. File 2012 taxes free Group-term life insurance. File 2012 taxes free   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. File 2012 taxes free Permanent benefits. File 2012 taxes free   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. File 2012 taxes free Your employer should be able to tell you the amount to include in your income. File 2012 taxes free Accidental death benefits. File 2012 taxes free   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. File 2012 taxes free Former employer. File 2012 taxes free   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. File 2012 taxes free Also, it is shown separately in box 12 with code C. File 2012 taxes free Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. File 2012 taxes free You must pay these taxes with your income tax return. File 2012 taxes free Include them on line 60, Form 1040, and follow the instructions for line 60. File 2012 taxes free For more information, see the Instructions for Form 1040. File 2012 taxes free Two or more employers. File 2012 taxes free   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. File 2012 taxes free If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. File 2012 taxes free You must figure how much to include in your income. File 2012 taxes free Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. File 2012 taxes free Figuring the taxable cost. File 2012 taxes free   Use the following worksheet to figure the amount to include in your income. File 2012 taxes free     Worksheet 5-1. File 2012 taxes free Figuring the Cost of Group-Term Life Insurance To Include in Income 1. File 2012 taxes free Enter the total amount of your insurance coverage from your employer(s) 1. File 2012 taxes free   2. File 2012 taxes free Limit on exclusion for employer-provided group-term life insurance coverage 2. File 2012 taxes free 50,000 3. File 2012 taxes free Subtract line 2 from line 1 3. File 2012 taxes free   4. File 2012 taxes free Divide line 3 by $1,000. File 2012 taxes free Figure to the nearest tenth 4. File 2012 taxes free   5. File 2012 taxes free Go to Table 5-1. File 2012 taxes free Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. File 2012 taxes free   6. File 2012 taxes free Multiply line 4 by line 5 6. File 2012 taxes free   7. File 2012 taxes free Enter the number of full months of coverage at this cost. File 2012 taxes free 7. File 2012 taxes free   8. File 2012 taxes free Multiply line 6 by line 7 8. File 2012 taxes free   9. File 2012 taxes free Enter the premiums you paid per month 9. File 2012 taxes free       10. File 2012 taxes free Enter the number of months you paid the premiums 10. File 2012 taxes free       11. File 2012 taxes free Multiply line 9 by line 10. File 2012 taxes free 11. File 2012 taxes free   12. File 2012 taxes free Subtract line 11 from line 8. File 2012 taxes free Include this amount in your income as wages 12. File 2012 taxes free      Table 5-1. File 2012 taxes free Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. File 2012 taxes free 05 25 through 29 . File 2012 taxes free 06 30 through 34 . File 2012 taxes free 08 35 through 39 . File 2012 taxes free 09 40 through 44 . File 2012 taxes free 10 45 through 49 . File 2012 taxes free 15 50 through 54 . File 2012 taxes free 23 55 through 59 . File 2012 taxes free 43 60 through 64 . File 2012 taxes free 66 65 through 69 1. File 2012 taxes free 27 70 and older 2. File 2012 taxes free 06 Example. File 2012 taxes free You are 51 years old and work for employers A and B. File 2012 taxes free Both employers provide group-term life insurance coverage for you for the entire year. File 2012 taxes free Your coverage is $35,000 with employer A and $45,000 with employer B. File 2012 taxes free You pay premiums of $4. File 2012 taxes free 15 a month under the employer B group plan. File 2012 taxes free You figure the amount to include in your income as shown in Worksheet 5-1. File 2012 taxes free Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. File 2012 taxes free Worksheet 5-1. File 2012 taxes free Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. File 2012 taxes free Enter the total amount of your insurance coverage from your employer(s) 1. File 2012 taxes free 80,000 2. File 2012 taxes free Limit on exclusion for employer-provided group-term life insurance coverage 2. File 2012 taxes free 50,000 3. File 2012 taxes free Subtract line 2 from line 1 3. File 2012 taxes free 30,000 4. File 2012 taxes free Divide line 3 by $1,000. File 2012 taxes free Figure to the nearest tenth 4. File 2012 taxes free 30. File 2012 taxes free 0 5. File 2012 taxes free Go to Table 5-1. File 2012 taxes free Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. File 2012 taxes free . File 2012 taxes free 23 6. File 2012 taxes free Multiply line 4 by line 5 6. File 2012 taxes free 6. File 2012 taxes free 90 7. File 2012 taxes free Enter the number of full months of coverage at this cost. File 2012 taxes free 7. File 2012 taxes free 12 8. File 2012 taxes free Multiply line 6 by line 7 8. File 2012 taxes free 82. File 2012 taxes free 80 9. File 2012 taxes free Enter the premiums you paid per month 9. File 2012 taxes free 4. File 2012 taxes free 15     10. File 2012 taxes free Enter the number of months you paid the premiums 10. File 2012 taxes free 12     11. File 2012 taxes free Multiply line 9 by line 10. File 2012 taxes free 11. File 2012 taxes free 49. File 2012 taxes free 80 12. File 2012 taxes free Subtract line 11 from line 8. File 2012 taxes free Include this amount in your income as wages 12. File 2012 taxes free 33. File 2012 taxes free 00 Entire cost excluded. File 2012 taxes free   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. File 2012 taxes free You are permanently and totally disabled and have ended your employment. File 2012 taxes free Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. File 2012 taxes free A charitable organization (defined in chapter 24) to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. File 2012 taxes free (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. File 2012 taxes free ) The plan existed on January 1, 1984, and You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. File 2012 taxes free Entire cost taxed. File 2012 taxes free   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. File 2012 taxes free You are a key employee and your employer's plan discriminates in favor of key employees. File 2012 taxes free Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. File 2012 taxes free Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. File 2012 taxes free You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. File 2012 taxes free Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. File 2012 taxes free A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. File 2012 taxes free Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. File 2012 taxes free However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. File 2012 taxes free Exclusion limit. File 2012 taxes free   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. File 2012 taxes free   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. File 2012 taxes free   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. File 2012 taxes free   If the benefits have a value that is more than these limits, the excess must be included in your income. File 2012 taxes free You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. File 2012 taxes free Commuter highway vehicle. File 2012 taxes free   This is a highway vehicle that seats at least six adults (not including the driver). File 2012 taxes free At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). File 2012 taxes free Transit pass. File 2012 taxes free   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. File 2012 taxes free Qualified parking. File 2012 taxes free   This is parking provided to an employee at or near the employer's place of business. File 2012 taxes free It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. File 2012 taxes free It does not include parking at or near the employee's home. File 2012 taxes free Qualified bicycle commuting. File 2012 taxes free   This is reimbursement based on the number of qualified bicycle commuting months for the year. File 2012 taxes free A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. File 2012 taxes free The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. File 2012 taxes free Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. File 2012 taxes free (Your employer can tell you whether your retirement plan is qualified. File 2012 taxes free ) However, the cost of life insurance coverage included in the plan may have to be included. File 2012 taxes free See Group-Term Life Insurance , earlier, under Fringe Benefits. File 2012 taxes free If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. File 2012 taxes free However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. File 2012 taxes free For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. File 2012 taxes free S. File 2012 taxes free Civil Service Retirement Benefits, if you are a federal employee or retiree). File 2012 taxes free Elective deferrals. File 2012 taxes free   If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. File 2012 taxes free The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. File 2012 taxes free An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. File 2012 taxes free However, it is included in wages subject to social security and Medicare taxes. File 2012 taxes free   Elective deferrals include elective contributions to the following retirement plans. File 2012 taxes free Cash or deferred arrangements (section 401(k) plans). File 2012 taxes free The Thrift Savings Plan for federal employees. File 2012 taxes free Salary reduction simplified employee pension plans (SARSEP). File 2012 taxes free Savings incentive match plans for employees (SIMPLE plans). File 2012 taxes free Tax-sheltered annuity plans (403(b) plans). File 2012 taxes free Section 501(c)(18)(D) plans. File 2012 taxes free Section 457 plans. File 2012 taxes free Qualified automatic contribution arrangements. File 2012 taxes free   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. File 2012 taxes free You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. File 2012 taxes free The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. File 2012 taxes free   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. File 2012 taxes free Overall limit on deferrals. File 2012 taxes free   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3) and (5) above. File 2012 taxes free The limit for SIMPLE plans is $12,000. File 2012 taxes free The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. File 2012 taxes free The limit for section 457 plans is the lesser of your includible compensation or $17,500. File 2012 taxes free Amounts deferred under specific plan limits are part of the overall limit on deferrals. File 2012 taxes free Designated Roth contributions. File 2012 taxes free   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. File 2012 taxes free Designated Roth contributions are treated as elective deferrals, except that they are included in income. File 2012 taxes free Excess deferrals. File 2012 taxes free   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. File 2012 taxes free However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. File 2012 taxes free   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. File 2012 taxes free See Publication 525 for a discussion of the tax treatment of excess deferrals. File 2012 taxes free Catch-up contributions. File 2012 taxes free   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. File 2012 taxes free Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option. File 2012 taxes free However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. File 2012 taxes free Your employer can tell you which kind of option you hold. File 2012 taxes free For more information, see Publication 525. File 2012 taxes free Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. File 2012 taxes free However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. File 2012 taxes free (You can choose to include the value of the property in your income in the year it is transferred to you. File 2012 taxes free ) For more information, see Restricted Property in Publication 525. File 2012 taxes free Dividends received on restricted stock. File 2012 taxes free   Dividends you receive on restricted stock are treated as compensation and not as dividend income. File 2012 taxes free Your employer should include these payments on your Form W-2. File 2012 taxes free Stock you chose to include in income. File 2012 taxes free   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. File 2012 taxes free Report them on your return as dividends. File 2012 taxes free For a discussion of dividends, see chapter 8. File 2012 taxes free    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. File 2012 taxes free Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. File 2012 taxes free Clergy Generally, if you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. File 2012 taxes free , in addition to your salary. File 2012 taxes free If the offering is made to the religious institution, it is not taxable to you. File 2012 taxes free If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. File 2012 taxes free However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. File 2012 taxes free See chapter 24. File 2012 taxes free Pension. File 2012 taxes free    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. File 2012 taxes free It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. File 2012 taxes free Housing. File 2012 taxes free    Special rules for housing apply to members of the clergy. File 2012 taxes free Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. File 2012 taxes free However, the exclusion cannot be more than the reasonable pay for your service. File 2012 taxes free If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. File 2012 taxes free The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. File 2012 taxes free However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. File 2012 taxes free For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. File 2012 taxes free Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. File 2012 taxes free Services performed for the order. File 2012 taxes free   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. File 2012 taxes free   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. File 2012 taxes free Any wages you earn as an agent of an order that you turn over to the order are not included in your income. File 2012 taxes free Example. File 2012 taxes free You are a member of a church order and have taken a vow of poverty. File 2012 taxes free You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. File 2012 taxes free You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. File 2012 taxes free However, you remain under the general direction and control of the order. File 2012 taxes free You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. File 2012 taxes free Services performed outside the order. File 2012 taxes free   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. File 2012 taxes free They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. File 2012 taxes free If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. File 2012 taxes free Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. File 2012 taxes free Example. File 2012 taxes free Mark Brown is a member of a religious order and has taken a vow of poverty. File 2012 taxes free He renounces all claims to his earnings and turns over his earnings to the order. File 2012 taxes free Mark is a schoolteacher. File 2012 taxes free He was instructed by the superiors of the order to get a job with a private tax-exempt school. File 2012 taxes free Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. File 2012 taxes free Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. File 2012 taxes free The wages Mark earns working for the school are included in his income. File 2012 taxes free Foreign Employer Special rules apply if you work for a foreign employer. File 2012 taxes free U. File 2012 taxes free S. File 2012 taxes free citizen. File 2012 taxes free   If you are a U. File 2012 taxes free S. File 2012 taxes free citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. File 2012 taxes free Social security and Medicare taxes. File 2012 taxes free   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. File 2012 taxes free However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. File 2012 taxes free This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. File 2012 taxes free Employees of international organizations or foreign governments. File 2012 taxes free   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). File 2012 taxes free   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. File 2012 taxes free You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). File 2012 taxes free Your work is like the work done by employees of the United States in foreign countries. File 2012 taxes free The foreign government gives an equal exemption to employees of the United States in its country. File 2012 taxes free Waiver of alien status. File 2012 taxes free   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. File 2012 taxes free See Foreign Employer in Publication 525. File 2012 taxes free Employment abroad. File 2012 taxes free   For information on the tax treatment of income earned abroad, see Publication 54. File 2012 taxes free Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. File 2012 taxes free Allowances generally are not taxed. File 2012 taxes free For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. File 2012 taxes free Differential wage payments. File 2012 taxes free   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. File 2012 taxes free These wages are subject to income tax withholding and are reported on a Form W-2. File 2012 taxes free See the discussion under Miscellaneous Compensation , earlier. File 2012 taxes free Military retirement pay. File 2012 taxes free   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. File 2012 taxes free Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. File 2012 taxes free   For more detailed discussion of survivor annuities, see chapter 10. File 2012 taxes free Disability. File 2012 taxes free   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. File 2012 taxes free Veterans' benefits. File 2012 taxes free   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). File 2012 taxes free The following amounts paid to veterans or their families are not taxable. File 2012 taxes free Education, training, and subsistence allowances. File 2012 taxes free Disability compensation and pension payments for disabilities paid either to veterans or their families. File 2012 taxes free Grants for homes designed for wheelchair living. File 2012 taxes free Grants for motor vehicles for veterans who lost their sight or the use of their limbs. File 2012 taxes free Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. File 2012 taxes free Interest on insurance dividends you leave on deposit with the VA. File 2012 taxes free Benefits under a dependent-care assistance program. File 2012 taxes free The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. File 2012 taxes free Payments made under the compensated work therapy program. File 2012 taxes free Any bonus payment by a state or political subdivision because of service in a combat zone. File 2012 taxes free Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. File 2012 taxes free Peace Corps. File 2012 taxes free   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. File 2012 taxes free Taxable allowances. File 2012 taxes free   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. File 2012 taxes free Living allowances designated by the Director of the Peace Corps as basic compensation. File 2012 taxes free These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. File 2012 taxes free Leave allowances. File 2012 taxes free Readjustment allowances or termination payments. File 2012 taxes free These are considered received by you when credited to your account. File 2012 taxes free Example. File 2012 taxes free Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. File 2012 taxes free Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. File 2012 taxes free Volunteers in Service to America (VISTA). File 2012 taxes free   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. File 2012 taxes free National Senior Services Corps programs. File 2012 taxes free   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. File 2012 taxes free Retired Senior Volunteer Program (RSVP). File 2012 taxes free Foster Grandparent Program. File 2012 taxes free Senior Companion Program. File 2012 taxes free Service Corps of Retired Executives (SCORE). File 2012 taxes free   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. File 2012 taxes free Volunteer tax counseling. File 2012 taxes free   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). File 2012 taxes free   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. File 2012 taxes free See chapter 24. File 2012 taxes free Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. File 2012 taxes free In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. File 2012 taxes free If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. File 2012 taxes free However, certain payments may not be taxable to you. File 2012 taxes free Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. File 2012 taxes free In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. File 2012 taxes free Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. File 2012 taxes free Cost paid by you. File 2012 taxes free   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. File 2012 taxes free If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. File 2012 taxes free See Reimbursement in a later year in chapter 21. File 2012 taxes free Cafeteria plans. File 2012 taxes free   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. File 2012 taxes free If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. File 2012 taxes free Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. File 2012 taxes free You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. File 2012 taxes free Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. File 2012 taxes free You may be entitled to a tax credit if you were permanently and totally disabled when you retired. File 2012 taxes free For information on this credit and the definition of permanent and total disability, see chapter 33. File 2012 taxes free Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. File 2012 taxes free Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. File 2012 taxes free The rules for reporting pensions are explained in How To Report in chapter 10. File 2012 taxes free For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. File 2012 taxes free Retirement and profit-sharing plans. File 2012 taxes free   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. File 2012 taxes free The payments must be reported as a pension or annuity. File 2012 taxes free For more information on pensions, see chapter 10. File 2012 taxes free Accrued leave payment. File 2012 taxes free   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. File 2012 taxes free The payment is not a disability payment. File 2012 taxes free Include it in your income in the tax year you receive it. File 2012 taxes free Military and Government Disability Pensions Certain military and government disability pensions are not taxable. File 2012 taxes free Service-connected disability. File 2012 taxes free   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. File 2012 taxes free The armed forces of any country. File 2012 taxes free The National Oceanic and Atmospheric Administration. File 2012 taxes free The Public Health Service. File 2012 taxes free The Foreign Service. File 2012 taxes free Conditions for exclusion. File 2012 taxes free   Do not include the disability payments in your income if any of the following conditions apply. File 2012 taxes free You were entitled to receive a disability payment before September 25, 1975. File 2012 taxes free You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. File 2012 taxes free You receive the disability payments for a combat-related injury. File 2012 taxes free This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. File 2012 taxes free You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. File 2012 taxes free Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. File 2012 taxes free Pension based on years of service. File 2012 taxes free   If you receive a disability pension based on years of service, in most cases you must include it in your income. File 2012 taxes free However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. File 2012 taxes free You must include the rest of your pension in your income. File 2012 taxes free Retroactive VA determination. File 2012 taxes free   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. File 2012 taxes free You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. File 2012 taxes free You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. File 2012 taxes free The letter must show the amount withheld and the effective date of the benefit. File 2012 taxes free   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. File 2012 taxes free However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. File 2012 taxes free Special statute of limitations. File 2012 taxes free   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. File 2012 taxes free However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. File 2012 taxes free This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. File 2012 taxes free Example. File 2012 taxes free You retired in 2007 and receive a pension based on your years of service. File 2012 taxes free On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. File 2012 taxes free Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. File 2012 taxes free However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. File 2012 taxes free You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. File 2012 taxes free Terrorist attack or military action. File 2012 taxes free   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. File 2012 taxes free Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. File 2012 taxes free Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. File 2012 taxes free To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. File 2012 taxes free A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. File 2012 taxes free The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. File 2012 taxes free Qualified long-term care services. File 2012 taxes free   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. File 2012 taxes free Chronically ill individual. File 2012 taxes free   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. File 2012 taxes free Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. File 2012 taxes free An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. File 2012 taxes free Limit on exclusion. File 2012 taxes free   You generally can exclude from gross income up to $320 a day for 2013. File 2012 taxes free See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. File 2012 taxes free Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. File 2012 taxes free The exemption also applies to your survivors. File 2012 taxes free The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. File 2012 taxes free If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. File 2012 taxes free For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. File 2012 taxes free Return to work. File 2012 taxes free    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. File 2012 taxes free Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. File 2012 taxes free Railroad sick pay. File 2012 taxes free    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. File 2012 taxes free However, do not include them in your income if they are for an on-the-job injury. File 2012 taxes free   If you received income because of a disability, see Disability Pensions , earlier. File 2012 taxes free Federal Employees' Compensation Act (FECA). File 2012 taxes free   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. File 2012 taxes free However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. File 2012 taxes free Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. File 2012 taxes free Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. File 2012 taxes free    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. File 2012 taxes free For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. File 2012 taxes free    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. File 2012 taxes free It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). File 2012 taxes free If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. File 2012 taxes free Do not deduct it separately. File 2012 taxes free Other compensation. File 2012 taxes free   Many other amounts you receive as compensation for sickness or injury are not taxable. File 2012 taxes free These include the following amounts. File 2012 taxes free Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. File 2012 taxes free Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. File 2012 taxes free Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. File 2012 taxes free Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. File 2012 taxes free This compensation must be based only on the injury and not on the period of your absence from work. File 2012 taxes free These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. File 2012 taxes free Reimbursement for medical care. File 2012 taxes free    A reimbursement for medical care is generally not taxable. File 2012 taxes free However, it may reduce your medical expense deduction. File 2012 taxes free For more information, see chapter 21. File 2012 taxes free Prev  Up  Next   Home   More Online Publications
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The File 2012 Taxes Free

File 2012 taxes free Publication 15-A - Main Content Table of Contents 1. File 2012 taxes free Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. File 2012 taxes free Employee or Independent Contractor?Common-Law Rules Industry Examples 3. File 2012 taxes free Employees of Exempt OrganizationsSocial security and Medicare taxes. File 2012 taxes free FUTA tax. File 2012 taxes free 4. File 2012 taxes free Religious Exemptions and Special Rules for MinistersForm W-2. File 2012 taxes free Self-employed. File 2012 taxes free Employees. File 2012 taxes free 5. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. File 2012 taxes free Pensions and AnnuitiesFederal Income Tax Withholding 9. File 2012 taxes free Alternative Methods for Figuring WithholdingTerm of continuous employment. File 2012 taxes free 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. File 2012 taxes free Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. File 2012 taxes free 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. File 2012 taxes free The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. File 2012 taxes free This discussion explains these four categories. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free However, in some cases you may be required to withhold under the backup withholding requirements on these payments. File 2012 taxes free See Publication 15 (Circular E) for information on backup withholding. File 2012 taxes free 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. File 2012 taxes free However, whether such people are employees or independent contractors depends on the facts in each case. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free This is so even when you give the employee freedom of action. File 2012 taxes free What matters is that you have the right to control the details of how the services are performed. File 2012 taxes free For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. File 2012 taxes free If you have an employer-employee relationship, it makes no difference how it is labeled. File 2012 taxes free The substance of the relationship, not the label, governs the worker's status. File 2012 taxes free It does not matter whether the individual is employed full time or part time. File 2012 taxes free For employment tax purposes, no distinction is made between classes of employees. File 2012 taxes free Superintendents, managers, and other supervisory personnel are all employees. File 2012 taxes free 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. File 2012 taxes free A director of a corporation is not an employee with respect to services performed as a director. File 2012 taxes free You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. File 2012 taxes free However, the wages of certain employees may be exempt from one or more of these taxes. File 2012 taxes free See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). File 2012 taxes free Leased employees. File 2012 taxes free   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. File 2012 taxes free 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. File 2012 taxes free   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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. File 2012 taxes free Additional information. File 2012 taxes free   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. File 2012 taxes free 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. File 2012 taxes free 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 . File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. File 2012 taxes free The work performed for you must be the salesperson's principal business activity. File 2012 taxes free See Salesperson in section 2. File 2012 taxes free Social security and Medicare taxes. File 2012 taxes free   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. File 2012 taxes free The service contract states or implies that substantially all the services are to be performed personally by them. File 2012 taxes free 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). File 2012 taxes free The services are performed on a continuing basis for the same payer. File 2012 taxes free Federal unemployment (FUTA) tax. File 2012 taxes free   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. File 2012 taxes free 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. File 2012 taxes free Income tax. File 2012 taxes free   Do not withhold federal income tax from the wages of statutory employees. File 2012 taxes free Reporting payments to statutory employees. File 2012 taxes free   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. File 2012 taxes free Show your payments to the employee as “other compensation” in box 1. File 2012 taxes free 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. File 2012 taxes free The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free H-2A agricultural workers. File 2012 taxes free   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. File 2012 taxes free Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. File 2012 taxes free 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. File 2012 taxes free Direct sellers. File 2012 taxes free   Direct sellers include persons falling within any of the following three groups. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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). File 2012 taxes free   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. File 2012 taxes free Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. File 2012 taxes free Licensed real estate agents. File 2012 taxes free   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. File 2012 taxes free Companion sitters. File 2012 taxes free   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. File 2012 taxes free 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. File 2012 taxes free Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. File 2012 taxes free Misclassification of Employees Consequences of treating an employee as an independent contractor. File 2012 taxes free   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. File 2012 taxes free See section 2 in Publication 15 (Circular E) for more information. File 2012 taxes free Relief provision. File 2012 taxes free   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. File 2012 taxes free To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. File 2012 taxes free You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. File 2012 taxes free Technical service specialists. File 2012 taxes free   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. File 2012 taxes free 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. File 2012 taxes free   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. File 2012 taxes free The common-law rules control whether the specialist is treated as an employee or an independent contractor. File 2012 taxes free 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. File 2012 taxes free Test proctors and room supervisors. File 2012 taxes free   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. File 2012 taxes free Voluntary Classification Settlement Program (VCSP). File 2012 taxes free   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. File 2012 taxes free To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). File 2012 taxes free For more information, visit IRS. File 2012 taxes free gov and enter “VCSP” in the search box. File 2012 taxes free 2. File 2012 taxes free 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. File 2012 taxes free An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. File 2012 taxes free 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. File 2012 taxes free In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. File 2012 taxes free 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. File 2012 taxes free These facts are discussed next. File 2012 taxes free Behavioral control. File 2012 taxes free   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. File 2012 taxes free   An employee is generally subject to the business' instructions about when, where, and how to work. File 2012 taxes free All of the following are examples of types of instructions about how to do work. File 2012 taxes free When and where to do the work. File 2012 taxes free What tools or equipment to use. File 2012 taxes free What workers to hire or to assist with the work. File 2012 taxes free Where to purchase supplies and services. File 2012 taxes free What work must be performed by a specified  individual. File 2012 taxes free What order or sequence to follow. File 2012 taxes free   The amount of instruction needed varies among different jobs. File 2012 taxes free 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. File 2012 taxes free A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. File 2012 taxes free 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. File 2012 taxes free Training that the business gives to the worker. File 2012 taxes free   An employee may be trained to perform services in a particular manner. File 2012 taxes free Independent contractors ordinarily use their own methods. File 2012 taxes free Financial control. File 2012 taxes free   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. File 2012 taxes free   Independent contractors are more likely to have unreimbursed expenses than are employees. File 2012 taxes free Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. File 2012 taxes free However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. File 2012 taxes free The extent of the worker's investment. File 2012 taxes free   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. File 2012 taxes free However, a significant investment is not necessary for independent contractor status. File 2012 taxes free The extent to which the worker makes his or her services available to the relevant market. File 2012 taxes free   An independent contractor is generally free to seek out business opportunities. File 2012 taxes free Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. File 2012 taxes free How the business pays the worker. File 2012 taxes free   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. File 2012 taxes free This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. File 2012 taxes free An independent contractor is often paid a flat fee or on a time and materials basis for the job. File 2012 taxes free However, it is common in some professions, such as law, to pay independent contractors hourly. File 2012 taxes free The extent to which the worker can realize a profit or loss. File 2012 taxes free   An independent contractor can make a profit or loss. File 2012 taxes free Type of relationship. File 2012 taxes free   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. File 2012 taxes free Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. File 2012 taxes free The permanency of the relationship. File 2012 taxes free 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. File 2012 taxes free The extent to which services performed by the worker are a key aspect of the regular business of the company. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free This would indicate an employer-employee relationship. File 2012 taxes free IRS help. File 2012 taxes free   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. File 2012 taxes free Industry Examples The following examples may help you properly classify your workers. File 2012 taxes free Building and Construction Industry Example 1. File 2012 taxes free Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. File 2012 taxes free She did not advance funds to help him carry on the work. File 2012 taxes free She makes direct payments to the suppliers for all necessary materials. File 2012 taxes free She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. File 2012 taxes free She pays them an hourly rate and exercises almost constant supervision over the work. File 2012 taxes free Jerry is not free to transfer his assistants to other jobs. File 2012 taxes free He may not work on other jobs while working for Wilma. File 2012 taxes free He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. File 2012 taxes free He and his assistants perform personal services for hourly wages. File 2012 taxes free Jerry Jones and his assistants are employees of Wilma White. File 2012 taxes free Example 2. File 2012 taxes free Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. File 2012 taxes free He uses his own tools and performs services in the order designated by the corporation and according to its specifications. File 2012 taxes free The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. File 2012 taxes free He does not have a place of business or hold himself out to perform similar services for others. File 2012 taxes free Either party can end the services at any time. File 2012 taxes free Milton Manning is an employee of the corporation. File 2012 taxes free Example 3. File 2012 taxes free Wallace Black agreed with the Sawdust Co. File 2012 taxes free to supply the construction labor for a group of houses. File 2012 taxes free The company agreed to pay all construction costs. File 2012 taxes free However, he supplies all the tools and equipment. File 2012 taxes free He performs personal services as a carpenter and mechanic for an hourly wage. File 2012 taxes free He also acts as superintendent and foreman and engages other individuals to assist him. File 2012 taxes free The company has the right to select, approve, or discharge any helper. File 2012 taxes free A company representative makes frequent inspections of the construction site. File 2012 taxes free When a house is finished, Wallace is paid a certain percentage of its costs. File 2012 taxes free He is not responsible for faults, defects of construction, or wasteful operation. File 2012 taxes free At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. File 2012 taxes free The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. File 2012 taxes free Wallace Black and his assistants are employees of the Sawdust Co. File 2012 taxes free Example 4. File 2012 taxes free Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. File 2012 taxes free A signed contract established a flat amount for the services rendered by Bill Plum. File 2012 taxes free Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. File 2012 taxes free He hires his own roofers who are treated as employees for federal employment tax purposes. File 2012 taxes free If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. File 2012 taxes free Bill Plum, doing business as Plum Roofing, is an independent contractor. File 2012 taxes free Example 5. File 2012 taxes free Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. File 2012 taxes free She is to receive $1,280 every 2 weeks for the next 10 weeks. File 2012 taxes free This is not considered payment by the hour. File 2012 taxes free Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. File 2012 taxes free She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. File 2012 taxes free Vera is an independent contractor. File 2012 taxes free Trucking Industry Example. File 2012 taxes free Rose Trucking contracts to deliver material for Forest, Inc. File 2012 taxes free , at $140 per ton. File 2012 taxes free Rose Trucking is not paid for any articles that are not delivered. File 2012 taxes free At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. File 2012 taxes free All operating expenses, including insurance coverage, are paid by Jan Rose. File 2012 taxes free All equipment is owned or rented by Jan and she is responsible for all maintenance. File 2012 taxes free None of the drivers are provided by Forest, Inc. File 2012 taxes free Jan Rose, operating as Rose Trucking, is an independent contractor. File 2012 taxes free Computer Industry Example. File 2012 taxes free Steve Smith, a computer programmer, is laid off when Megabyte, Inc. File 2012 taxes free , downsizes. File 2012 taxes free Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. File 2012 taxes free 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. File 2012 taxes free Megabyte provides Steve with no instructions beyond the specifications for the product itself. File 2012 taxes free 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. File 2012 taxes free Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. File 2012 taxes free Steve works at home and is not expected or allowed to attend meetings of the software development group. File 2012 taxes free Steve is an independent contractor. File 2012 taxes free Automobile Industry Example 1. File 2012 taxes free Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. File 2012 taxes free She works six days a week and is on duty in Bob's showroom on certain assigned days and times. File 2012 taxes free She appraises trade-ins, but her appraisals are subject to the sales manager's approval. File 2012 taxes free Lists of prospective customers belong to the dealer. File 2012 taxes free She is required to develop leads and report results to the sales manager. File 2012 taxes free Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. File 2012 taxes free She is paid a commission and is eligible for prizes and bonuses offered by Bob. File 2012 taxes free Bob also pays the cost of health insurance and group-term life insurance for Donna. File 2012 taxes free Donna is an employee of Bob Blue. File 2012 taxes free Example 2. File 2012 taxes free Sam Sparks performs auto repair services in the repair department of an auto sales company. File 2012 taxes free He works regular hours and is paid on a percentage basis. File 2012 taxes free He has no investment in the repair department. File 2012 taxes free 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. File 2012 taxes free Sam is an employee of the sales company. File 2012 taxes free Example 3. File 2012 taxes free An auto sales agency furnishes space for Helen Bach to perform auto repair services. File 2012 taxes free She provides her own tools, equipment, and supplies. File 2012 taxes free She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. File 2012 taxes free 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. File 2012 taxes free Helen is an independent contractor and the helpers are her employees. File 2012 taxes free Attorney Example. File 2012 taxes free 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. File 2012 taxes free Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. File 2012 taxes free Donna has a part-time receptionist who also does the bookkeeping. File 2012 taxes free She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. File 2012 taxes free For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. File 2012 taxes free Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. File 2012 taxes free 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. File 2012 taxes free Donna is an independent contractor. File 2012 taxes free Taxicab Driver Example. File 2012 taxes free Tom Spruce rents a cab from Taft Cab Co. File 2012 taxes free for $150 per day. File 2012 taxes free He pays the costs of maintaining and operating the cab. File 2012 taxes free Tom Spruce keeps all fares that he receives from customers. File 2012 taxes free Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. File 2012 taxes free Tom Spruce is an independent contractor. File 2012 taxes free Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. File 2012 taxes free 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). File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 3. File 2012 taxes free Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. File 2012 taxes free Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. File 2012 taxes free However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. File 2012 taxes free Section 501(c)(3) organizations. File 2012 taxes free   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. File 2012 taxes free These organizations are usually corporations and are exempt from federal income tax under section 501(a). File 2012 taxes free Social security and Medicare taxes. File 2012 taxes free   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. File 2012 taxes free The organization pays an employee less than $100 in a calendar year. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free   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. File 2012 taxes free 28 or more in a year. File 2012 taxes free 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. File 2012 taxes free See Members of recognized religious sects opposed to insurance in section 4. File 2012 taxes free FUTA tax. File 2012 taxes free   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. File 2012 taxes free This exemption cannot be waived. File 2012 taxes free Do not file Form 940 to report wages paid by these organizations or pay the tax. File 2012 taxes free Note. File 2012 taxes free 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. File 2012 taxes free Other than section 501(c)(3) organizations. File 2012 taxes free   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. File 2012 taxes free However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. File 2012 taxes free Two special rules for social security, Medicare, and FUTA taxes apply. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). File 2012 taxes free 4. File 2012 taxes free Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. File 2012 taxes free An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. File 2012 taxes free For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. File 2012 taxes free Ministers. File 2012 taxes free   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. File 2012 taxes free 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. File 2012 taxes free   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free For more information, see Publication 517. File 2012 taxes free Form W-2. File 2012 taxes free   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. File 2012 taxes free Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). File 2012 taxes free Do not include a parsonage allowance (excludable housing allowance) in this amount. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free For more information on ministers, see Publication 517. File 2012 taxes free Exemptions for ministers and others. File 2012 taxes free   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. File 2012 taxes free 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. File 2012 taxes free The exemption applies only to qualified services performed for the religious organization. File 2012 taxes free See Revenue Procedure 91-20, 1991-1 C. File 2012 taxes free B. File 2012 taxes free 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. File 2012 taxes free   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. File 2012 taxes free See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. File 2012 taxes free Members of recognized religious sects opposed to insurance. File 2012 taxes free   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. File 2012 taxes free 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). File 2012 taxes free If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. File 2012 taxes free Religious opposition based on the teachings of the sect is the only legal basis for the exemption. File 2012 taxes free In addition, your religious sect (or division) must have existed since December 31, 1950. File 2012 taxes free Self-employed. File 2012 taxes free   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. File 2012 taxes free Employees. File 2012 taxes free   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. File 2012 taxes free This applies to partnerships only if each partner is a member of the sect. File 2012 taxes free 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. File 2012 taxes free To get the exemption, the employee must file Form 4029. File 2012 taxes free   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. File 2012 taxes free 5. File 2012 taxes free Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. File 2012 taxes free Publication 15-B discusses fringe benefits. File 2012 taxes free The following topics supplement those discussions. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. File 2012 taxes free These rules generally apply to temporary work assignments both inside and outside the U. File 2012 taxes free S. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free Excludable employee achievement awards also are not subject to FUTA tax. File 2012 taxes free Limits. File 2012 taxes free   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. File 2012 taxes free A higher limit of $1,600 applies to qualified plan awards. File 2012 taxes free Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. File 2012 taxes free 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. File 2012 taxes free   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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free These amounts are reportable on Form W-2. File 2012 taxes free 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. File 2012 taxes free Any amounts that you pay for room and board are not excludable from the recipient's gross income. File 2012 taxes free A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. File 2012 taxes free For more information, see Publication 970, Tax Benefits for Education. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. File 2012 taxes free 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. File 2012 taxes free It does not matter whether the separation is temporary or permanent. File 2012 taxes free 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. File 2012 taxes free To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. File 2012 taxes free Benefits are paid only to unemployed former employees who are laid off by the employer. File 2012 taxes free Eligibility for benefits depends on meeting prescribed conditions after termination. File 2012 taxes free 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. File 2012 taxes free The right to benefits does not accrue until a prescribed period after termination. File 2012 taxes free Benefits are not attributable to the performance of particular services. File 2012 taxes free No employee has any right to the benefits until qualified and eligible to receive benefits. File 2012 taxes free Benefits may not be paid in a lump sum. File 2012 taxes free Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. File 2012 taxes free Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. File 2012 taxes free 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. File 2012 taxes free Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. File 2012 taxes free See Regulations section 1. File 2012 taxes free 280G-1 for more information. File 2012 taxes free No deduction is allowed to the corporation for any excess parachute payment. File 2012 taxes free To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. File 2012 taxes free A parachute payment for purposes of section 280G is any payment that meets all of the following. File 2012 taxes free The payment is in the nature of compensation. File 2012 taxes free The payment is to, or for the benefit of, a disqualified individual. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free The payment has an aggregate present value of at least three times the individual's base amount. File 2012 taxes free The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. File 2012 taxes free An excess parachute payment amount is the excess of any parachute payment over the base amount. File 2012 taxes free For more information, see Regulations section 1. File 2012 taxes free 280G-1. File 2012 taxes free The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. File 2012 taxes free If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. File 2012 taxes free Example. File 2012 taxes free An officer of a corporation receives a golden parachute payment of $400,000. File 2012 taxes free This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. File 2012 taxes free The excess parachute payment is $300,000 ($400,000 minus $100,000). File 2012 taxes free The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). File 2012 taxes free Reporting golden parachute payments. File 2012 taxes free   Golden parachute payments to employees must be reported on Form W-2. File 2012 taxes free See the General Instructions for Forms W-2 and W-3 for details. File 2012 taxes free For nonemployee reporting of these payments, see Box 7. File 2012 taxes free Nonemployee Compensation in the Instructions for Form 1099-MISC. File 2012 taxes free Exempt payments. File 2012 taxes free   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. File 2012 taxes free See section 280G(b)(5) and (6) for more information. File 2012 taxes free 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. File 2012 taxes free This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. File 2012 taxes free This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. File 2012 taxes free Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). File 2012 taxes free The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. File 2012 taxes free You can get these rates by calling 1-800-829-4933 or by visiting IRS. File 2012 taxes free gov. File 2012 taxes free For more information, see section 7872 and its related regulations. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free Do not include these amounts in the income of the transferors. File 2012 taxes free These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. File 2012 taxes free 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. File 2012 taxes free Specific rules for reporting are provided in the instructions to the forms. File 2012 taxes free The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. File 2012 taxes free 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. File 2012 taxes free For more information about nonqualified deferred compensation plans, see Regulations sections 1. File 2012 taxes free 409A-1 through 1. File 2012 taxes free 409A-6. File 2012 taxes free Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. File 2012 taxes free Notice 2008-113, 2008-51 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 1305, is available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2008-51_IRB/ar12. File 2012 taxes free html. File 2012 taxes free Also see Notice 2010-6, 2010-3 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 275, available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2010-03_IRB/ar08. File 2012 taxes free html and Notice 2010-80, 2010-51 I. File 2012 taxes free R. File 2012 taxes free B. File 2012 taxes free 853, available at www. File 2012 taxes free irs. File 2012 taxes free gov/irb/2010-51_IRB/ar08. File 2012 taxes free html. File 2012 taxes free Social security, Medicare, and FUTA taxes. File 2012 taxes free   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. File 2012 taxes free   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. File 2012 taxes free 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. File 2012 taxes free You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. File 2012 taxes free 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. File 2012 taxes free For more information, see Regulations sections 31. File 2012 taxes free 3121(v)(2)-1 and 31. File 2012 taxes free 3306(r)(2)-1. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free See Regulations section 31. File 2012 taxes free 3121(a)(5)-2 for the definition of a salary reduction agreement. File 2012 taxes free 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. File 2012 taxes free These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. File 2012 taxes free However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. File 2012 taxes free See Publication 560 for more information about SEPs. File 2012 taxes free Salary reduction simplified employee pensions (SARSEP) repealed. File 2012 taxes free   You may not establish a SARSEP after 1996. File 2012 taxes free However, SARSEPs established before January 1, 1997, may continue to receive contributions. File 2012 taxes free 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. File 2012 taxes free An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. File 2012 taxes free However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. File 2012 taxes free For more information about SIMPLE retirement plans, see Publication 560. File 2012 taxes free 6. File 2012 taxes free Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. File 2012 taxes free Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. File 2012 taxes free gov in December 2014. File 2012 taxes free Special rules apply to the reporting of sick pay payments to employees. File 2012 taxes free How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. File 2012 taxes free Sick pay is usually subject to social security, Medicare, and FUTA taxes. File 2012 taxes free For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. File 2012 taxes free Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. File 2012 taxes free 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. File 2012 taxes free It may be paid by either the employer or a third party, such as an insurance company. File 2012 taxes free Sick pay includes both short- and long-term benefits. File 2012 taxes free It is often expressed as a percentage of the employee's regular wages. File 2012 taxes free Payments That Are Not Sick Pay Sick pay does not include the following payments. File 2012 taxes free Disability retirement payments. File 2012 taxes free Disability retirement payments are not sick pay and are not discussed in this section. File 2012 taxes free Those payments are subject to the rules for federal income tax withholding from pensions and annuities. File 2012 taxes free See section 8. File 2012 taxes free Workers' compensation. File 2012 taxes free 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. File 2012 taxes free But see Payments in the nature of workers' compensation—public employees next. File 2012 taxes free Payments in the nature of workers' compensation—public employees. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. File 2012 taxes free For more information, see Regulations section 31. File 2012 taxes free 3121(a)(2)-1. File 2012 taxes free Medical expense payments. File 2012 taxes free 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. File 2012 taxes free Payments unrelated to absence from work. File 2012 taxes free Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. File 2012 taxes free 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. File 2012 taxes free Example. File 2012 taxes free Donald was injured in a car accident and lost an eye. File 2012 taxes free Under a policy paid for by Donald's employer, Delta Insurance Co. File 2012 taxes free paid Donald $20,000 as compensation for the loss of his eye. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free Definition of employer. File 2012 taxes free   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. File 2012 taxes free Note. File 2012 taxes free 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). File 2012 taxes free Third-Party Payers of Sick Pay Employer's agent. File 2012 taxes free   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. File 2012 taxes free A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. File 2012 taxes free For example, if a third party provides administrative services only, the third party is your agent. File 2012 taxes free 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. File 2012 taxes free Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. File 2012 taxes free   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. File 2012 taxes free This responsibility remains with you. File 2012 taxes free However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. File 2012 taxes free 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. File 2012 taxes free Third party not employer's agent. File 2012 taxes free   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. File 2012 taxes free   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. File 2012 taxes free This liability is transferred if the third party takes the following steps. File 2012 taxes free Withholds the employee social security and Medicare taxes from the sick pay payments. File 2012 taxes free Makes timely deposits of the employee social security and Medicare taxes. File 2012 taxes free Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free 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. File 2012 taxes free For multi-employer plans, see the special rule discussed next. File 2012 taxes free Multi-employer plan timing rule. File 2012 taxes free   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. File 2012 taxes free If the third-party insurer making the payments complies wi