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Firstgov gov 1. Firstgov gov   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. Firstgov gov At-risk limits. Firstgov gov Passive activities. Firstgov gov Net operating loss. Firstgov gov When Can I Deduct an Expense?Economic performance. Firstgov gov Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. Firstgov gov  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. Firstgov gov See Optional safe harbor method under Business use of your home , later. Firstgov gov Introduction This chapter covers the general rules for deducting business expenses. Firstgov gov Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. Firstgov gov Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. Firstgov gov What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. Firstgov gov An ordinary expense is one that is common and accepted in your industry. Firstgov gov A necessary expense is one that is helpful and appropriate for your trade or business. Firstgov gov An expense does not have to be indispensable to be considered necessary. Firstgov gov Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. Firstgov gov In some cases you may not be allowed to deduct the expense at all. Firstgov gov Therefore, it is important to distinguish usual business expenses from expenses that include the following. Firstgov gov The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. Firstgov gov Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Firstgov gov Some of your business expenses may be included in figuring cost of goods sold. Firstgov gov Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. Firstgov gov If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. Firstgov gov The following are types of expenses that go into figuring cost of goods sold. Firstgov gov The cost of products or raw materials, including freight. Firstgov gov Storage. Firstgov gov Direct labor (including contributions to pension or annuity plans) for workers who produce the products. Firstgov gov Factory overhead. Firstgov gov Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Firstgov gov Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. Firstgov gov This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. Firstgov gov For more information, see the following sources. Firstgov gov Cost of goods sold—chapter 6 of Publication 334. Firstgov gov Inventories—Publication 538. Firstgov gov Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. Firstgov gov Capital Expenses You must capitalize, rather than deduct, some costs. Firstgov gov These costs are a part of your investment in your business and are called “capital expenses. Firstgov gov ” Capital expenses are considered assets in your business. Firstgov gov In general, you capitalize three types of costs. Firstgov gov Business start-up costs (See Tip below). Firstgov gov Business assets. Firstgov gov Improvements. Firstgov gov You can elect to deduct or amortize certain business start-up costs. Firstgov gov See chapters 7 and 8. Firstgov gov Cost recovery. Firstgov gov   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. Firstgov gov These recovery methods allow you to deduct part of your cost each year. Firstgov gov In this way, you are able to recover your capital expense. Firstgov gov See Amortization (chapter 8) and Depletion (chapter 9) in this publication. Firstgov gov A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. Firstgov gov A greater portion of these costs can be deducted if the property is qualified disaster assistance property. Firstgov gov See Publication 946 for details. Firstgov gov Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. Firstgov gov These costs may include expenses for advertising, travel, or wages for training employees. Firstgov gov If you go into business. Firstgov gov   When you go into business, treat all costs you had to get your business started as capital expenses. Firstgov gov   Usually you recover costs for a particular asset through depreciation. Firstgov gov Generally, you cannot recover other costs until you sell the business or otherwise go out of business. Firstgov gov However, you can choose to amortize certain costs for setting up your business. Firstgov gov See Starting a Business in chapter 8 for more information on business start-up costs. Firstgov gov If your attempt to go into business is unsuccessful. Firstgov gov   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. Firstgov gov The costs you had before making a decision to acquire or begin a specific business. Firstgov gov These costs are personal and nondeductible. Firstgov gov They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. Firstgov gov The costs you had in your attempt to acquire or begin a specific business. Firstgov gov These costs are capital expenses and you can deduct them as a capital loss. Firstgov gov   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. Firstgov gov   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. Firstgov gov You cannot take a deduction for these costs. Firstgov gov You will recover the costs of these assets when you dispose of them. Firstgov gov Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. Firstgov gov You must fully capitalize the cost of these assets, including freight and installation charges. Firstgov gov Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. Firstgov gov See Regulations section 1. Firstgov gov 263A-2 for information on these rules. Firstgov gov Improvements Improvements are generally major expenditures. Firstgov gov Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. Firstgov gov The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. Firstgov gov Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. Firstgov gov Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. Firstgov gov However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Firstgov gov Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. Firstgov gov Restoration plan. Firstgov gov   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. Firstgov gov This applies even if some of the work would by itself be classified as repairs. Firstgov gov Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. Firstgov gov Motor vehicles. Firstgov gov   You usually capitalize the cost of a motor vehicle you use in your business. Firstgov gov You can recover its cost through annual deductions for depreciation. Firstgov gov   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. Firstgov gov See Publication 463. Firstgov gov   Generally, repairs you make to your business vehicle are currently deductible. Firstgov gov However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. Firstgov gov Roads and driveways. Firstgov gov    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. Firstgov gov The cost of maintaining a private road on your business property is a deductible expense. Firstgov gov Tools. Firstgov gov   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. Firstgov gov Machinery parts. Firstgov gov   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. Firstgov gov Heating equipment. Firstgov gov   The cost of changing from one heating system to another is a capital expense. Firstgov gov Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. Firstgov gov However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. Firstgov gov You can deduct the business part. Firstgov gov For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. Firstgov gov The remaining 30% is personal interest and generally is not deductible. Firstgov gov See chapter 4 for information on deducting interest and the allocation rules. Firstgov gov Business use of your home. Firstgov gov   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. Firstgov gov These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Firstgov gov   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. Firstgov gov The business part of your home must be used exclusively and regularly for your trade or business. Firstgov gov The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. Firstgov gov   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. Firstgov gov   Your home office qualifies as your principal place of business if you meet the following requirements. Firstgov gov You use the office exclusively and regularly for administrative or management activities of your trade or business. Firstgov gov You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Firstgov gov   If you have more than one business location, determine your principal place of business based on the following factors. Firstgov gov The relative importance of the activities performed at each location. Firstgov gov If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Firstgov gov Optional safe harbor method. Firstgov gov   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. Firstgov gov This method is an alternative to the calculation, allocation, and substantiation of actual expenses. Firstgov gov   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. Firstgov gov Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). Firstgov gov You are not required to allocate these deductions between personal and business use, as is required under the regular method. Firstgov gov If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. Firstgov gov   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. Firstgov gov All of the requirements discussed earlier under Business use of your home still apply. Firstgov gov   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. Firstgov gov    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. Firstgov gov Business use of your car. Firstgov gov   If you use your car exclusively in your business, you can deduct car expenses. Firstgov gov If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Firstgov gov Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. Firstgov gov   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Firstgov gov Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. Firstgov gov Beginning in 2013, the standard mileage rate is 56. Firstgov gov 5 cents per mile. Firstgov gov   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. Firstgov gov   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. Firstgov gov How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. Firstgov gov Recovery of amount deducted (tax benefit rule). Firstgov gov   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. Firstgov gov If you have a recovery in a later year, include the recovered amount in income in that year. Firstgov gov However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. Firstgov gov   For more information on recoveries and the tax benefit rule, see Publication 525. Firstgov gov Payments in kind. Firstgov gov   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. Firstgov gov You cannot deduct the cost of your own labor. Firstgov gov   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. Firstgov gov If these costs are included in the cost of goods sold, do not deduct them again as a business expense. Firstgov gov Limits on losses. Firstgov gov   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. Firstgov gov There may be limits on how much of the loss you can deduct. Firstgov gov Not-for-profit limits. Firstgov gov   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. Firstgov gov See Not-for-Profit Activities , later. Firstgov gov At-risk limits. Firstgov gov   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. Firstgov gov You are at risk in any activity for the following. Firstgov gov The money and adjusted basis of property you contribute to the activity. Firstgov gov Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Firstgov gov For more information, see Publication 925. Firstgov gov Passive activities. Firstgov gov   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. Firstgov gov In general, deductions for losses from passive activities only offset income from passive activities. Firstgov gov You cannot use any excess deductions to offset other income. Firstgov gov In addition, passive activity credits can only offset the tax on net passive income. Firstgov gov Any excess loss or credits are carried over to later years. Firstgov gov Suspended passive losses are fully deductible in the year you completely dispose of the activity. Firstgov gov For more information, see Publication 925. Firstgov gov Net operating loss. Firstgov gov   If your deductions are more than your income for the year, you may have a “net operating loss. Firstgov gov ” You can use a net operating loss to lower your taxes in other years. Firstgov gov See Publication 536 for more information. Firstgov gov   See Publication 542 for information about net operating losses of corporations. Firstgov gov When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. Firstgov gov An accounting method is a set of rules used to determine when and how income and expenses are reported. Firstgov gov The two basic methods are the cash method and the accrual method. Firstgov gov Whichever method you choose must clearly reflect income. Firstgov gov For more information on accounting methods, see Publication 538. Firstgov gov Cash method. Firstgov gov   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. Firstgov gov Accrual method. Firstgov gov   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. Firstgov gov The all-events test has been met. Firstgov gov The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Firstgov gov Economic performance has occurred. Firstgov gov Economic performance. Firstgov gov   You generally cannot deduct or capitalize a business expense until economic performance occurs. Firstgov gov If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. Firstgov gov If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Firstgov gov Example. Firstgov gov Your tax year is the calendar year. Firstgov gov In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. Firstgov gov You paid it by check in January 2014. Firstgov gov If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. Firstgov gov If you use the cash method of accounting, deduct the expense on your 2014 return. Firstgov gov Prepayment. Firstgov gov   You generally cannot deduct expenses in advance, even if you pay them in advance. Firstgov gov This rule applies to both the cash and accrual methods. Firstgov gov It applies to prepaid interest, prepaid insurance premiums, and any other expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Firstgov gov Example. Firstgov gov In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. Firstgov gov Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. Firstgov gov You can deduct the rent for 2014 and 2015 on your tax returns for those years. Firstgov gov Contested liability. Firstgov gov   Under the cash method, you can deduct a contested liability only in the year you pay the liability. Firstgov gov Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. Firstgov gov S. Firstgov gov possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. Firstgov gov However, to take the deduction in the year of payment or transfer, you must meet certain conditions. Firstgov gov See Regulations section 1. Firstgov gov 461-2. Firstgov gov Related person. Firstgov gov   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. Firstgov gov However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. Firstgov gov Your deduction is allowed when the amount is includible in income by the related cash method payee. Firstgov gov See Related Persons in Publication 538. Firstgov gov Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Firstgov gov Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. Firstgov gov The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Firstgov gov It does not apply to corporations other than S corporations. Firstgov gov In determining whether you are carrying on an activity for profit, several factors are taken into account. Firstgov gov No one factor alone is decisive. Firstgov gov Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. Firstgov gov Presumption of profit. Firstgov gov   An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Firstgov gov Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Firstgov gov The activity must be substantially the same for each year within this period. Firstgov gov You have a profit when the gross income from an activity exceeds the deductions. Firstgov gov   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. Firstgov gov   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. Firstgov gov This means the limits discussed here will not apply. Firstgov gov You can take all your business deductions from the activity, even for the years that you have a loss. Firstgov gov You can rely on this presumption unless the IRS later shows it to be invalid. Firstgov gov Using the presumption later. Firstgov gov   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. Firstgov gov   You can elect to do this by filing Form 5213. Firstgov gov Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. Firstgov gov   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Firstgov gov Accordingly, it will not restrict your deductions. Firstgov gov Rather, you will gain time to earn a profit in the required number of years. Firstgov gov If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Firstgov gov If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. Firstgov gov   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. Firstgov gov The period is extended only for deductions of the activity and any related deductions that might be affected. Firstgov gov    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Firstgov gov Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. Firstgov gov Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. Firstgov gov You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. Firstgov gov However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. Firstgov gov Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. Firstgov gov If you are an individual, these deductions may be taken only if you itemize. Firstgov gov These deductions may be taken on Schedule A (Form 1040). Firstgov gov Category 1. Firstgov gov   Deductions you can take for personal as well as for business activities are allowed in full. Firstgov gov For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Firstgov gov Deduct them on the appropriate lines of Schedule A (Form 1040). Firstgov gov For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). Firstgov gov The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. Firstgov gov The reduction amount returns to $100 for tax years beginning after December 31, 2009. Firstgov gov See Publication 547 for more information on casualty losses. Firstgov gov For the limits that apply to home mortgage interest, see Publication 936. Firstgov gov Category 2. Firstgov gov   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. Firstgov gov Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. Firstgov gov Category 3. Firstgov gov   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Firstgov gov Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Firstgov gov Where more than one asset is involved, allocate depreciation and these other deductions proportionally. Firstgov gov    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). Firstgov gov They are subject to the 2%-of-adjusted-gross-income limit. Firstgov gov See Publication 529 for information on this limit. Firstgov gov Example. Firstgov gov Adriana is engaged in a not-for-profit activity. Firstgov gov The income and expenses of the activity are as follows. Firstgov gov Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. Firstgov gov The limit is reached in category (3), as follows. Firstgov gov Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. Firstgov gov $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. Firstgov gov Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. Firstgov gov The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). Firstgov gov Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. Firstgov gov Partnerships and S corporations. Firstgov gov   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. Firstgov gov They are reflected in the individual shareholder's or partner's distributive shares. Firstgov gov More than one activity. Firstgov gov   If you have several undertakings, each may be a separate activity or several undertakings may be combined. Firstgov gov The following are the most significant facts and circumstances in making this determination. Firstgov gov The degree of organizational and economic interrelationship of various undertakings. Firstgov gov The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. Firstgov gov The similarity of the undertakings. Firstgov gov   The IRS will generally accept your characterization if it is supported by facts and circumstances. Firstgov gov    If you are carrying on two or more different activities, keep the deductions and income from each one separate. Firstgov gov Figure separately whether each is a not-for-profit activity. Firstgov gov Then figure the limit on deductions and losses separately for each activity that is not for profit. Firstgov gov Prev  Up  Next   Home   More Online Publications Skip to content
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You can also see how this data is used when searching for recalls on USA.gov.

Contribute to the Code

The server code that runs our Recalls API is here on Github. If you're a Ruby developer, keep reading. Fork this repo to add features (such as additional datasets) or fix bugs.

Ruby

This code is currently tested against Ruby 2.1.

Gems

We use bundler to manage gems. You can install bundler and other required gems like this:

gem install bundler
bundle install

Solr

We're using Solr for fulltext search. You can start/stop/reindex Solr like this:

bundle exec rake sunspot:solr:start
bundle exec rake sunspot:solr:stop
bundle exec rake sunspot:solr:run
bundle exec rake sunspot:solr:reindex

Database

database.yml assumes you have a local database server up and running (preferably MySQL >= 5.1.65), accessible from user 'root' with no password.

Create and setup your development and test databases:

bundle exec rake db:setup
bundle exec rake db:setup RAILS_ENV=test

Seed data

Populate recall data for your development database:

bundle exec rake usagov:recalls:import_cdc_data
bundle exec rake usagov:recalls:import_cpsc_data
bundle exec rake usagov:recalls:import_nhtsa_data

You need to run these tasks daily to receive the latest recalls data.

Running it

Fire up a server and try it all out:

bundle exec rails s

http://127.0.0.1:3000/search.json?query=stroller

API Versioning

We support API versioning with json format. The current version is v1.

You can specify a a specific JSON version of recalls data like this:

curl -H 'Accept: application/vnd.usagov.recalls.v1' http://localhost:3000/search.json

Parameters

Seven generic parameters are accepted: (1) query, (2) organization, (3) start_date, (4) end_date, (5) page, (6) per_page, and (7) sort. There are additional parameters that are specific to food, product, and car safety recalls. None are required.

Full documentation on the parameters is in our Recalls API documentation.

Tests

Tests require a Solr server to be spun up.

bundle exec rake sunspot:solr:start RAILS_ENV=test

Make sure the tests run:

bundle exec rake spec

Code Coverage

We track test coverage of the codebase over time, to help identify areas where we could write better tests and to see when poorly tested code got introduced.

After running your tests, view the report by opening coverage/rcov/index.html in your browser.

Click around on the files that have < 100% coverage to see what lines weren't exercised.

License

This project is covered under the terms of the GNU General Public License, version 2 or later.

Terms of Use

By accessing this Recalls API server, you agree to our Terms of Service.

Feedback

You can send feedback via Github Issues.


Something went wrong with that request. Please try again.

The Firstgov Gov

Firstgov gov 8. Firstgov gov   Paying Tax Through Withholding or Estimated Tax Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Notification of Alien Status Withholding From CompensationWithholding on Wages Withholding on Pensions Withholding on Tip Income Independent Contractors Withholding From Other IncomeTax Withheld on Partnership Income Withholding on Scholarships and Fellowship Grants Income Entitled to Tax Treaty BenefitsStudents, teachers, and researchers. Firstgov gov Tax Withheld on Real Property Sales Social Security and Medicare TaxesStudents and Exchange Visitors Agricultural Workers Self-Employment Tax International Social Security Agreements Estimated Tax Form 1040-ES (NR)Fiscal year. Firstgov gov Introduction This chapter discusses how to pay your U. Firstgov gov S. Firstgov gov income tax as you earn or receive income during the year. Firstgov gov In general, the federal income tax is a pay as you go tax. Firstgov gov There are two ways to pay as you go. Firstgov gov Withholding. Firstgov gov If you are an employee, your employer probably withholds income tax from your pay. Firstgov gov Tax may also be withheld from certain other income—including pensions, bonuses, commissions, and gambling winnings. Firstgov gov In each case, the amount withheld is paid to the U. Firstgov gov S. Firstgov gov Treasury in your name. Firstgov gov Estimated tax. Firstgov gov If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Firstgov gov People who are in business for themselves generally will have to pay their tax this way. Firstgov gov You may have to pay estimated tax if you receive income such as dividends, interest, rent, and royalties. Firstgov gov Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well. Firstgov gov Topics - This chapter discusses: How to notify your employer of your alien status, Income subject to withholding of income tax, Exemptions from withholding, Social security and Medicare taxes, and Estimated tax rules. Firstgov gov Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 901 U. Firstgov gov S. Firstgov gov Tax Treaties Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) W-8ECI Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States W-9 Request for Taxpayer Identification Number and Certification 1040-ES (NR) U. Firstgov gov S. Firstgov gov Estimated Tax for Nonresident Alien Individuals 8233 Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual 8288-B Application for Withholding Certificate for Dispositions by Foreign Persons of U. Firstgov gov S. Firstgov gov Real Property Interests 13930 Application for Central Withholding Agreement See chapter 12 for information about getting these publications and forms. Firstgov gov Notification of Alien Status You must let your employer know whether you are a resident or a nonresident alien so your employer can withhold the correct amount of tax from your wages. Firstgov gov If you are a resident alien under the rules discussed in chapter 1, you must file Form W-9 or a similar statement with your employer. Firstgov gov If you are a nonresident alien under those rules, you must furnish to your employer Form 8233 or Form W-8BEN, establishing that you are a foreign person, or Form W-4, establishing that your compensation is subject to graduated withholding at the same rates as resident aliens or U. Firstgov gov S. Firstgov gov citizens. Firstgov gov If you are a resident alien and you receive income other than wages (such as dividends and royalties) from sources within the United States, file Form W-9 or similar statement with the withholding agent (generally, the payer of the income) so the agent will not withhold tax on the income at the 30% (or lower treaty) rate. Firstgov gov If you receive this type of income as a nonresident alien, file Form W-8BEN with the withholding agent so that the agent will withhold tax at the 30% (or lower treaty) rate. Firstgov gov However, if the income is effectively connected with a U. Firstgov gov S. Firstgov gov trade or business, file Form W-8ECI instead. Firstgov gov Withholding From Compensation The following discussion generally applies only to nonresident aliens. Firstgov gov Tax is withheld from resident aliens in the same manner as U. Firstgov gov S. Firstgov gov citizens. Firstgov gov Wages and other compensation paid to a nonresident alien for services performed as an employee are usually subject to graduated withholding at the same rates as resident aliens and U. Firstgov gov S. Firstgov gov citizens. Firstgov gov Therefore, your compensation, unless it is specifically excluded from the term “wages” by law, or is exempt from tax by treaty, is subject to graduated withholding. Firstgov gov Withholding on Wages If you are an employee and you receive wages subject to graduated withholding, you will be required to fill out a Form W-4. Firstgov gov Also fill out Form W-4 for a scholarship or fellowship grant to the extent it represents payment for past, present, or future services and for which you are not claiming a tax treaty withholding exemption on Form 8233 (discussed later under Income Entitled to Tax Treaty Benefits). Firstgov gov These are services you are required to perform as an employee and as a condition of receiving the scholarship or fellowship (or tuition reduction). Firstgov gov Nonresident aliens should fill out Form W-4 using the following instructions instead of the instructions on the Form W-4. Firstgov gov This is because of the restrictions on a nonresident alien's filing status, the limited number of personal exemptions a nonresident alien is allowed, and because a nonresident alien cannot claim the standard deduction. Firstgov gov Enter your social security number (SSN) on line 2. Firstgov gov Do not enter an individual taxpayer identification number (ITIN). Firstgov gov Check only “Single” marital status on line 3 (regardless of your actual marital status). Firstgov gov Claim only one allowance on line 5, unless you are a resident of Canada, Mexico, or South Korea, or a U. Firstgov gov S. Firstgov gov national. Firstgov gov Write “Nonresident Alien” or “NRA” on the dotted line on line 6. Firstgov gov You can request additional withholding on line 6 at your option. Firstgov gov Do not claim “Exempt” withholding status on line 7. Firstgov gov A U. Firstgov gov S. Firstgov gov national is an individual who, although not a U. Firstgov gov S. Firstgov gov citizen, owes his or her allegiance to the United States. Firstgov gov U. Firstgov gov S. Firstgov gov nationals include American Samoans, and Northern Mariana Islanders who chose to become U. Firstgov gov S. Firstgov gov nationals instead of U. Firstgov gov S. Firstgov gov citizens. Firstgov gov See Withholding on Scholarships and Fellowship Grants later, for how to fill out Form W-4 if you receive a U. Firstgov gov S. Firstgov gov source scholarship or fellowship grant that is not a payment for services. Firstgov gov Students and business apprentices from India. Firstgov gov   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you may claim an additional withholding allowance for the standard deduction. Firstgov gov You can claim an additional withholding allowance for your spouse only if your spouse will have no gross income for 2013 and cannot be claimed as a dependent on another U. Firstgov gov S. Firstgov gov taxpayer's 2013 return. Firstgov gov You may also claim an additional withholding allowance for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Firstgov gov S. Firstgov gov citizens. Firstgov gov Household employees. Firstgov gov   If you work as a household employee, your employer does not have to withhold income tax. Firstgov gov However, you may agree to voluntary income tax withholding by filing a Form W-4 with your employer. Firstgov gov The agreement goes into effect when your employer accepts the agreement by beginning the withholding. Firstgov gov You or your employer may end the agreement by letting the other know in writing. Firstgov gov Agricultural workers. Firstgov gov   If you are an agricultural worker on an H-2A visa, your employer does not have to withhold income tax. Firstgov gov However, your employer will withhold income tax only if you and your employer agree to withhold. Firstgov gov In that case, you must provide your employer with a properly completed Form W-4. Firstgov gov You can find more information about not having tax withheld at www. Firstgov gov irs. Firstgov gov gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. Firstgov gov Wages Exempt From Withholding Wages that are exempt from U. Firstgov gov S. Firstgov gov income tax under an income tax treaty are generally exempt from withholding. Firstgov gov For information on how to claim this exemption from withholding, see Income Entitled to Tax Treaty Benefits , later. Firstgov gov Wages paid to aliens who are residents of American Samoa, Canada, Mexico, Puerto Rico, or the U. Firstgov gov S. Firstgov gov Virgin Islands may be exempt from withholding. Firstgov gov The following paragraphs explain these exemptions. Firstgov gov Residents of Canada or Mexico engaged in transportation-related employment. Firstgov gov   Certain residents of Canada or Mexico who enter or leave the United States at frequent intervals are not subject to withholding on their wages. Firstgov gov These persons either: Perform duties in transportation service between the United States and Canada or Mexico, or Perform duties connected to the construction, maintenance, or operation of a waterway, viaduct, dam, or bridge crossed by, or crossing, the boundary between the United States and Canada or the boundary between the United States and Mexico. Firstgov gov    This employment is subject to withholding of social security and Medicare taxes unless the services are performed for a railroad. Firstgov gov   To qualify for the exemption from withholding during a tax year, a Canadian or Mexican resident must give the employer a statement in duplicate with name, address, and identification number, certifying that the resident: Is not a U. Firstgov gov S. Firstgov gov citizen or resident, Is a resident of Canada or Mexico, whichever applies, and Expects to perform duties previously described during the tax year in question. Firstgov gov   The statement can be in any form, but it must be dated and signed by the employee and must include a written declaration that it is made under the penalties of perjury. Firstgov gov Residents of American Samoa and Puerto Rico. Firstgov gov   If you are a nonresident alien employee who is a resident of American Samoa or Puerto Rico, wages for services performed in American Samoa or Puerto Rico are generally not subject to withholding unless you are an employee of the United States or any of its agencies in American Samoa or Puerto Rico. Firstgov gov Residents of the U. Firstgov gov S. Firstgov gov Virgin Islands. Firstgov gov   Nonresident aliens who are bona fide residents of the U. Firstgov gov S Virgin Islands are not subject to withholding of U. Firstgov gov S. Firstgov gov tax on income earned while temporarily employed in the United States. Firstgov gov This is because those persons pay their income tax to the U. Firstgov gov S. Firstgov gov Virgin Islands. Firstgov gov To avoid having tax withheld on income earned in the United States, bona fide residents of the U. Firstgov gov S. Firstgov gov Virgin Islands should write a letter, in duplicate, to their employers, stating that they are bona fide residents of the U. Firstgov gov S. Firstgov gov Virgin Islands and expect to pay tax on all income to the U. Firstgov gov S. Firstgov gov Virgin Islands. Firstgov gov Withholding on Pensions If you receive a pension as a result of personal services performed in the United States, the pension income is subject to the 30% (or lower treaty) rate of withholding. Firstgov gov You may, however, have tax withheld at graduated rates on the portion of the pension that arises from the performance of services in the United States after December 31, 1986. Firstgov gov You must fill out Form W-8BEN and give it to the withholding agent or payer before the income is paid or credited to you. Firstgov gov Withholding on Tip Income Tips you receive during the year for services performed in the United States are subject to U. Firstgov gov S. Firstgov gov income tax. Firstgov gov Include them in taxable income. Firstgov gov In addition, tips received while working for one employer, amounting to $20 or more in a month, are subject to graduated withholding. Firstgov gov Independent Contractors If there is no employee-employer relationship between you and the person for whom you perform services, your compensation is subject to the 30% (or lower treaty) rate of withholding. Firstgov gov However, if you are engaged in a trade or business in the United States during the tax year, your compensation for personal services as an independent contractor (independent personal services) may be entirely or partly exempt from withholding if you reach an agreement with the Internal Revenue Service on the amount of withholding required. Firstgov gov An agreement that you reach with the IRS regarding withholding from your compensation for independent personal services is effective for payments covered by the agreement after it is agreed to by all parties. Firstgov gov You must agree to timely file an income tax return for the current tax year. Firstgov gov Central withholding agreements. Firstgov gov   If you are a nonresident alien entertainer or athlete performing or participating in athletic events in the United States, you may be able to enter into a withholding agreement with the IRS for reduced withholding provided certain requirements are met. Firstgov gov Under no circumstances will such a withholding agreement reduce taxes withheld to less than the anticipated amount of income tax liability. Firstgov gov   File Form 13930 and the required attachments with the IRS to request a central withholding agreement. Firstgov gov Either you or your authorized representative can file the form. Firstgov gov It should be sent to the IRS at least 45 days before the tour begins or the event occurs. Firstgov gov Exceptions will be considered on a case by case basis. Firstgov gov   For more information on the CWA program, go to www. Firstgov gov irs. Firstgov gov gov/Individuals/International-Taxpayers/Central-Withholding-Agreements. Firstgov gov Final payment exemption. Firstgov gov   Your final payment of compensation during the tax year for independent personal services may be entirely or partly exempt from withholding. Firstgov gov This exemption is available only once during your tax year and applies to a maximum of $5,000 of compensation. Firstgov gov To obtain this exemption, you or your agent must give the following statements and information to the Commissioner or his delegate. Firstgov gov A statement by each withholding agent from whom you have received gross income effectively connected with a trade or business in the United States during the tax year, showing the amount of income paid and the tax withheld. Firstgov gov Each statement must be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. Firstgov gov A statement by the withholding agent from whom you expect to receive the final payment of compensation, showing the amount of the payment and the amount of tax that would be withheld if a final payment exemption were not granted. Firstgov gov This statement must also be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. Firstgov gov A statement by you that you do not intend to receive any other income effectively connected with a trade or business in the United States during the current tax year. Firstgov gov The amount of tax that has been withheld or paid under any other provision of the Internal Revenue Code or regulations for any income effectively connected with your trade or business in the United States during the current tax year. Firstgov gov The amount of your outstanding tax liabilities, if any, including interest and penalties, from the current tax year or prior tax periods. Firstgov gov Any provision of an income tax treaty under which a partial or complete exemption from withholding may be claimed, the country of your residence, and a statement of sufficient facts to justify an exemption under the treaty. Firstgov gov A statement signed by you, and verified by a declaration that it is made under penalties of perjury, that all the information given is true and that to your knowledge no relevant information has been omitted. Firstgov gov   If satisfied with the information, the IRS will determine the amount of your tentative income tax for the tax year on gross income effectively connected with your trade or business in the United States. Firstgov gov Ordinary and necessary business expenses can be taken into account if proven to the satisfaction of the Commissioner or his delegate. Firstgov gov   The Commissioner or his delegate will send you a letter, directed to the withholding agent, showing the amount of the final payment of compensation that is exempt from withholding and the amount that can be paid to you because of the exemption. Firstgov gov You must give two copies of the letter to the withholding agent and must also attach a copy of the letter to your income tax return for the tax year for which the exemption is effective. Firstgov gov Allowance for Personal Exemption Withholding on payments for independent personal services is generally based on the amount of your compensation payment minus the value of one exemption ($3,950 for 2014). Firstgov gov To determine the income for independent personal services performed in the United States to which the 30% (or lower treaty) rate will apply, you are allowed one personal exemption if you are not a U. Firstgov gov S. Firstgov gov national and are not a resident of Canada, Mexico, or South Korea. Firstgov gov For purposes of 30% withholding, the exemption is prorated at $10. Firstgov gov 82 a day in 2014 for the period that labor or personal services are performed in the United States. Firstgov gov To claim an exemption from withholding on the personal exemption amount, fill out the applicable parts of Form 8233 and give it to the withholding agent. Firstgov gov Example. Firstgov gov Eric Johannsen, who is a resident of Country X worked under a contract with a U. Firstgov gov S. Firstgov gov firm (not as an employee) in the United States for 100 days during 2014 before returning to his country. Firstgov gov He earned $6,000 for the services performed (not considered wages) in the United States. Firstgov gov Eric is married and has three dependent children. Firstgov gov His wife is not employed and has no income subject to U. Firstgov gov S. Firstgov gov tax. Firstgov gov The amount of the personal exemption to be allowed against the income for his personal services performed within the United States in 2014 is $1,082 (100 days × $10. Firstgov gov 82), and withholding at 30% is applied against the balance. Firstgov gov Thus, $1,475. Firstgov gov 40 in tax is withheld from Eric's earnings (30% of $4,918 ($6,000 − $1,082). Firstgov gov U. Firstgov gov S. Firstgov gov nationals or residents of Canada, Mexico, or South Korea. Firstgov gov   If you are a nonresident alien who is a resident of Canada, Mexico, or South Korea, or who is a national of the United States, you are subject to the same 30% withholding on your compensation for independent personal services performed in the United States. Firstgov gov However, if you are a U. Firstgov gov S. Firstgov gov national or a resident of Canada or Mexico, you are allowed the same personal exemptions as U. Firstgov gov S. Firstgov gov citizens. Firstgov gov For the 30% (or lower treaty) rate withholding, you can take $10. Firstgov gov 82 per day for each allowable exemption in 2014. Firstgov gov If you are a resident of South Korea, you are allowed personal exemptions for yourself and for your spouse and children who live with you in the United States at any time during the tax year. Firstgov gov However, the additional exemptions for your spouse and children must be further prorated as explained in chapter 5 under Exemptions . Firstgov gov Students and business apprentices from India. Firstgov gov   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you are allowed an exemption for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. Firstgov gov S. Firstgov gov taxpayer's 2014 return. Firstgov gov You are also allowed an exemption for each dependent not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Firstgov gov S. Firstgov gov citizens. Firstgov gov For the 30% (or lower treaty rate) withholding on compensation for independent personal services performed in the United States, you are allowed $10. Firstgov gov 82 per day for each allowable exemption in 2014. Firstgov gov Refund of Taxes Withheld in Error Multi-level marketing. Firstgov gov   If you are a distributor for a multi-level marketing company who had taxes withheld in error, file a U. Firstgov gov S. Firstgov gov income tax return (Form 1040NR, Form 1040NR-EZ, or Form 1120-F) or, if a tax return has already been filed, a claim for refund (Form 1040X or amended Form 1120-F) to recover the amount withheld in error. Firstgov gov You must also attach to the U. Firstgov gov S. Firstgov gov income tax return or claim for refund supporting information that includes, but is not limited to, the following items. Firstgov gov A copy of your Form W-2, Form 1042-S, or Form 1099 to prove the amount of taxes withheld. Firstgov gov A statement explaining why income reported on your Form W-2, Form 1042-S, or Form 1099 is not subject to U. Firstgov gov S. Firstgov gov taxation. Firstgov gov A statement listing all the dates you entered and left the United States during the taxable year. Firstgov gov If the compensation is multi-year compensation, the statement must list all the dates you entered and left the United States during each of the taxable years to which the compensation is attributable. Firstgov gov A copy of any documents or records that show the number of days you actually were present in the United States during the years listed. Firstgov gov A statement providing: (a) the number of days (or unit of time less than a day, if appropriate) that personal services were performed in the United States in connection with recruiting, training, and supporting your lower-tier distributors; and (b) the total number of days (or unit of time less than a day, if appropriate) that personal services were performed globally in connection with recruiting, training, and supporting your lower-tier distributors. Firstgov gov Any further relevant document or record supporting your claim that the taxes were withheld in error. Firstgov gov Withholding From Other Income Other income subject to 30% withholding generally includes fixed or determinable income such as interest (other than portfolio interest), dividends, pensions and annuities, and gains from certain sales and exchanges, discussed in chapter 4. Firstgov gov It also includes 85% of social security benefits paid to nonresident aliens. Firstgov gov Refund of taxes withheld in error on social security benefits paid to resident aliens. Firstgov gov   Social security benefits paid to a lawful permanent resident (green card holder) are not subject to 30% withholding. Firstgov gov For U. Firstgov gov S. Firstgov gov income tax purposes, green card holders continue to be resident aliens until their lawful permanent resident status under immigration laws is either taken away or is administratively or judicially determined to have been abandoned. Firstgov gov See Green Card Test in chapter 1. Firstgov gov If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. Firstgov gov SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld. Firstgov gov If SSA cannot refund the taxes withheld, you must file a Form 1040 or 1040A with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301 to determine if you are entitled to a refund. Firstgov gov You must also attach the following to your Form 1040 or 1040A. Firstgov gov A copy of Form SSA-1042S, Social Security Benefit Statement. Firstgov gov A copy of the “green card. Firstgov gov ” A signed declaration that includes the following statements: The SSA should not have withheld income tax from my social security benefits because I am a U. Firstgov gov S. Firstgov gov lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Firstgov gov I am filing a U. Firstgov gov S. Firstgov gov income tax return for the tax year as a resident alien reporting all of my worldwide income. Firstgov gov I have not claimed benefits for the tax year under an income tax treaty as the resident of a country other than the United States. Firstgov gov Other income not subject to withholding of 30% (or lower treaty) rate. Firstgov gov   The following income is not subject to withholding at the 30% (or lower treaty) rate if you file Form W-8ECI with the payer of the income. Firstgov gov Income (other than compensation) that is effectively connected with your U. Firstgov gov S. Firstgov gov trade or business. Firstgov gov Income from real property that you choose to treat as effectively connected with a U. Firstgov gov S. Firstgov gov trade or business. Firstgov gov See Income From Real Property in chapter 4 for details about this choice. Firstgov gov   Special rules for withholding on partnership income, scholarships, and fellowships are explained next. Firstgov gov Tax Withheld on Partnership Income If you are a foreign partner in a U. Firstgov gov S. Firstgov gov or foreign partnership, the partnership will withhold tax on your share of effectively connected taxable income (ECTI) from the partnership. Firstgov gov You may be able to reduce your ECTI subject to withholding by certain partner-level deductions. Firstgov gov Generally, you must use Form 8804-C for this purpose. Firstgov gov See the Instructions for Form 8804-C for more information. Firstgov gov The withholding rate on your share of effectively connected income is generally the highest rate of tax specified under section 1 of the Code (39. Firstgov gov 6% for 2014). Firstgov gov However, the partnership may withhold at the highest rate that applies to a particular type of income allocable to you if you gave the partnership the appropriate documentation. Firstgov gov Long-term capital gain is an example of a particular type of income to which the highest tax rate applies. Firstgov gov Claim the tax withheld as a credit on your 2014 Form 1040NR. Firstgov gov The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. Firstgov gov A partnership that is publicly traded will withhold tax on your actual distributions of effectively connected income. Firstgov gov In this case the partnership will give you a statement on Form 1042-S, Foreign Person's U. Firstgov gov S. Firstgov gov Source Income Subject to Withholding. Firstgov gov Withholding on Scholarships and Fellowship Grants There is no withholding on a qualified scholarship received by a candidate for a degree. Firstgov gov See chapter 3. Firstgov gov If you are a nonresident alien student or grantee with an “F,” “J,” “M,” or “Q” visa and you receive a U. Firstgov gov S. Firstgov gov source grant or scholarship that is not fully exempt, the withholding agent (usually the payer of the scholarship) withholds tax at 14% (or lower treaty rate) of the taxable part of the grant or scholarship that is not a payment for services. Firstgov gov However, if you are not a candidate for a degree and the grant does not meet certain requirements, tax will be withheld at the 30% (or lower treaty) rate. Firstgov gov Any part of a scholarship or fellowship grant that is a payment for services is subject to graduated withholding as discussed earlier under Withholding on Wages. Firstgov gov Alternate Withholding Procedure Your withholding agent may choose to use an alternate procedure by asking you to fill out Form W-4 and the Personal Allowances Worksheet (attached to Form W-4). Firstgov gov Use the following instructions instead of the Form W-4 instructions to complete the worksheet. Firstgov gov Line A. Firstgov gov   Enter the total of the following amounts on line A. Firstgov gov Personal exemption. Firstgov gov   Include the prorated part of your allowable personal exemption. Firstgov gov Figure the amount by multiplying the number of days you expect to be in the United States in 2014 by the daily exemption amount ($10. Firstgov gov 82). Firstgov gov Expenses. Firstgov gov   Include expenses that will be deductible on your return. Firstgov gov These include away-from-home expenses (meals, lodging, and transportation), certain state and local income taxes, charitable contributions, and casualty losses, discussed earlier under Itemized Deductions in chapter 5. Firstgov gov They also include business expenses, moving expenses, and the IRA deduction discussed under Deductions in chapter 5. Firstgov gov Nontaxable grant or scholarship. Firstgov gov   Include the part of your grant or scholarship that is not taxable under U. Firstgov gov S. Firstgov gov law or under a tax treaty. Firstgov gov Line B. Firstgov gov   Enter -0- unless the following paragraph applies to you. Firstgov gov   If you are a student who qualifies under Article 21(2) of the United States-India Income Tax Treaty, and you are not claiming deductions for away-from-home expenses or other itemized deductions (discussed earlier), enter the standard deduction on line B. Firstgov gov The standard deduction amount for 2013 is $6,100. Firstgov gov Lines C and D. Firstgov gov   Enter -0- on both lines unless the following paragraphs apply to you. Firstgov gov   If you are a resident of Canada, Mexico, South Korea, or a U. Firstgov gov S. Firstgov gov national, an additional daily exemption amount may be allowed for your spouse and each of your dependents. Firstgov gov   If you are a resident of India who is eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you can claim an additional daily exemption amount for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. Firstgov gov S. Firstgov gov taxpayer's 2014 return. Firstgov gov You can also claim an additional amount for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Firstgov gov S. Firstgov gov citizens. Firstgov gov   Enter any additional amount for your spouse on line C. Firstgov gov Enter any additional amount for your dependents on line D. Firstgov gov Lines E, F, and G. Firstgov gov   No entries should be made on lines E, F, and G. Firstgov gov Line H. Firstgov gov   Add the amounts on lines A through D and enter the total on line H. Firstgov gov Form W-4. Firstgov gov   Complete lines 1 through 4 of Form W-4. Firstgov gov Sign and date the form and give it with the Personal Allowances Worksheet to your withholding agent. Firstgov gov   If you file a Form W-4 to reduce or eliminate the withholding on your scholarship or grant, you must file an annual U. Firstgov gov S. Firstgov gov income tax return to be allowed the exemptions and deductions you claimed on that form. Firstgov gov If you are in the United States during more than one tax year, you must attach a statement to your yearly Form W-4 indicating that you have filed a U. Firstgov gov S. Firstgov gov income tax return for the previous year. Firstgov gov If you have not been in the United States long enough to be required to file a return, you must attach a statement to your Form W-4 saying you will file a U. Firstgov gov S. Firstgov gov income tax return when required. Firstgov gov After the withholding agent has accepted your Form W-4, tax will be withheld on your scholarship or grant at the graduated rates that apply to wages. Firstgov gov The gross amount of the income is reduced by the amount on line H of the worksheet and the withholding tax is figured on the remainder. Firstgov gov You will receive a Form 1042-S from the withholding agent (usually the payer of your grant) showing the gross amount of your taxable scholarship or fellowship grant less the withholding allowance amount, the tax rate, and the amount of tax withheld. Firstgov gov Use this form to prepare your annual U. Firstgov gov S. Firstgov gov income tax return. Firstgov gov Income Entitled to Tax Treaty Benefits If a tax treaty between the United States and your country provides an exemption from, or a reduced rate of, tax for certain items of income, you should notify the payor of the income (the withholding agent) of your foreign status to claim a tax treaty withholding exemption. Firstgov gov Generally, you do this by filing either Form W-8BEN or Form 8233 with the withholding agent. Firstgov gov File Form W-8BEN for income that is not personal services income. Firstgov gov File Form 8233 for personal services income as discussed next. Firstgov gov Employees and independent contractors. Firstgov gov   If you perform personal services as an employee or as an independent contractor and you can claim an exemption from withholding on that personal service income because of a tax treaty, give Form 8233 to each withholding agent from whom amounts will be received. Firstgov gov   Even if you submit Form 8233, the withholding agent may have to withhold tax from your income. Firstgov gov This is because the factors on which the treaty exemption is based may not be determinable until after the close of the tax year. Firstgov gov In this case, you must file Form 1040NR (or Form 1040NR-EZ if you qualify) to recover any overwithheld tax and to provide the IRS with proof that you are entitled to the treaty exemption. Firstgov gov Students, teachers, and researchers. Firstgov gov   Students, teachers, and researchers must attach the appropriate statement shown in Appendix A (for students) or Appendix B (for teachers and researchers) at the end of this publication to the Form 8233 and give it to the withholding agent. Firstgov gov For treaties not listed in the appendices, attach a statement in a format similar to those for other treaties. Firstgov gov   If you received a scholarship or fellowship and personal services income from the same withholding agent, use Form 8233 to claim an exemption from withholding based on a tax treaty for both types of income. Firstgov gov Special events and promotions. Firstgov gov   Withholding at the full 30% rate is required for payments made to a nonresident alien or foreign corporation for gate receipts (or television or other receipts) from rock music festivals, boxing promotions, and other entertainment or sporting events, unless the withholding agent has been specifically advised otherwise by letter from the IRS. Firstgov gov Form 13930 is used to request a reduction in withholding. Firstgov gov Withholding may be required even if the income may be exempt from taxation by provisions of a tax treaty. Firstgov gov One reason for this is that the partial or complete exemption is usually based on factors that cannot be determined until after the close of the tax year. Firstgov gov You will be required to pay U. Firstgov gov S. Firstgov gov tax, at the time of your departure from the United States, on any income for which you incorrectly claimed a treaty exemption. Firstgov gov For more details on treaty provisions that apply to compensation, see Publication 901. Firstgov gov Tax Withheld on Real Property Sales If you are a nonresident alien and you dispose of a U. Firstgov gov S. Firstgov gov real property interest, the transferee (buyer) of the property generally must withhold a tax equal to 10% of the amount realized on the disposition. Firstgov gov A distribution by a qualified investment entity to a nonresident alien shareholder that is treated as gain from the sale or exchange of a U. Firstgov gov S. Firstgov gov real property interest by the shareholder is subject to withholding at 35%. Firstgov gov Withholding is also required on certain distributions and other transactions by domestic or foreign corporations, partnerships, trusts, and estates. Firstgov gov These rules are covered in Publication 515. Firstgov gov For information on the tax treatment of dispositions of U. Firstgov gov S. Firstgov gov real property interests, see Real Property Gain or Loss in chapter 4. Firstgov gov If you are a partner in a domestic partnership, and the partnership disposes of a U. Firstgov gov S. Firstgov gov real property interest at a gain, the partnership will withhold tax on the amount of gain allocable to its foreign partners. Firstgov gov Your share of the income and tax withheld will be reported to you on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, or Form 1042-S, Foreign Person's U. Firstgov gov S. Firstgov gov Source Income Subject to Withholding (in the case of a publicly traded partnership). Firstgov gov Withholding is not required in the following situations. Firstgov gov The property is acquired by the buyer for use as a residence and the amount realized (sales price) is not more than $300,000. Firstgov gov The property disposed of is an interest in a domestic corporation if any class of stock of the corporation is regularly traded on an established securities market. Firstgov gov However, this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded corporations. Firstgov gov The property disposed of is an interest in a U. Firstgov gov S. Firstgov gov corporation that is not regularly traded on an established market and you (the seller) give the buyer a copy of a statement issued by the corporation certifying that the interest is not a U. Firstgov gov S. Firstgov gov real property interest. Firstgov gov You (the seller) give the buyer a certification stating, under penalties of perjury, that you are not a foreign person, and containing your name, U. Firstgov gov S. Firstgov gov taxpayer identification number, and home address. Firstgov gov You can give the certification to a qualified substitute. Firstgov gov The qualified substitute gives the buyer a statement, under penalties of perjury, that the certification is in the possession of the qualified substitute. Firstgov gov For this purpose, a qualified substitute is (a) the person (including any attorney or title company) responsible for closing the transaction, other than your agent, and (b) the buyer's agent. Firstgov gov The buyer receives a withholding certificate from the Internal Revenue Service. Firstgov gov You give the buyer written notice that you are not required to recognize any gain or loss on the transfer because of a nonrecognition provision in the Internal Revenue Code or a provision in a U. Firstgov gov S. Firstgov gov tax treaty. Firstgov gov The buyer must file a copy of the notice with the Ogden Service Center, P. Firstgov gov O. Firstgov gov Box 409101, Ogden, UT 84409. Firstgov gov You must verify the notice as true and sign it under penalties of perjury. Firstgov gov The notice must contain the following information. Firstgov gov A statement that the notice is a notice of nonrecognition under regulation section 1. Firstgov gov 1445-2(d)(2). Firstgov gov Your name, taxpayer identification number, and home address. Firstgov gov A statement that you are not required to recognize any gain or loss on the transfer. Firstgov gov A brief description of the transfer. Firstgov gov A brief summary of the law and facts supporting your claim that recognition of gain or loss is not required. Firstgov gov You may not give the buyer a written notice for any of the following transfers: the sale of your main home on which you exclude gain, a like-kind exchange that does not qualify for nonrecognition treatment in its entirety, or a deferred like-kind exchange that has not been completed at the time the buyer must file Form 8288. Firstgov gov Instead, a withholding certificate (described next) must be obtained. Firstgov gov The amount you realize on the transfer of a U. Firstgov gov S. Firstgov gov real property interest is zero. Firstgov gov The property is acquired by the United States, a U. Firstgov gov S. Firstgov gov state or possession, a political subdivision, or the District of Columbia. Firstgov gov The distribution is from a domestically controlled qualified investment entity (QIE) and is treated as a distribution of a U. Firstgov gov S. Firstgov gov real property interest only because an interest in the entity was disposed of in an applicable wash sale transaction. Firstgov gov For the definition of a QIE, see Qualified investment entities under Real Property Gain or Loss, earlier. Firstgov gov See Wash sale under Real Property Gain or Loss in chapter 4. Firstgov gov The certifications in (3) and (4) must be disregarded by the buyer if the buyer or qualified substitute has actual knowledge, or receives notice from a seller's or buyer's agent (or substitute), that they are false. Firstgov gov This also applies to the qualified substitute's statement under (4). Firstgov gov Withholding certificates. Firstgov gov   The tax required to be withheld on a disposition can be reduced or eliminated under a withholding certificate issued by the IRS. Firstgov gov Either you or the buyer can request a withholding certificate. Firstgov gov   A withholding certificate can be issued due to any of the following. Firstgov gov The IRS determines that reduced withholding is appropriate because either: The amount required to be withheld would be more than your maximum tax liability, or Withholding of the reduced amount would not jeopardize collection of the tax. Firstgov gov All of your realized gain is exempt from U. Firstgov gov S. Firstgov gov tax. Firstgov gov You or the buyer enters into an agreement for the payment of tax providing security for the tax liability. Firstgov gov   Get Publication 515 and Form 8288-B for information on procedures to request a withholding certificate. Firstgov gov Credit for tax withheld. Firstgov gov   The buyer must report and pay over the withheld tax within 20 days after the transfer using Form 8288, U. Firstgov gov S. Firstgov gov Withholding Tax Return for Dispositions by Foreign Persons of U. Firstgov gov S. Firstgov gov Real Property Interests. Firstgov gov This form is filed with the IRS with copies A and B of Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Firstgov gov S. Firstgov gov Real Property Interests. Firstgov gov Copy B of this statement will be stamped received by the IRS and returned to you (the seller) if the statement is complete and includes your taxpayer identification number (TIN). Firstgov gov You must file Copy B with your tax return to take credit for the tax withheld. Firstgov gov   A stamped copy of Form 8288-A will not be provided to you if your TIN is not included on that form. Firstgov gov The IRS will send you a letter requesting the TIN and providing instructions for how to get a TIN. Firstgov gov When you provide the IRS with a TIN, the IRS will provide you with a stamped Copy B of Form 8288-A. Firstgov gov Social Security and Medicare Taxes If you work as an employee in the United States, you must pay social security and Medicare taxes in most cases. Firstgov gov Your payments of these taxes contribute to your coverage under the U. Firstgov gov S. Firstgov gov social security system. Firstgov gov Social security coverage provides retirement benefits, survivors and disability benefits, and medical insurance (Medicare) benefits to individuals who meet certain eligibility requirements. Firstgov gov In most cases, the first $113,700 of taxable wages received in 2013 for services performed in the United States is subject to social security tax. Firstgov gov All taxable wages are subject to Medicare tax. Firstgov gov Your employer deducts these taxes from each wage payment. Firstgov gov Your employer must deduct these taxes even if you do not expect to qualify for social security or Medicare benefits. Firstgov gov You can claim a credit for excess social security tax on your income tax return if you have more than one employer and the amount deducted from your combined wages for 2013 is more than $7,049. Firstgov gov 40. Firstgov gov Use the appropriate worksheet in chapter 3 of Publication 505, Tax Withholding and Estimated Tax, to figure your credit. Firstgov gov If any one employer deducted more than $7,049. Firstgov gov 40, you cannot claim a credit for that amount. Firstgov gov Ask your employer to refund the excess. Firstgov gov If your employer does not refund the excess, you can file a claim for refund using Form 843. Firstgov gov In general, U. Firstgov gov S. Firstgov gov social security and Medicare taxes apply to payments of wages for services performed as an employee in the United States, regardless of the citizenship or residence of either the employee or the employer. Firstgov gov In limited situations, these taxes apply to wages for services performed outside the United States. Firstgov gov Your employer should be able to tell you if social security and Medicare taxes apply to your wages. Firstgov gov You cannot make voluntary payments if no taxes are due. Firstgov gov Additional Medicare Tax. Firstgov gov   Beginning in 2013, in addition to the Medicare tax, a 0. Firstgov gov 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income that are more than: $250,000 if married filing jointly, $125,000 if married filing separately, or $200,000 for any other filing status. Firstgov gov   There are no special rules for nonresident aliens for purposes of Additional Medicare Tax. Firstgov gov Wages, RRTA compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold. Firstgov gov   Your employer is responsible for withholding the 0. Firstgov gov 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in the calendar year. Firstgov gov If you intend to file a joint return and you anticipate that you and your spouse's individual wages are not going to be more than $200,000 but your combined wages and self-employment income are going to be more than $250,000, you may want to request additional withholding on Form W-4 and/or make estimated tax payments. Firstgov gov   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). Firstgov gov    See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. Firstgov gov For more information on Additional Medicare Tax, go to IRS. Firstgov gov gov and enter “Additional Medicare Tax” in the search box. Firstgov gov   Self-employed individuals may also be required to pay Additional Medicare Tax. Firstgov gov See Self-Employment Tax , later. Firstgov gov Students and Exchange Visitors Generally, services performed by you as a nonresident alien temporarily in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act are not covered under the social security program if the services are performed to carry out the purpose for which you were admitted to the United States. Firstgov gov This means that there will be no withholding of social security or Medicare taxes from the pay you receive for these services. Firstgov gov These types of services are very limited, and generally include only on-campus work, practical training, and economic hardship employment. Firstgov gov Social security and Medicare taxes will be withheld from your pay for these services if you are considered a resident alien as discussed in chapter 1, even though your nonimmigrant classification (“F,” “J,” “M,” or “Q”) remains the same. Firstgov gov Services performed by a spouse or minor child of nonimmigrant aliens with the classification of “F-2,” “J-2,” “M-2,” and “Q-3” are covered under social security. Firstgov gov Nonresident Alien Students If you are a nonresident alien temporarily admitted to the United States as a student, you generally are not permitted to work for a wage or salary or to engage in business while you are in the United States. Firstgov gov In some cases, a student admitted to the United States in “F-1,” “M-1,” or “J-1” status is granted permission to work. Firstgov gov Social security and Medicare taxes are not withheld from pay for the work unless the student is considered a resident alien. Firstgov gov Any student who is enrolled and regularly attending classes at a school may be exempt from social security and Medicare taxes on pay for services performed for that school. Firstgov gov The U. Firstgov gov S. Firstgov gov Citizenship and Immigration Services (USCIS) permits on-campus work for students in “F-1” status if it does not displace a U. Firstgov gov S. Firstgov gov resident. Firstgov gov On-campus work means work performed on the school's premises. Firstgov gov On-campus work includes work performed at an off-campus location that is educationally affiliated with the school. Firstgov gov On-campus work under the terms of a scholarship, fellowship, or assistantship is considered part of the academic program of a student taking a full course of study and is permitted by the USCIS. Firstgov gov Social security and Medicare taxes are not withheld from pay for this work unless the student is considered a resident alien. Firstgov gov If services performed by a nonresident alien student are not considered as performed to carry out the purpose for which the student was admitted to the United States, social security and Medicare taxes will be withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. Firstgov gov Exchange Visitors Exchange visitors are temporarily admitted to the United States under section 101(a)(15)(J) of the Immigration and Nationality Act. Firstgov gov Social security and Medicare taxes are not withheld on pay for services of an exchange visitor who has been given permission to work and who possesses or obtains a letter of authorization from the sponsor unless the exchange visitor is considered a resident alien. Firstgov gov If services performed by an exchange visitor are not considered as performed to carry out the purpose for which the visitor was admitted to the United States, social security and Medicare taxes are withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. Firstgov gov Nonresident aliens temporarily admitted to the United States as participants in international cultural exchange programs under section 101(a)(15)(Q) of the Immigration and Nationality Act may be exempt from social security and Medicare taxes. Firstgov gov The employer must be the petitioner through whom the alien obtained the “Q” visa. Firstgov gov Social security and Medicare taxes are not withheld from pay for this work unless the alien is considered a resident alien. Firstgov gov Refund of Taxes Withheld in Error If social security or Medicare taxes were withheld in error from pay that is not subject to these taxes, contact the employer who withheld the taxes for a refund. Firstgov gov If you are unable to get a full refund of the amount from your employer, file a claim for refund with the Internal Revenue Service on Form 843, Claim for Refund and Request for Abatement. Firstgov gov Attach the following items to Form 843. Firstgov gov A copy of your Form W-2 to prove the amount of social security and Medicare taxes withheld. Firstgov gov A copy of your visa. Firstgov gov Form I-94 (or other documentation showing your dates of arrival or departure). Firstgov gov If you have an F-1 visa, documentation showing permission to work in the U. Firstgov gov S. Firstgov gov If you have a J-1 visa, documentation showing permission to work in the U. Firstgov gov S. Firstgov gov If you are engaged in optional practical training or employment due to severe economic necessity, documentation showing permission to work in the U. Firstgov gov S. Firstgov gov A statement from your employer indicating the amount of the reimbursement your employer provided and the amount of the credit or refund your employer claimed or you authorized your employer to claim. Firstgov gov If you cannot obtain this statement from your employer, you must provide this information on your own statement and explain why you are not attaching a statement from your employer or on Form 8316 claiming your employer will not issue the refund. Firstgov gov If you were exempt from social security and Medicare tax for only part of the year, pay statements showing the tax paid during the period you were exempt. Firstgov gov File Form 843 (with attachments) with the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201-0038. Firstgov gov Do not use Form 843 to request a refund of Additional Medicare Tax. Firstgov gov If Additional Medicare Tax was withheld from your pay in error, you can claim a credit for any withheld Additional Medicare Tax against the total tax liability shown on your tax return by filing Form 8959 with Form 1040 or 1040NR. Firstgov gov If Additional Medicare Tax was withheld in error in a prior year for which you already filed Form 1040 or 1040NR, you must file Form 1040X, Amended U. Firstgov gov S. Firstgov gov Individual Income Tax Return, for the prior year in which the wages or compensation were originally received to recover the Additional Medicare Tax withheld in error. Firstgov gov See the Instructions for Form 1040X. Firstgov gov Agricultural Workers Agricultural workers temporarily admitted into the United States on H-2A visas are exempt from social security and Medicare taxes on compensation paid to them for services performed in connection with the H-2A visa. Firstgov gov You can find more information about not having tax withheld at www. Firstgov gov irs. Firstgov gov gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. Firstgov gov Self-Employment Tax Self-employment tax is the social security and Medicare taxes for individuals who are self-employed. Firstgov gov Nonresident aliens are not subject to self-employment tax unless an international social security agreement in effect determines that they are covered under the U. Firstgov gov S. Firstgov gov social security system. Firstgov gov Residents of the U. Firstgov gov S. Firstgov gov Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are considered U. Firstgov gov S. Firstgov gov residents for this purpose and are subject to the self-employment tax. Firstgov gov Resident aliens must pay self-employment tax under the same rules that apply to U. Firstgov gov S. Firstgov gov citizens. Firstgov gov However, a resident alien employed by an international organization, a foreign government, or a wholly-owned instrumentality of a foreign government is not subject to the self-employment tax on income earned in the United States. Firstgov gov Self-employment income you receive while you are a resident alien is subject to self-employment tax even if it was paid for services you performed as a nonresident alien. Firstgov gov Example. Firstgov gov Bill Jones is an author engaged in the business of writing books. Firstgov gov Bill had several books published in a foreign country while he was a citizen and resident of that country. Firstgov gov During 2013, Bill entered the United States as a resident alien. Firstgov gov After becoming a U. Firstgov gov S. Firstgov gov resident, he continued to receive royalties from his foreign publisher. Firstgov gov Bill reports his income and expenses on the cash basis (he reports income on his tax return when received and deducts expenses when paid). Firstgov gov Bill's 2013 self-employment income includes the royalties received after he became a U. Firstgov gov S. Firstgov gov resident even though the books were published while he was a nonresident alien. Firstgov gov This royalty income is subject to self-employment tax. Firstgov gov Reporting self-employment tax. Firstgov gov   Use Schedule SE (Form 1040) to report and figure your self-employment tax. Firstgov gov Then enter the tax on Form 1040, line 56, or Form 1040NR, line 54. Firstgov gov Attach Schedule SE to Form 1040 or Form 1040NR. Firstgov gov Additional Medicare Tax. Firstgov gov   Self-employed individuals must pay a 0. Firstgov gov 9% Additional Medicare Tax on self-employment income that exceeds one of the following threshold amounts (based on your filing status): Married filing jointly — $250,000; Married filing separately — $125,000; Single, Head of household, or Qualifying widow(er) — $200,000. Firstgov gov   If you have both wages and self-employment income, the threshold amount for applying the Additional Medicare Tax on the self-employment income is reduced (but not below zero) by the amount of wages subject to Additional Medicare Tax. Firstgov gov A self-employment loss should not be considered for purposes of this tax   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). Firstgov gov   See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. Firstgov gov For more information on Additional Medicare Tax, go to IRS. Firstgov gov gov and enter “Additional Medicare Tax” in the search box. Firstgov gov Deduction for employer-equivalent portion of self-employment tax. Firstgov gov   If you must pay self-employment tax, you can deduct a portion of the self-employment tax paid in figuring your adjusted gross income. Firstgov gov This deduction is figured on Schedule SE (Form 1040). Firstgov gov Note. Firstgov gov No portion of the Additional Medicare Tax is deductible for self-employment tax. Firstgov gov More information. Firstgov gov   Get Publication 334, Tax Guide for Small Business, for more information about self-employment tax. Firstgov gov International Social Security Agreements The United States has entered into social security agreements with foreign countries to coordinate social security coverage and taxation of workers employed for part or all of their working careers in one of the countries. Firstgov gov These agreements are commonly referred to as totalization agreements. Firstgov gov Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. Firstgov gov The agreements generally make sure that social security taxes (including self-employment tax) are paid only to one country. Firstgov gov Agreements are in effect with the following countries. Firstgov gov Australia. Firstgov gov Austria. Firstgov gov Belgium. Firstgov gov Canada. Firstgov gov Chile. Firstgov gov Czech Republic. Firstgov gov Denmark. Firstgov gov Finland. Firstgov gov France. Firstgov gov Germany. Firstgov gov Greece. Firstgov gov Ireland. Firstgov gov Italy. Firstgov gov Japan. Firstgov gov Korea, South. Firstgov gov Luxembourg. Firstgov gov The Netherlands. Firstgov gov Norway. Firstgov gov Poland. Firstgov gov Portugal. Firstgov gov Spain. Firstgov gov Sweden. Firstgov gov Switzerland. Firstgov gov The United Kingdom. Firstgov gov Agreements with other countries are expected to enter into force in the future. Firstgov gov Employees. Firstgov gov   Generally, under these agreements, you are subject to social security taxes only in the country where you are working. Firstgov gov However, if you are temporarily sent to work for the same employer in the United States and your pay would normally be subject to social security taxes in both countries, most agreements provide that you remain covered only by the social security system of the country from which you were sent. Firstgov gov You can get more information on any agreement by contacting the U. Firstgov gov S. Firstgov gov Social Security Administration at the address given later. Firstgov gov If you have access to the Internet, you can get more information at www. Firstgov gov socialsecurity. Firstgov gov gov/international. Firstgov gov   To establish that your pay is subject only to foreign social security taxes and is exempt from U. Firstgov gov S. Firstgov gov social security taxes (including the Medicare tax) under an agreement, you or your employer should request a certificate of coverage from the appropriate agency of the foreign country. Firstgov gov This will usually be the same agency to which you or your employer pays your foreign social security taxes. Firstgov gov The foreign agency will be able to tell you what information is needed for them to issue the certificate. Firstgov gov Your employer should keep a copy of the certificate because it may be needed to show why you are exempt from U. Firstgov gov S. Firstgov gov social security taxes. Firstgov gov Only wages paid on or after the effective date of the agreement can be exempt from U. Firstgov gov S. Firstgov gov social security taxes. Firstgov gov    Some of the countries with which the United States has agreements will not issue certificates of coverage. Firstgov gov In this case, either you or your employer should request a statement that your wages are not covered by the U. Firstgov gov S. Firstgov gov social security system. Firstgov gov Request the statement from the following address. Firstgov gov U. Firstgov gov S. Firstgov gov Social Security Administration Office of International Programs P. Firstgov gov O. Firstgov gov Box 17741 Baltimore, MD 21235-7741 Self-employed individuals. Firstgov gov   Under most agreements, self-employed individuals are covered by the social security system of the country where they reside. Firstgov gov However, under some agreements, you may be exempt from U. Firstgov gov S. Firstgov gov self-employment tax if you temporarily transfer your business activity to or from the United States. Firstgov gov   If you believe that your self-employment income is subject only to U. Firstgov gov S. Firstgov gov self-employment tax and is exempt from foreign social security taxes, request a certificate of coverage from the U. Firstgov gov S. Firstgov gov Social Security Administration at the address given earlier. Firstgov gov This certificate will establish your exemption from foreign social security taxes. Firstgov gov   To establish that your self-employment income is subject only to foreign social security taxes and is exempt from U. Firstgov gov S. Firstgov gov self-employment tax, request a certificate of coverage from the appropriate agency of the foreign country. Firstgov gov If the foreign country will not issue the certificate, you should request a statement that your income is not covered by the U. Firstgov gov S. Firstgov gov social security system. Firstgov gov Request it from the U. Firstgov gov S. Firstgov gov Social Security Administration at the address given earlier. Firstgov gov Attach a photocopy of either statement to Form 1040 each year you are exempt. Firstgov gov Also print “Exempt, see attached statement” on the line for self-employment tax. Firstgov gov Estimated Tax Form 1040-ES (NR) You may have income from which no U. Firstgov gov S. Firstgov gov income tax is withheld. Firstgov gov Or the amount of tax withheld may be less than the income tax you estimate you will owe at the end of the year. Firstgov gov If so, you may have to pay estimated tax. Firstgov gov Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax and you expect your withholding and certain refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 income tax return, or 100% of the tax shown on your 2013 income tax return (if your 2013 return covered all 12 months of the year). Firstgov gov If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above if you are not a farmer or fisherman. Firstgov gov Item (2) does not apply if you did not file a 2013 return. Firstgov gov A nonresident alien should use Form 1040-ES (NR) to figure and pay estimated tax. Firstgov gov If you pay by check, make it payable to the "United States Treasury. Firstgov gov " How to estimate your tax for 2014. Firstgov gov   If you filed a 2013 return on Form 1040NR or Form 1040NR-EZ and expect your income, number of exemptions, and total deductions for 2014 to be nearly the same, you should use your 2013 return as a guide to complete the Estimated Tax Worksheet in the Form 1040-ES (NR) instructions. Firstgov gov If you did not file a return for 2013, or if your income, exemptions, deductions, or credits will be different for 2014, you must estimate these amounts. Firstgov gov Figure your estimated tax liability using the Tax Rate Schedule in the 2014 Form 1040-ES (NR) instructions for your filing status. Firstgov gov Note. Firstgov gov If you expect to be a resident of Puerto Rico during the entire year, use Form 1040-ES or Formulario 1040-ES (PR). Firstgov gov When to pay estimated tax. Firstgov gov   Make your first estimated tax payment by the due date for filing the previous year's Form 1040NR or Form 1040NR-EZ. Firstgov gov If you have wages subject to the same withholding rules that apply to U. Firstgov gov S. Firstgov gov citizens, you must file Form 1040NR or Form 1040NR-EZ and make your first estimated tax payment by April 15, 2014. Firstgov gov If you do not have wages subject to withholding, file your income tax return and make your first estimated tax payment by June 16, 2014. Firstgov gov   If your first estimated tax payment is due April 15, 2014, you can pay your estimated tax in full at that time or in four equal installments by the dates shown next. Firstgov gov 1st installment April 15, 2014 2nd installment June 16, 2014 3rd installment Sept. Firstgov gov 15, 2014 4th installment Jan. Firstgov gov 15, 2015 If your first payment is not due until June 16, 2014, you can pay your estimated tax in full at that time or: ½ of your estimated tax by June 16, 2014, 1/4 of the tax by September 15, 2014, and 1/4 by January 15, 2015. Firstgov gov    You do not have to make the payment due January 15, 2015, if you file your 2014 Form 1040NR or 1040NR-EZ by February 2, 2015, and pay the entire balance due with your return. Firstgov gov Fiscal year. Firstgov gov   If your return is not on a calendar year basis, your due dates are the 15th day of the 4th, 6th, and 9th months of your fiscal year, and the 1st month of the following fiscal year. Firstgov gov If any date falls on a Saturday, Sunday, or legal holiday, use the next day that is not a Saturday, Sunday, or legal holiday. Firstgov gov Changes in income, deductions, or exemptions. Firstgov gov   Even if you are not required to make an estimated tax payment in April or June, your circumstances may change so that you will have to make estimated tax payments later. Firstgov gov This can happen if you receive additional income or if any of your deductions are reduced or eliminated. Firstgov gov If so, see the instructions for Form 1040-ES (NR) and Publication 505 for information on figuring your estimated tax. Firstgov gov Amended estimated tax. Firstgov gov   If, after you have made estimated tax payments, you find your estimated tax is substantially increased or decreased because of a change in your income or exemptions, you should adjust your remaining estimated tax payments. Firstgov gov To do this, see the instructions for Form 1040-ES (NR) and Publication 505. Firstgov gov Penalty for failure to pay estimated income tax. Firstgov gov   You will be subject to a penalty for underpayment of installments of estimated tax except in certain situations. Firstgov gov These situations are explained on Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Firstgov gov Prev  Up  Next   Home   More Online Publications