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H&r block federal free Publication 551 - Additional Material Prev  Up  Next   Home   More Online Publications
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Office of Child Support Enforcement (OCSE)

The OCSE assures that assistance in obtaining support (both financial and medical) is available to children through locating parents, establishing paternity and support obligations, and enforcing those obligations.

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Website: Office of Child Support Enforcement (OCSE)

Address: 370 LEnfant Promenade, SW
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Phone Number: 202-401-9373

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H&r block federal free 2. H&r block federal free   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. H&r block federal free The pay may be in cash, property, or services. H&r block federal free It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. H&r block federal free For information about deducting employment taxes, see chapter 5. H&r block federal free You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. H&r block federal free Empowerment zone employment credit (Form 8844). H&r block federal free Indian employment credit (Form 8845). H&r block federal free Work opportunity credit (Form 5884). H&r block federal free Credit for employer differential wage payments (Form 8932). H&r block federal free Reduce your deduction for employee wages by the amount of employment credits you claim. H&r block federal free For more information about these credits, see the form on which the credit is claimed. H&r block federal free Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. H&r block federal free Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. H&r block federal free These and other requirements that apply to all business expenses are explained in chapter 1. H&r block federal free In addition, the pay must meet both of the following tests. H&r block federal free Test 1. H&r block federal free It must be reasonable. H&r block federal free Test 2. H&r block federal free It must be for services performed. H&r block federal free The form or method of figuring the pay does not affect its deductibility. H&r block federal free For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. H&r block federal free Test 1—Reasonableness You must be able to prove that the pay is reasonable. H&r block federal free Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. H&r block federal free If the pay is excessive, the excess pay is disallowed as a deduction. H&r block federal free Factors to consider. H&r block federal free   Determine the reasonableness of pay by the facts and circumstances. H&r block federal free Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. H&r block federal free   To determine if pay is reasonable, also consider the following items and any other pertinent facts. H&r block federal free The duties performed by the employee. H&r block federal free The volume of business handled. H&r block federal free The character and amount of responsibility. H&r block federal free The complexities of your business. H&r block federal free The amount of time required. H&r block federal free The cost of living in the locality. H&r block federal free The ability and achievements of the individual employee performing the service. H&r block federal free The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. H&r block federal free Your policy regarding pay for all your employees. H&r block federal free The history of pay for each employee. H&r block federal free Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. H&r block federal free Employee-shareholder salaries. H&r block federal free   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. H&r block federal free The excessive part of the salary would not be allowed as a salary deduction by the corporation. H&r block federal free For more information on corporate distributions to shareholders, see Publication 542, Corporations. H&r block federal free Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. H&r block federal free For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. H&r block federal free Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. H&r block federal free If you give property to an employee as an employee achievement award, your deduction may be limited. H&r block federal free Achievement awards. H&r block federal free   An achievement award is an item of tangible personal property that meets all the following requirements. H&r block federal free It is given to an employee for length of service or safety achievement. H&r block federal free It is awarded as part of a meaningful presentation. H&r block federal free It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. H&r block federal free Length-of-service award. H&r block federal free    An award will qualify as a length-of-service award only if either of the following applies. H&r block federal free The employee receives the award after his or her first 5 years of employment. H&r block federal free The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. H&r block federal free Safety achievement award. H&r block federal free    An award for safety achievement will qualify as an achievement award unless one of the following applies. H&r block federal free It is given to a manager, administrator, clerical employee, or other professional employee. H&r block federal free During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). H&r block federal free Deduction limit. H&r block federal free   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. H&r block federal free $400 for awards that are not qualified plan awards. H&r block federal free $1,600 for all awards, whether or not qualified plan awards. H&r block federal free   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. H&r block federal free   A highly compensated employee is an employee who meets either of the following tests. H&r block federal free The employee was a 5% owner at any time during the year or the preceding year. H&r block federal free The employee received more than $115,000 in pay for the preceding year. H&r block federal free You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. H&r block federal free   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. H&r block federal free To figure this average cost, ignore awards of nominal value. H&r block federal free Deduct achievement awards as a nonwage business expense on your return or business schedule. H&r block federal free You may not owe employment taxes on the value of some achievement awards you provide to an employee. H&r block federal free See Publication 15-B. H&r block federal free Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. H&r block federal free However, the total bonuses, salaries, and other pay must be reasonable for the services performed. H&r block federal free If the bonus is paid in property, see Property , later. H&r block federal free Gifts of nominal value. H&r block federal free    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. H&r block federal free Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. H&r block federal free For more information on this deduction limit, see Meals and lodging , later. H&r block federal free Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. H&r block federal free Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. H&r block federal free For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. H&r block federal free Fringe Benefits A fringe benefit is a form of pay for the performance of services. H&r block federal free You can generally deduct the cost of fringe benefits. H&r block federal free You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. H&r block federal free You also may not owe employment taxes on the value of the fringe benefits. H&r block federal free See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. H&r block federal free Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. H&r block federal free Certain fringe benefits are discussed next. H&r block federal free See Publication 15-B for more details on these and other fringe benefits. H&r block federal free Meals and lodging. H&r block federal free   You can usually deduct the cost of furnishing meals and lodging to your employees. H&r block federal free Deduct the cost in whatever category the expense falls. H&r block federal free For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. H&r block federal free If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. H&r block federal free Deduction limit on meals. H&r block federal free   You can generally deduct only 50% of the cost of furnishing meals to your employees. H&r block federal free However, you can deduct the full cost of the following meals. H&r block federal free Meals whose value you include in an employee's wages. H&r block federal free Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. H&r block federal free This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. H&r block federal free Meals you furnish to your employees at the work site when you operate a restaurant or catering service. H&r block federal free Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. H&r block federal free Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). H&r block federal free This does not include meals you furnish on vessels primarily providing luxury water transportation. H&r block federal free Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. H&r block federal free This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. H&r block federal free Employee benefit programs. H&r block federal free   Employee benefit programs include the following. H&r block federal free Accident and health plans. H&r block federal free Adoption assistance. H&r block federal free Cafeteria plans. H&r block federal free Dependent care assistance. H&r block federal free Education assistance. H&r block federal free Life insurance coverage. H&r block federal free Welfare benefit funds. H&r block federal free   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. H&r block federal free For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. H&r block federal free ). H&r block federal free Life insurance coverage. H&r block federal free   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. H&r block federal free See Regulations section 1. H&r block federal free 264-1 for more information. H&r block federal free Welfare benefit funds. H&r block federal free   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. H&r block federal free Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. H&r block federal free   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. H&r block federal free If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. H&r block federal free   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. H&r block federal free The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. H&r block federal free The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. H&r block federal free These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. H&r block federal free   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. H&r block federal free Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. H&r block federal free However, if the employee performs no services, treat the amount you advanced as a loan. H&r block federal free If the employee does not repay the loan, treat it as income to the employee. H&r block federal free Below-market interest rate loans. H&r block federal free   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. H&r block federal free See Below-Market Loans in chapter 4. H&r block federal free Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. H&r block federal free The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. H&r block federal free You can claim the deduction only for the tax year in which your employee includes the property's value in income. H&r block federal free Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. H&r block federal free You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. H&r block federal free Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. H&r block federal free These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. H&r block federal free Restricted property. H&r block federal free   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. H&r block federal free However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. H&r block federal free    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. H&r block federal free This means that the recipient is not likely to have to give up his or her rights in the property in the future. H&r block federal free Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. H&r block federal free However, your deduction may be limited. H&r block federal free If you make the payment under an accountable plan, deduct it in the category of the expense paid. H&r block federal free For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. H&r block federal free If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. H&r block federal free See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. H&r block federal free Sick and Vacation Pay Sick pay. H&r block federal free   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. H&r block federal free However, your deduction is limited to amounts not compensated by insurance or other means. H&r block federal free Vacation pay. H&r block federal free   Vacation pay is an employee benefit. H&r block federal free It includes amounts paid for unused vacation leave. H&r block federal free You can deduct vacation pay only in the tax year in which the employee actually receives it. H&r block federal free This rule applies regardless of whether you use the cash or accrual method of accounting. H&r block federal free Prev  Up  Next   Home   More Online Publications