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Https www freefilefillableforms org Publication 15-A - Main Content Table of Contents 1. Https www freefilefillableforms org Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Https www freefilefillableforms org Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Https www freefilefillableforms org Employees of Exempt OrganizationsSocial security and Medicare taxes. Https www freefilefillableforms org FUTA tax. Https www freefilefillableforms org 4. Https www freefilefillableforms org Religious Exemptions and Special Rules for MinistersForm W-2. Https www freefilefillableforms org Self-employed. Https www freefilefillableforms org Employees. Https www freefilefillableforms org 5. Https www freefilefillableforms org Wages and Other CompensationRelocating for Temporary Work Assignments Employee Achievement Awards Scholarship and Fellowship Payments Outplacement Services Withholding for Idle Time Back Pay Supplemental Unemployment Benefits Golden Parachute Payments Interest-Free and Below-Market-Interest-Rate Loans Leave Sharing Plans Nonqualified Deferred Compensation Plans Tax-Sheltered Annuities Contributions to a Simplified Employee Pension (SEP) SIMPLE Retirement Plans 6. Https www freefilefillableforms org Sick Pay ReportingSick Pay Payments That Are Not Sick Pay Sick Pay Plan Third-Party Payers of Sick Pay Social Security, Medicare, and FUTA Taxes on Sick Pay Income Tax Withholding on Sick Pay Depositing and Reporting Example of Figuring and Reporting Sick Pay 7. Https www freefilefillableforms org Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Https www freefilefillableforms org Pensions and AnnuitiesFederal Income Tax Withholding 9. Https www freefilefillableforms org Alternative Methods for Figuring WithholdingTerm of continuous employment. Https www freefilefillableforms org Formula Tables for Percentage Method Withholding (for Automated Payroll Systems) Wage Bracket Percentage Method Tables (for Automated Payroll Systems) Combined Federal Income Tax, Employee Social Security Tax, and Employee Medicare Tax Withholding Tables 10. Https www freefilefillableforms org Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Https www freefilefillableforms org Who Are Employees? Before you can know how to treat payments that you make to workers for services, you must first know the business relationship that exists between you and the person performing the services. Https www freefilefillableforms org The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Https www freefilefillableforms org This discussion explains these four categories. Https www freefilefillableforms org A later discussion, Employee or Independent Contractor in section 2, points out the differences between an independent contractor and an employee and gives examples from various types of occupations. Https www freefilefillableforms org If an individual who works for you is not an employee under the common-law rules (see section 2), you generally do not have to withhold federal income tax from that individual's pay. Https www freefilefillableforms org However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Https www freefilefillableforms org See Publication 15 (Circular E) for information on backup withholding. Https www freefilefillableforms org Independent Contractors People such as doctors, veterinarians, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. Https www freefilefillableforms org However, whether such people are employees or independent contractors depends on the facts in each case. Https www freefilefillableforms org The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Https www freefilefillableforms org Common-Law Employees Under common-law rules, anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. Https www freefilefillableforms org This is so even when you give the employee freedom of action. Https www freefilefillableforms org What matters is that you have the right to control the details of how the services are performed. Https www freefilefillableforms org For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. Https www freefilefillableforms org If you have an employer-employee relationship, it makes no difference how it is labeled. Https www freefilefillableforms org The substance of the relationship, not the label, governs the worker's status. Https www freefilefillableforms org It does not matter whether the individual is employed full time or part time. Https www freefilefillableforms org For employment tax purposes, no distinction is made between classes of employees. Https www freefilefillableforms org Superintendents, managers, and other supervisory personnel are all employees. Https www freefilefillableforms org An officer of a corporation is generally an employee; however, an officer who performs no services or only minor services, and neither receives nor is entitled to receive any pay, is not considered an employee. Https www freefilefillableforms org A director of a corporation is not an employee with respect to services performed as a director. Https www freefilefillableforms org You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. Https www freefilefillableforms org However, the wages of certain employees may be exempt from one or more of these taxes. Https www freefilefillableforms org See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Https www freefilefillableforms org Leased employees. Https www freefilefillableforms org   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Https www freefilefillableforms org For example, a temporary staffing service may provide the services of secretaries, nurses, and other similarly trained workers to its clients on a temporary basis. Https www freefilefillableforms org   The staffing service enters into contracts with the clients under which the clients specify the services to be provided and a fee is paid to the staffing service for each individual furnished. Https www freefilefillableforms org The staffing service has the right to control and direct the worker's services for the client, including the right to discharge or reassign the worker. Https www freefilefillableforms org The staffing service hires the workers, controls the payment of their wages, provides them with unemployment insurance and other benefits, and is the employer for employment tax purposes. Https www freefilefillableforms org For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. Https www freefilefillableforms org Additional information. Https www freefilefillableforms org   For more information about the treatment of special types of employment, the treatment of special types of payments, and similar subjects, see Publication 15 (Circular E) or Publication 51 (Circular A), Agricultural Employer's Tax Guide. Https www freefilefillableforms org Statutory Employees If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute, (also known as “statutory employees”) for certain employment tax purposes. Https www freefilefillableforms org This would happen if they fall within any one of the following four categories and meet the three conditions described next under Social security and Medicare taxes . Https www freefilefillableforms org A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission. Https www freefilefillableforms org A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company. Https www freefilefillableforms org An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. Https www freefilefillableforms org A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. Https www freefilefillableforms org The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Https www freefilefillableforms org The work performed for you must be the salesperson's principal business activity. Https www freefilefillableforms org See Salesperson in section 2. Https www freefilefillableforms org Social security and Medicare taxes. Https www freefilefillableforms org   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Https www freefilefillableforms org The service contract states or implies that substantially all the services are to be performed personally by them. Https www freefilefillableforms org They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation, such as a car or truck). Https www freefilefillableforms org The services are performed on a continuing basis for the same payer. Https www freefilefillableforms org Federal unemployment (FUTA) tax. Https www freefilefillableforms org   For FUTA tax (the unemployment tax paid under the Federal Unemployment Tax Act), the term “employee” means the same as it does for social security and Medicare taxes, except that it does not include statutory employees defined above in categories 2 and 3. Https www freefilefillableforms org Any individual who is a statutory employee described above under category 1 or 4 is also an employee for FUTA tax purposes and subject to FUTA tax. Https www freefilefillableforms org Income tax. Https www freefilefillableforms org   Do not withhold federal income tax from the wages of statutory employees. Https www freefilefillableforms org Reporting payments to statutory employees. Https www freefilefillableforms org   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Https www freefilefillableforms org Show your payments to the employee as “other compensation” in box 1. Https www freefilefillableforms org Also, show social security wages in box 3, social security tax withheld in box 4, Medicare wages in box 5, and Medicare tax withheld in box 6. Https www freefilefillableforms org The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Https www freefilefillableforms org He or she reports earnings as a statutory employee on line 1 of Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Https www freefilefillableforms org A statutory employee's business expenses are deductible on Schedule C (Form 1040) or C-EZ (Form 1040) and are not subject to the reduction by 2% of his or her adjusted gross income that applies to common-law employees. Https www freefilefillableforms org H-2A agricultural workers. Https www freefilefillableforms org   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Https www freefilefillableforms org Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Https www freefilefillableforms org Direct sellers and licensed real estate agents are treated as self-employed for all federal tax purposes, including income and employment taxes, if: Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and Their services are performed under a written contract providing that they will not be treated as employees for federal tax purposes. Https www freefilefillableforms org Direct sellers. Https www freefilefillableforms org   Direct sellers include persons falling within any of the following three groups. Https www freefilefillableforms org Persons engaged in selling (or soliciting the sale of) consumer products in the home or place of business other than in a permanent retail establishment. Https www freefilefillableforms org Persons engaged in selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis prescribed by regulations, for resale in the home or at a place of business other than in a permanent retail establishment. Https www freefilefillableforms org Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution). Https www freefilefillableforms org   Direct selling includes activities of individuals who attempt to increase direct sales activities of their direct sellers and who earn income based on the productivity of their direct sellers. Https www freefilefillableforms org Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Https www freefilefillableforms org Licensed real estate agents. Https www freefilefillableforms org   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Https www freefilefillableforms org Companion sitters. Https www freefilefillableforms org   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Https www freefilefillableforms org A person engaged in the trade or business of putting the sitters in touch with individuals who wish to employ them (that is, a companion sitting placement service) will not be treated as the employer of the sitters if that person does not receive or pay the salary or wages of the sitters and is compensated by the sitters or the persons who employ them on a fee basis. Https www freefilefillableforms org Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Https www freefilefillableforms org Misclassification of Employees Consequences of treating an employee as an independent contractor. Https www freefilefillableforms org   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you are liable for employment taxes for that worker and the relief provision, discussed next, will not apply. Https www freefilefillableforms org See section 2 in Publication 15 (Circular E) for more information. Https www freefilefillableforms org Relief provision. Https www freefilefillableforms org   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Https www freefilefillableforms org To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Https www freefilefillableforms org You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Https www freefilefillableforms org Technical service specialists. Https www freefilefillableforms org   This relief provision does not apply for a technical services specialist you provide to another business under an arrangement between you and the other business. Https www freefilefillableforms org A technical service specialist is an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work. Https www freefilefillableforms org   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. Https www freefilefillableforms org The common-law rules control whether the specialist is treated as an employee or an independent contractor. Https www freefilefillableforms org However, if you directly contract with a technical service specialist to provide services for your business and not for another business, you may still be entitled to the relief provision. Https www freefilefillableforms org Test proctors and room supervisors. Https www freefilefillableforms org   The consistent treatment requirement does not apply to services performed after December 31, 2006, by an individual as a test proctor or room supervisor assisting in the administration of college entrance or placement examinations if the individual: Is performing the services for a section 501(c) organization exempt from tax under section 501(a) of the code, and Is not otherwise treated as an employee of the organization for employment taxes. Https www freefilefillableforms org Voluntary Classification Settlement Program (VCSP). Https www freefilefillableforms org   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Https www freefilefillableforms org To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Https www freefilefillableforms org For more information, visit IRS. Https www freefilefillableforms org gov and enter “VCSP” in the search box. Https www freefilefillableforms org 2. Https www freefilefillableforms org Employee or Independent Contractor? An employer must generally withhold federal income taxes, withhold and pay over social security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Https www freefilefillableforms org An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Https www freefilefillableforms org Common-Law Rules To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. Https www freefilefillableforms org In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Https www freefilefillableforms org Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Https www freefilefillableforms org These facts are discussed next. Https www freefilefillableforms org Behavioral control. Https www freefilefillableforms org   Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: Instructions that the business gives to the worker. Https www freefilefillableforms org   An employee is generally subject to the business' instructions about when, where, and how to work. Https www freefilefillableforms org All of the following are examples of types of instructions about how to do work. Https www freefilefillableforms org When and where to do the work. Https www freefilefillableforms org What tools or equipment to use. Https www freefilefillableforms org What workers to hire or to assist with the work. Https www freefilefillableforms org Where to purchase supplies and services. Https www freefilefillableforms org What work must be performed by a specified  individual. Https www freefilefillableforms org What order or sequence to follow. Https www freefilefillableforms org   The amount of instruction needed varies among different jobs. Https www freefilefillableforms org Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. Https www freefilefillableforms org A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Https www freefilefillableforms org The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. Https www freefilefillableforms org Training that the business gives to the worker. Https www freefilefillableforms org   An employee may be trained to perform services in a particular manner. Https www freefilefillableforms org Independent contractors ordinarily use their own methods. Https www freefilefillableforms org Financial control. Https www freefilefillableforms org   Facts that show whether the business has a right to control the business aspects of the worker's job include: The extent to which the worker has unreimbursed business expenses. Https www freefilefillableforms org   Independent contractors are more likely to have unreimbursed expenses than are employees. Https www freefilefillableforms org Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Https www freefilefillableforms org However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Https www freefilefillableforms org The extent of the worker's investment. Https www freefilefillableforms org   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Https www freefilefillableforms org However, a significant investment is not necessary for independent contractor status. Https www freefilefillableforms org The extent to which the worker makes his or her services available to the relevant market. Https www freefilefillableforms org   An independent contractor is generally free to seek out business opportunities. Https www freefilefillableforms org Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Https www freefilefillableforms org How the business pays the worker. Https www freefilefillableforms org   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Https www freefilefillableforms org This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Https www freefilefillableforms org An independent contractor is often paid a flat fee or on a time and materials basis for the job. Https www freefilefillableforms org However, it is common in some professions, such as law, to pay independent contractors hourly. Https www freefilefillableforms org The extent to which the worker can realize a profit or loss. Https www freefilefillableforms org   An independent contractor can make a profit or loss. Https www freefilefillableforms org Type of relationship. Https www freefilefillableforms org   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Https www freefilefillableforms org Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Https www freefilefillableforms org The permanency of the relationship. Https www freefilefillableforms org If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship. Https www freefilefillableforms org The extent to which services performed by the worker are a key aspect of the regular business of the company. Https www freefilefillableforms org If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. Https www freefilefillableforms org For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. Https www freefilefillableforms org This would indicate an employer-employee relationship. Https www freefilefillableforms org IRS help. Https www freefilefillableforms org   If you want the IRS to determine whether or not a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. Https www freefilefillableforms org Industry Examples The following examples may help you properly classify your workers. Https www freefilefillableforms org Building and Construction Industry Example 1. Https www freefilefillableforms org Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Https www freefilefillableforms org She did not advance funds to help him carry on the work. Https www freefilefillableforms org She makes direct payments to the suppliers for all necessary materials. Https www freefilefillableforms org She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Https www freefilefillableforms org She pays them an hourly rate and exercises almost constant supervision over the work. Https www freefilefillableforms org Jerry is not free to transfer his assistants to other jobs. Https www freefilefillableforms org He may not work on other jobs while working for Wilma. Https www freefilefillableforms org He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Https www freefilefillableforms org He and his assistants perform personal services for hourly wages. Https www freefilefillableforms org Jerry Jones and his assistants are employees of Wilma White. Https www freefilefillableforms org Example 2. Https www freefilefillableforms org Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Https www freefilefillableforms org He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Https www freefilefillableforms org The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Https www freefilefillableforms org He does not have a place of business or hold himself out to perform similar services for others. Https www freefilefillableforms org Either party can end the services at any time. Https www freefilefillableforms org Milton Manning is an employee of the corporation. Https www freefilefillableforms org Example 3. Https www freefilefillableforms org Wallace Black agreed with the Sawdust Co. Https www freefilefillableforms org to supply the construction labor for a group of houses. Https www freefilefillableforms org The company agreed to pay all construction costs. Https www freefilefillableforms org However, he supplies all the tools and equipment. Https www freefilefillableforms org He performs personal services as a carpenter and mechanic for an hourly wage. Https www freefilefillableforms org He also acts as superintendent and foreman and engages other individuals to assist him. Https www freefilefillableforms org The company has the right to select, approve, or discharge any helper. Https www freefilefillableforms org A company representative makes frequent inspections of the construction site. Https www freefilefillableforms org When a house is finished, Wallace is paid a certain percentage of its costs. Https www freefilefillableforms org He is not responsible for faults, defects of construction, or wasteful operation. Https www freefilefillableforms org At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Https www freefilefillableforms org The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Https www freefilefillableforms org Wallace Black and his assistants are employees of the Sawdust Co. Https www freefilefillableforms org Example 4. Https www freefilefillableforms org Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Https www freefilefillableforms org A signed contract established a flat amount for the services rendered by Bill Plum. Https www freefilefillableforms org Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Https www freefilefillableforms org He hires his own roofers who are treated as employees for federal employment tax purposes. Https www freefilefillableforms org If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Https www freefilefillableforms org Bill Plum, doing business as Plum Roofing, is an independent contractor. Https www freefilefillableforms org Example 5. Https www freefilefillableforms org Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Https www freefilefillableforms org She is to receive $1,280 every 2 weeks for the next 10 weeks. Https www freefilefillableforms org This is not considered payment by the hour. Https www freefilefillableforms org Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Https www freefilefillableforms org She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Https www freefilefillableforms org Vera is an independent contractor. Https www freefilefillableforms org Trucking Industry Example. Https www freefilefillableforms org Rose Trucking contracts to deliver material for Forest, Inc. Https www freefilefillableforms org , at $140 per ton. Https www freefilefillableforms org Rose Trucking is not paid for any articles that are not delivered. Https www freefilefillableforms org At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Https www freefilefillableforms org All operating expenses, including insurance coverage, are paid by Jan Rose. Https www freefilefillableforms org All equipment is owned or rented by Jan and she is responsible for all maintenance. Https www freefilefillableforms org None of the drivers are provided by Forest, Inc. Https www freefilefillableforms org Jan Rose, operating as Rose Trucking, is an independent contractor. Https www freefilefillableforms org Computer Industry Example. Https www freefilefillableforms org Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Https www freefilefillableforms org , downsizes. Https www freefilefillableforms org Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Https www freefilefillableforms org It is not clear how long that it will take to complete the project, and Steve is not guaranteed any minimum payment for the hours spent on the program. Https www freefilefillableforms org Megabyte provides Steve with no instructions beyond the specifications for the product itself. Https www freefilefillableforms org Steve and Megabyte have a written contract, which provides that Steve is considered to be an independent contractor, is required to pay federal and state taxes, and receives no benefits from Megabyte. Https www freefilefillableforms org Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Https www freefilefillableforms org Steve works at home and is not expected or allowed to attend meetings of the software development group. Https www freefilefillableforms org Steve is an independent contractor. Https www freefilefillableforms org Automobile Industry Example 1. Https www freefilefillableforms org Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Https www freefilefillableforms org She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Https www freefilefillableforms org She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Https www freefilefillableforms org Lists of prospective customers belong to the dealer. Https www freefilefillableforms org She is required to develop leads and report results to the sales manager. Https www freefilefillableforms org Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Https www freefilefillableforms org She is paid a commission and is eligible for prizes and bonuses offered by Bob. Https www freefilefillableforms org Bob also pays the cost of health insurance and group-term life insurance for Donna. Https www freefilefillableforms org Donna is an employee of Bob Blue. Https www freefilefillableforms org Example 2. Https www freefilefillableforms org Sam Sparks performs auto repair services in the repair department of an auto sales company. Https www freefilefillableforms org He works regular hours and is paid on a percentage basis. Https www freefilefillableforms org He has no investment in the repair department. Https www freefilefillableforms org The sales company supplies all facilities, repair parts, and supplies; issues instructions on the amounts to be charged, parts to be used, and the time for completion of each job; and checks all estimates and repair orders. Https www freefilefillableforms org Sam is an employee of the sales company. Https www freefilefillableforms org Example 3. Https www freefilefillableforms org An auto sales agency furnishes space for Helen Bach to perform auto repair services. Https www freefilefillableforms org She provides her own tools, equipment, and supplies. Https www freefilefillableforms org She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. Https www freefilefillableforms org She hires and discharges her own helpers, determines her own and her helpers' working hours, quotes prices for repair work, makes all necessary adjustments, assumes all losses from uncollectible accounts, and receives, as compensation for her services, a large percentage of the gross collections from the auto repair shop. Https www freefilefillableforms org Helen is an independent contractor and the helpers are her employees. Https www freefilefillableforms org Attorney Example. Https www freefilefillableforms org Donna Yuma is a sole practitioner who rents office space and pays for the following items: telephone, computer, on-line legal research linkup, fax machine, and photocopier. Https www freefilefillableforms org Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Https www freefilefillableforms org Donna has a part-time receptionist who also does the bookkeeping. Https www freefilefillableforms org She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Https www freefilefillableforms org For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Https www freefilefillableforms org Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Https www freefilefillableforms org The bills include charges for long distance calls, on-line research time, fax charges, photocopies, postage, and travel, costs for which the corporations have agreed to reimburse her. Https www freefilefillableforms org Donna is an independent contractor. Https www freefilefillableforms org Taxicab Driver Example. Https www freefilefillableforms org Tom Spruce rents a cab from Taft Cab Co. Https www freefilefillableforms org for $150 per day. Https www freefilefillableforms org He pays the costs of maintaining and operating the cab. Https www freefilefillableforms org Tom Spruce keeps all fares that he receives from customers. Https www freefilefillableforms org Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. Https www freefilefillableforms org Tom Spruce is an independent contractor. Https www freefilefillableforms org Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Https www freefilefillableforms org If a salesperson who works for you does not meet the tests for a common-law employee, discussed earlier in this section, you do not have to withhold federal income tax from his or her pay (see Statutory Employees in section 1). Https www freefilefillableforms org However, even if a salesperson is not an employee under the usual common-law rules for income tax withholding, his or her pay may still be subject to social security, Medicare, and FUTA taxes as a statutory employee. Https www freefilefillableforms org To determine whether a salesperson is an employee for social security, Medicare, and FUTA tax purposes, the salesperson must meet all eight elements of the statutory employee test. Https www freefilefillableforms org A salesperson is a statutory employee for social security, Medicare, and FUTA tax purposes if he or she: Works full time for one person or company except, possibly, for sideline sales activities on behalf of some other person, Sells on behalf of, and turns his or her orders over to, the person or company for which he or she works, Sells to wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments, Sells merchandise for resale, or supplies for use in the customer's business, Agrees to do substantially all of this work personally, Has no substantial investment in the facilities used to do the work, other than in facilities for transportation, Maintains a continuing relationship with the person or company for which he or she works, and Is not an employee under common-law rules. Https www freefilefillableforms org 3. Https www freefilefillableforms org Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Https www freefilefillableforms org Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. Https www freefilefillableforms org However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Https www freefilefillableforms org Section 501(c)(3) organizations. Https www freefilefillableforms org   Nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code include any community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Https www freefilefillableforms org These organizations are usually corporations and are exempt from federal income tax under section 501(a). Https www freefilefillableforms org Social security and Medicare taxes. Https www freefilefillableforms org   Wages paid to employees of section 501(c)(3) organizations are subject to social security and Medicare taxes unless one of the following situations applies. Https www freefilefillableforms org The organization pays an employee less than $100 in a calendar year. Https www freefilefillableforms org The organization is a church or church-controlled organization opposed for religious reasons to the payment of social security and Medicare taxes and has filed Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes, to elect exemption from social security and Medicare taxes. Https www freefilefillableforms org The organization must have filed for exemption before the first date on which a quarterly employment tax return (Form 941) or annual employment tax return (Form 944) would otherwise be due. Https www freefilefillableforms org   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes must pay self-employment tax if the employee is paid $108. Https www freefilefillableforms org 28 or more in a year. Https www freefilefillableforms org However, an employee who is a member of a qualified religious sect can apply for an exemption from the self-employment tax by filing Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Https www freefilefillableforms org See Members of recognized religious sects opposed to insurance in section 4. Https www freefilefillableforms org FUTA tax. Https www freefilefillableforms org   An organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from FUTA tax. Https www freefilefillableforms org This exemption cannot be waived. Https www freefilefillableforms org Do not file Form 940 to report wages paid by these organizations or pay the tax. Https www freefilefillableforms org Note. Https www freefilefillableforms org An organization wholly owned by a state or its political subdivision should contact the appropriate state official for information about reporting and getting social security and Medicare coverage for its employees. Https www freefilefillableforms org Other than section 501(c)(3) organizations. Https www freefilefillableforms org   Nonprofit organizations that are not section 501(c)(3) organizations may also be exempt from federal income tax under section 501(a) or section 521. Https www freefilefillableforms org However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. Https www freefilefillableforms org Two special rules for social security, Medicare, and FUTA taxes apply. Https www freefilefillableforms org If an employee is paid less than $100 during a calendar year, his or her wages are not subject to social security and Medicare taxes. Https www freefilefillableforms org If an employee is paid less than $50 in a calendar quarter, his or her wages are not subject to FUTA tax for the quarter. Https www freefilefillableforms org The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Https www freefilefillableforms org 4. Https www freefilefillableforms org Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Https www freefilefillableforms org An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. Https www freefilefillableforms org For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Https www freefilefillableforms org Ministers. Https www freefilefillableforms org   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Https www freefilefillableforms org They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances and sacraments according to the prescribed tenets and practices of that religious organization. Https www freefilefillableforms org   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Https www freefilefillableforms org The common-law rules discussed in section 1 and section 2 should be applied to determine whether a minister is your employee or is self-employed. Https www freefilefillableforms org Whether the minister is an employee or self-employed, the earnings of a minister are not subject to federal income, social security, and Medicare tax withholding. Https www freefilefillableforms org However, even if the minister is a common law employee, the earnings as reported on the minister's Form 1040 are subject to self-employment tax and federal income tax. Https www freefilefillableforms org You do not withhold these taxes from wages earned by a minister, but if the minister is your employee, you may agree with the minister to voluntarily withhold tax to cover the minister's liability for self-employment tax and federal income tax. Https www freefilefillableforms org For more information, see Publication 517. Https www freefilefillableforms org Form W-2. Https www freefilefillableforms org   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Https www freefilefillableforms org Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Https www freefilefillableforms org Do not include a parsonage allowance (excludable housing allowance) in this amount. Https www freefilefillableforms org You may report a designated parsonage or rental allowance (housing allowance) and a utilities allowance, or the rental value of housing provided in a separate statement or in box 14 on Form W-2. Https www freefilefillableforms org Do not show on Form W-2, Form 941, or Form 944 any amount as social security or Medicare wages, or any withholding for social security or Medicare taxes. Https www freefilefillableforms org If you withheld federal income tax from the minister under a voluntary agreement, this amount should be shown in box 2 on Form W-2 as federal income tax withheld. Https www freefilefillableforms org For more information on ministers, see Publication 517. Https www freefilefillableforms org Exemptions for ministers and others. Https www freefilefillableforms org   Certain ordained ministers, Christian Science practitioners, and members of religious orders who have not taken a vow of poverty may apply to exempt their earnings from self-employment tax on religious grounds. Https www freefilefillableforms org The application must be based on conscientious opposition because of personal considerations to public insurance that makes payments in the event of death, disability, old age, or retirement, or that makes payments toward the cost of, or provides services for, medical care, including social security and Medicare benefits. Https www freefilefillableforms org The exemption applies only to qualified services performed for the religious organization. Https www freefilefillableforms org See Revenue Procedure 91-20, 1991-1 C. Https www freefilefillableforms org B. Https www freefilefillableforms org 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Https www freefilefillableforms org   To apply for the exemption, the employee should file Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. Https www freefilefillableforms org See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Https www freefilefillableforms org Members of recognized religious sects opposed to insurance. Https www freefilefillableforms org   If you belong to a recognized religious sect or to a division of such sect that is opposed to insurance, you may qualify for an exemption from the self-employment tax. Https www freefilefillableforms org To qualify, you must be conscientiously opposed to accepting the benefits of any public or private insurance that makes payments because of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care (including social security and Medicare benefits). Https www freefilefillableforms org If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Https www freefilefillableforms org Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Https www freefilefillableforms org In addition, your religious sect (or division) must have existed since December 31, 1950. Https www freefilefillableforms org Self-employed. Https www freefilefillableforms org   If you are self-employed and a member of a recognized religious sect opposed to insurance, you can apply for exemption by filing Form 4029 to waive all social security and Medicare benefits. Https www freefilefillableforms org Employees. Https www freefilefillableforms org   The social security and Medicare tax exemption available to the self-employed who are members of a recognized religious sect opposed to insurance is also available to their employees who are members of such a sect. Https www freefilefillableforms org This applies to partnerships only if each partner is a member of the sect. Https www freefilefillableforms org This exemption for employees applies only if both the employee and the employer are members of such a sect, and the employer has an exemption. Https www freefilefillableforms org To get the exemption, the employee must file Form 4029. Https www freefilefillableforms org   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes can also apply for an exemption on Form 4029. Https www freefilefillableforms org 5. Https www freefilefillableforms org Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Https www freefilefillableforms org Publication 15-B discusses fringe benefits. Https www freefilefillableforms org The following topics supplement those discussions. Https www freefilefillableforms org Relocating for Temporary Work Assignments If an employee is given a temporary work assignment away from his or her regular place of work, certain travel expenses reimbursed or paid directly by the employer in accordance with an accountable plan (see section 5 in Publication 15 (Circular E)) may be excludable from the employee's wages. Https www freefilefillableforms org Generally, a temporary work assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Https www freefilefillableforms org If the employee's new work assignment is indefinite, any living expenses reimbursed or paid by the employer (other than qualified moving expenses) must be included in the employee's wages as compensation. Https www freefilefillableforms org For the travel expenses to be excludable: The new work location must be outside of the city or general area of the employee's regular work place or post of duty, The travel expenses must otherwise qualify as deductible by the employee, and The expenses must be for the period during which the employee is at the temporary work location. Https www freefilefillableforms org If you reimburse or pay any personal expenses of an employee during his or her temporary work assignment, such as expenses for home leave for family members or for vacations, these amounts must be included in the employee's wages. Https www freefilefillableforms org See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Https www freefilefillableforms org These rules generally apply to temporary work assignments both inside and outside the U. Https www freefilefillableforms org S. Https www freefilefillableforms org Employee Achievement Awards Do not withhold federal income, social security, or Medicare taxes on the fair market value of an employee achievement award if it is excludable from your employee's gross income. Https www freefilefillableforms org To be excludable from your employee's gross income, the award must be tangible personal property (not cash, gift certificates, or securities) given to an employee for length of service or safety achievement, awarded as part of a meaningful presentation, and awarded under circumstances that do not indicate that the payment is disguised compensation. Https www freefilefillableforms org Excludable employee achievement awards also are not subject to FUTA tax. Https www freefilefillableforms org Limits. Https www freefilefillableforms org   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Https www freefilefillableforms org A higher limit of $1,600 applies to qualified plan awards. Https www freefilefillableforms org Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Https www freefilefillableforms org An award cannot be treated as a qualified plan award if the average cost per recipient of all awards under all of your qualified plans is more than $400. Https www freefilefillableforms org   If during the year an employee receives awards not made under a qualified plan and also receives awards under a qualified plan, the exclusion for the total cost of all awards to that employee cannot be more than $1,600. Https www freefilefillableforms org The $400 and $1,600 limits cannot be added together to exclude more than $1,600 for the cost of awards to any one employee during the year. Https www freefilefillableforms org Scholarship and Fellowship Payments Only amounts that you pay as a qualified scholarship to a candidate for a degree may be excluded from the recipient's gross income. Https www freefilefillableforms org A qualified scholarship is any amount granted as a scholarship or fellowship that is used for: Tuition and fees required to enroll in, or to attend, an educational institution, or Fees, books, supplies, and equipment that are required for courses at the educational institution. Https www freefilefillableforms org The exclusion from income does not apply to the portion of any amount received that represents payment for teaching, research, or other services required as a condition of receiving the scholarship or tuition reduction. Https www freefilefillableforms org These amounts are reportable on Form W-2. Https www freefilefillableforms org However, the exclusion will still apply for any amount received under two specific programs—the National Health Service Corps Scholarship Program and the Armed Forces Health Professions Scholarship and Financial Assistance Program—despite any service condition attached to those amounts. Https www freefilefillableforms org Any amounts that you pay for room and board are not excludable from the recipient's gross income. Https www freefilefillableforms org A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Https www freefilefillableforms org For more information, see Publication 970, Tax Benefits for Education. Https www freefilefillableforms org Outplacement Services If you provide outplacement services to your employees to help them find new employment (such as career counseling, resume assistance, or skills assessment), the value of these benefits may be income to them and subject to all withholding taxes. Https www freefilefillableforms org However, the value of these services will not be subject to any employment taxes if: You derive a substantial business benefit from providing the services (such as improved employee morale or business image) separate from the benefit that you would receive from the mere payment of additional compensation, and The employee would be able to deduct the cost of the services as employee business expenses if he or she had paid for them. Https www freefilefillableforms org However, if you receive no additional benefit from providing the services, or if the services are not provided on the basis of employee need, then the value of the services is treated as wages and is subject to federal income tax withholding and social security and Medicare taxes. Https www freefilefillableforms org Similarly, if an employee receives the outplacement services in exchange for reduced severance pay (or other taxable compensation), then the amount the severance pay is reduced is treated as wages for employment tax purposes. Https www freefilefillableforms org Withholding for Idle Time Payments made under a voluntary guarantee to employees for idle time (any time during which an employee performs no services) are wages for the purposes of social security, Medicare, and FUTA taxes, and federal income tax withholding. Https www freefilefillableforms org Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Https www freefilefillableforms org If back pay was awarded by a court or government agency to enforce a federal or state statute protecting an employee's right to employment or wages, special rules apply for reporting those wages to the Social Security Administration. Https www freefilefillableforms org These rules also apply to litigation actions and settlement agreements or agency directives that are resolved out of court and not under a court decree or order. Https www freefilefillableforms org Examples of pertinent statutes include, but are not limited to, the National Labor Relations Act, Fair Labor Standards Act, Equal Pay Act, and Age Discrimination in Employment Act. Https www freefilefillableforms org See Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration, and Form SSA-131, Employer Report of Special Wage Payments, for details. Https www freefilefillableforms org Supplemental Unemployment Benefits If you pay, under a plan, supplemental unemployment benefits to a former employee, all or part of the payments may be taxable and subject to federal income tax withholding, depending on how the plan is funded. Https www freefilefillableforms org Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Https www freefilefillableforms org You should withhold federal income tax on the taxable part of the payments made, under a plan, to an employee who is involuntarily separated because of a reduction in force, discontinuance of a plant or operation, or other similar condition. Https www freefilefillableforms org It does not matter whether the separation is temporary or permanent. Https www freefilefillableforms org There are special rules that apply in determining whether benefits qualify as supplemental unemployment benefits that are excluded from wages for social security, Medicare, and FUTA tax purposes. Https www freefilefillableforms org To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Https www freefilefillableforms org Benefits are paid only to unemployed former employees who are laid off by the employer. Https www freefilefillableforms org Eligibility for benefits depends on meeting prescribed conditions after termination. Https www freefilefillableforms org The amount of weekly benefits payable is based upon state unemployment benefits, other compensation allowable under state law, and the amount of regular weekly pay. Https www freefilefillableforms org The right to benefits does not accrue until a prescribed period after termination. Https www freefilefillableforms org Benefits are not attributable to the performance of particular services. Https www freefilefillableforms org No employee has any right to the benefits until qualified and eligible to receive benefits. Https www freefilefillableforms org Benefits may not be paid in a lump sum. Https www freefilefillableforms org Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Https www freefilefillableforms org Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. Https www freefilefillableforms org Under the agreement, the corporation agrees to pay certain amounts to its key personnel in the event of a change in ownership or control of the corporation. Https www freefilefillableforms org Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Https www freefilefillableforms org See Regulations section 1. Https www freefilefillableforms org 280G-1 for more information. Https www freefilefillableforms org No deduction is allowed to the corporation for any excess parachute payment. Https www freefilefillableforms org To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. Https www freefilefillableforms org A parachute payment for purposes of section 280G is any payment that meets all of the following. Https www freefilefillableforms org The payment is in the nature of compensation. Https www freefilefillableforms org The payment is to, or for the benefit of, a disqualified individual. Https www freefilefillableforms org A disqualified individual is anyone who at any time during the 12-month period prior to and ending on the date of the change in ownership or control of the corporation (the disqualified individual determination period) was an employee or independent contractor and was, in regard to that corporation, a shareholder, an officer, or highly compensated individual. Https www freefilefillableforms org The payment is contingent on a change in ownership of the corporation, the effective control of the corporation, or the ownership of a substantial portion of the assets of the corporation. Https www freefilefillableforms org The payment has an aggregate present value of at least three times the individual's base amount. Https www freefilefillableforms org The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. Https www freefilefillableforms org An excess parachute payment amount is the excess of any parachute payment over the base amount. Https www freefilefillableforms org For more information, see Regulations section 1. Https www freefilefillableforms org 280G-1. Https www freefilefillableforms org The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Https www freefilefillableforms org If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Https www freefilefillableforms org Example. Https www freefilefillableforms org An officer of a corporation receives a golden parachute payment of $400,000. Https www freefilefillableforms org This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Https www freefilefillableforms org The excess parachute payment is $300,000 ($400,000 minus $100,000). Https www freefilefillableforms org The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Https www freefilefillableforms org Reporting golden parachute payments. Https www freefilefillableforms org   Golden parachute payments to employees must be reported on Form W-2. Https www freefilefillableforms org See the General Instructions for Forms W-2 and W-3 for details. Https www freefilefillableforms org For nonemployee reporting of these payments, see Box 7. Https www freefilefillableforms org Nonemployee Compensation in the Instructions for Form 1099-MISC. Https www freefilefillableforms org Exempt payments. Https www freefilefillableforms org   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Https www freefilefillableforms org See section 280G(b)(5) and (6) for more information. Https www freefilefillableforms org Interest-Free and Below-Market-Interest-Rate Loans In general, if an employer lends an employee more than $10,000 at an interest rate less than the current applicable federal rate (AFR), the difference between the interest paid and the interest that would be paid under the AFR is considered additional compensation to the employee. Https www freefilefillableforms org This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Https www freefilefillableforms org This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Https www freefilefillableforms org Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Https www freefilefillableforms org The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Https www freefilefillableforms org You can get these rates by calling 1-800-829-4933 or by visiting IRS. Https www freefilefillableforms org gov. Https www freefilefillableforms org For more information, see section 7872 and its related regulations. Https www freefilefillableforms org Leave Sharing Plans If you establish a leave sharing plan for your employees that allows them to transfer leave to other employees for medical emergencies, the amounts paid to the recipients of the leave are considered wages. Https www freefilefillableforms org These amounts are includible in the gross income of the recipients and are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Https www freefilefillableforms org Do not include these amounts in the income of the transferors. Https www freefilefillableforms org These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Https www freefilefillableforms org Nonqualified Deferred Compensation Plans Income Tax and Reporting Section 409A provides that all amounts deferred under a nonqualified deferred compensation (NQDC) plan for all tax years are currently includible in gross income (to the extent not subject to a substantial risk of forfeiture and not previously included in gross income) and subject to additional taxes, unless certain requirements are met pertaining to, among other things, elections to defer compensation and distributions under a NQDC plan. Https www freefilefillableforms org Section 409A also includes rules that apply to certain trusts or similar arrangements associated with NQDC plans if the trusts or arrangements are located outside of the United States, are restricted to the provision of benefits in connection with a decline in the financial health of the plan sponsor, or contributions are made to the trust during certain periods such as when a qualified plan of the service recipient is underfunded. Https www freefilefillableforms org Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Https www freefilefillableforms org Other changes to the Internal Revenue Code provide that the deferrals under a NQDC plan must be reported separately on Form W-2 or Form 1099-MISC, whichever applies. Https www freefilefillableforms org Specific rules for reporting are provided in the instructions to the forms. Https www freefilefillableforms org The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Https www freefilefillableforms org The provisions do not prevent the inclusion of amounts in income or wages under other provisions of the Internal Revenue Code or common law principles, such as when amounts are actually or constructively received or irrevocably contributed to a separate fund. Https www freefilefillableforms org For more information about nonqualified deferred compensation plans, see Regulations sections 1. Https www freefilefillableforms org 409A-1 through 1. Https www freefilefillableforms org 409A-6. Https www freefilefillableforms org Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Https www freefilefillableforms org Notice 2008-113, 2008-51 I. Https www freefilefillableforms org R. Https www freefilefillableforms org B. Https www freefilefillableforms org 1305, is available at www. Https www freefilefillableforms org irs. Https www freefilefillableforms org gov/irb/2008-51_IRB/ar12. Https www freefilefillableforms org html. Https www freefilefillableforms org Also see Notice 2010-6, 2010-3 I. Https www freefilefillableforms org R. Https www freefilefillableforms org B. Https www freefilefillableforms org 275, available at www. Https www freefilefillableforms org irs. Https www freefilefillableforms org gov/irb/2010-03_IRB/ar08. Https www freefilefillableforms org html and Notice 2010-80, 2010-51 I. Https www freefilefillableforms org R. Https www freefilefillableforms org B. Https www freefilefillableforms org 853, available at www. Https www freefilefillableforms org irs. Https www freefilefillableforms org gov/irb/2010-51_IRB/ar08. Https www freefilefillableforms org html. Https www freefilefillableforms org Social security, Medicare, and FUTA taxes. Https www freefilefillableforms org   Employer contributions to nonqualified deferred compensation (NQDC) plans, as defined in the applicable regulations, are treated as wages subject to social security, Medicare, and FUTA taxes when the services are performed or the employee no longer has a substantial risk of forfeiting the right to the deferred compensation, whichever is later. Https www freefilefillableforms org   Amounts deferred are subject to social security, Medicare, and FUTA taxes at that time unless the amount that is deferred cannot be reasonably ascertained; for example, if benefits are based on final pay. Https www freefilefillableforms org If the value of the future benefit is based on any factors that are not yet reasonably ascertainable, you may choose to estimate the value of the future benefit and withhold and pay social security, Medicare, and FUTA taxes on that amount. Https www freefilefillableforms org You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Https www freefilefillableforms org If taxes are not paid before the amounts become reasonably ascertainable, when the amounts become reasonably ascertainable they are subject to social security, Medicare, and FUTA taxes on the amounts deferred plus the income attributable to those amounts deferred. Https www freefilefillableforms org For more information, see Regulations sections 31. Https www freefilefillableforms org 3121(v)(2)-1 and 31. Https www freefilefillableforms org 3306(r)(2)-1. Https www freefilefillableforms org Tax-Sheltered Annuities Employer payments made by a public educational institution or a tax-exempt organization to purchase a tax-sheltered annuity for an employee (annual deferrals) are included in the employee's social security and Medicare wages, if the payments are made because of a salary reduction agreement. Https www freefilefillableforms org However, they are not included in box 1 on Form W-2 in the year the deferrals are made and are not subject to federal income tax withholding. Https www freefilefillableforms org See Regulations section 31. Https www freefilefillableforms org 3121(a)(5)-2 for the definition of a salary reduction agreement. Https www freefilefillableforms org Contributions to a Simplified Employee Pension (SEP) An employer's SEP contributions to an employee's individual retirement arrangement (IRA) are excluded from the employee's gross income. Https www freefilefillableforms org These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Https www freefilefillableforms org However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. Https www freefilefillableforms org See Publication 560 for more information about SEPs. Https www freefilefillableforms org Salary reduction simplified employee pensions (SARSEP) repealed. Https www freefilefillableforms org   You may not establish a SARSEP after 1996. Https www freefilefillableforms org However, SARSEPs established before January 1, 1997, may continue to receive contributions. Https www freefilefillableforms org SIMPLE Retirement Plans Employer and employee contributions to a savings incentive match plan for employees (SIMPLE) retirement account (subject to limitations) are excludable from the employee's income and are exempt from federal income tax withholding. Https www freefilefillableforms org An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Https www freefilefillableforms org However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Https www freefilefillableforms org For more information about SIMPLE retirement plans, see Publication 560. Https www freefilefillableforms org 6. Https www freefilefillableforms org Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Https www freefilefillableforms org Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Https www freefilefillableforms org gov in December 2014. Https www freefilefillableforms org Special rules apply to the reporting of sick pay payments to employees. Https www freefilefillableforms org How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. Https www freefilefillableforms org Sick pay is usually subject to social security, Medicare, and FUTA taxes. Https www freefilefillableforms org For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Https www freefilefillableforms org Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Https www freefilefillableforms org Sick Pay Sick pay generally means any amount paid under a plan because of an employee's temporary absence from work due to injury, sickness, or disability. Https www freefilefillableforms org It may be paid by either the employer or a third party, such as an insurance company. Https www freefilefillableforms org Sick pay includes both short- and long-term benefits. Https www freefilefillableforms org It is often expressed as a percentage of the employee's regular wages. Https www freefilefillableforms org Payments That Are Not Sick Pay Sick pay does not include the following payments. Https www freefilefillableforms org Disability retirement payments. Https www freefilefillableforms org Disability retirement payments are not sick pay and are not discussed in this section. Https www freefilefillableforms org Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Https www freefilefillableforms org See section 8. Https www freefilefillableforms org Workers' compensation. Https www freefilefillableforms org Payments because of a work-related injury or sickness that are made under a workers' compensation law are not sick pay and are not subject to employment taxes. Https www freefilefillableforms org But see Payments in the nature of workers' compensation—public employees next. Https www freefilefillableforms org Payments in the nature of workers' compensation—public employees. Https www freefilefillableforms org State and local government employees, such as police officers and firefighters, sometimes receive payments due to an injury in the line of duty under a statute that is not the general workers' compensation law of a state. Https www freefilefillableforms org If the statute limits benefits to work-related injuries or sickness and does not base payments on the employee's age, length of service, or prior contributions, the statute is “in the nature of” a workers' compensation law. Https www freefilefillableforms org Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Https www freefilefillableforms org For more information, see Regulations section 31. Https www freefilefillableforms org 3121(a)(2)-1. Https www freefilefillableforms org Medical expense payments. Https www freefilefillableforms org Payments under a definite plan or system for medical and hospitalization expenses, or for insurance covering these expenses, are not sick pay and are not subject to employment taxes. Https www freefilefillableforms org Payments unrelated to absence from work. Https www freefilefillableforms org Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Https www freefilefillableforms org These include payments for: Permanent loss of a member or function of the body, Permanent loss of the use of a member or function of the body, or Permanent disfigurement of the body. Https www freefilefillableforms org Example. Https www freefilefillableforms org Donald was injured in a car accident and lost an eye. Https www freefilefillableforms org Under a policy paid for by Donald's employer, Delta Insurance Co. Https www freefilefillableforms org paid Donald $20,000 as compensation for the loss of his eye. Https www freefilefillableforms org Because the payment was determined by the type of injury and was unrelated to Donald's absence from work, it is not sick pay and is not subject to federal employment taxes. Https www freefilefillableforms org Sick Pay Plan A sick pay plan is a plan or system established by an employer under which sick pay is available to employees generally or to a class or classes of employees. Https www freefilefillableforms org This does not include a situation in which benefits are provided on a discretionary or occasional basis with merely an intention to aid particular employees in time of need. Https www freefilefillableforms org You have a sick pay plan or system if the plan is in writing or is otherwise made known to employees, such as by a bulletin board notice or your long and established practice. Https www freefilefillableforms org Some indications that you have a sick pay plan or system include references to the plan or system in the contract of employment, employer contributions to a plan, or segregated accounts for the payment of benefits. Https www freefilefillableforms org Definition of employer. Https www freefilefillableforms org   The employer for whom the employee normally works, a term used in the following discussion, is either the employer for whom the employee was working at the time that the employee became sick or disabled or the last employer for whom the employee worked before becoming sick or disabled, if that employer made contributions to the sick pay plan on behalf of the sick or disabled employee. Https www freefilefillableforms org Note. Https www freefilefillableforms org Contributions to a sick pay plan through a cafeteria plan (by direct employer contributions or salary reduction) are employer contributions unless they are after-tax employee contributions (that is, included in taxable wages). Https www freefilefillableforms org Third-Party Payers of Sick Pay Employer's agent. Https www freefilefillableforms org   An employer's agent is a third party that bears no insurance risk and is reimbursed on a cost-plus-fee basis for payment of sick pay and similar amounts. Https www freefilefillableforms org A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Https www freefilefillableforms org For example, if a third party provides administrative services only, the third party is your agent. Https www freefilefillableforms org If the third party is paid an insurance premium and is not reimbursed on a cost-plus-fee basis, the third party is not your agent. Https www freefilefillableforms org Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Https www freefilefillableforms org   A third party that makes payments of sick pay as your agent is not considered the employer and generally has no responsibility for employment taxes. Https www freefilefillableforms org This responsibility remains with you. Https www freefilefillableforms org However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. Https www freefilefillableforms org In this situation, the third-party agent should use its own name and EIN (rather than your name and EIN) for the responsibilities that it has assumed. Https www freefilefillableforms org Third party not employer's agent. Https www freefilefillableforms org   A third party that makes payments of sick pay other than as an agent of the employer is liable for federal income tax withholding (if requested by the employee) and the employee part of the social security and Medicare taxes. Https www freefilefillableforms org   The third party is also liable for the employer part of the social security and Medicare taxes, and the FUTA tax, unless the third party transfers this liability to the employer for whom the employee normally works. Https www freefilefillableforms org This liability is transferred if the third party takes the following steps. Https www freefilefillableforms org Withholds the employee social security and Medicare taxes from the sick pay payments. Https www freefilefillableforms org Makes timely deposits of the employee social security and Medicare taxes. Https www freefilefillableforms org Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Https www freefilefillableforms org The third party must notify the employer within the time required for the third party's deposit of the employee part of the social security and Medicare taxes. Https www freefilefillableforms org For instance, if the third party is a monthly schedule depositor, it must notify the employer by the 15th day of the month following the month in which the sick pay payment is made because that is the day by which the deposit is required to be made. Https www freefilefillableforms org The third party should notify the employer as soon as information on payments is available so that an employer required to make electronic deposits can make them timely. Https www freefilefillableforms org For multi-employer plans, see the special rule discussed next. Https www freefilefillableforms org Multi-employer plan timing rule. Https www freefilefillableforms org   A special rule applies to sick pay payments made to employees by a third-party insurer under an insurance contract with a multi-employer plan established under a collectively bargained agreement. Https www freefilefillableforms org If the third-party insurer making the payments complies wi
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Managing Household Records

When was the last time you couldn't find an important paper you knew you had carefully put away? How do people decide where to store and keep such records? And how do they know what to keep, what to throw away, and when? Do you have a simple system or roadmap for important papers (PDF |download Adobe Reader) to which you or a loved one can refer to in case of an emergency?

Every household must work out its own records management system, but some general guidelines can help. A good system will provide an overview of what happens to property after a major life event occurs.

Active File

First, gather your important papers and important documents from throughout your home. Put these documents into three piles: an active file, dead storage, and items to discard or shred. The active file should include documents and financial records you deal with on a regular basis and need to refer to. Keep these readily accessible at home:

  • Appliance manuals, warranties and service contracts
  • Bank statements
  • Bill payment receipts
  • Bills awaiting payment
  • Credit card information
  • Education records, diploma, transcripts, etc.
  • Employment records
  • Family health records, including vaccination histories
  • Health benefit information
  • Household inventory
  • Income tax working papers
  • Insurance policies
  • Loan statements and payment books
  • Password list
  • Receipts for items under warranty
  • Safe deposit box inventory (and key)
  • Tax receipts, such as those received for charitable deductions


Dead Storage

All active file papers over 3-years-old are considered dead storage. This may not necessarily apply to everything—for example, appliance manuals that you use frequently should stay in the active file.

Items to Discard

  • Cancelled checks for cash or nondeductible expenses
  • Expired warranties
  • Pay stubs, after reconciling with W-2
  • Other records no longer needed, such as those that were replaced by newer versions, manuals of appliances that you've replaced, etc.
How Long to Keep Documents
Document How Long to Keep It
Bank statements 1 year, unless needed to support tax filings
Birth certificates, marriage licenses, divorce decrees, passports, education records, military service records Forever
Contracts Until updated
Credit card records Until paid, unless needed to support tax filings
Home purchase and improvement records As long as you own the property
Household inventory Forever; update as needed
Insurance, life Forever
Insurance, car, home, etc. Until you renew the policy
Investment statements Shred your monthly statements; keep annual statements until you sell the investments
Investment certificates Until you cash or sell the item
Loan documents Until you sell the item the loan was for
Real estate deeds As long as you own the property
Receipts for large purchases Until you sell or discard the item
Service contracts and warranties Until you sell or discard the item
Social Security card Forever
Social Security statement When you get your new statement online, shred the old one
Tax records 7 years from the filing date
Vehicle titles Until you sell or dispose of the car
Will Until updated

Create Your Filing System

Generally, your home file should include all the items you refer to frequently including bills, warranties, bank statements, etc. You’ll also need a secondary storage location for your more important, difficult to replace papers, such as passports, vehicle titles, birth certificates, etc. A fireproof/waterproof safe may be one possibility, but it's better to store those records in a location away from home, such as a bank safe deposit box.

Organize your home filing system (PDF | download Adobe Reader) in a way that you can understand and manage. Choose one member of your household as file manager who will take responsibility for keeping the filing up-to-date and consistent. However, in case of an emergency, everyone in the household needs to be familiar with the system, including children old enough to understand how to use it. Develop and stick to a regular filing and paperwork schedule to avoid having to deal with backlogged papers. A few minutes once or twice a week should be sufficient.

Consider scanning and storing some documents electronically since it's best to save your important documents and files in a way that can easily be carried away and accessed later. Scanning will give you easy access to your documents and allow you to transfer them via e-mail and easily make back-up copies. Investing in an external hard drive for your computer and regularly backing up important documents will allow you to carry away the external hard drive at a moment's notice.

If you don’t have the time or the desire to take these steps, or have realized that the task is too much to handle, consider asking a friend or family member to help you focus and give a fresh perspective. Or, you may want to consider hiring a professional organizer to provide structure, solutions, and systems, and help you gain a sense of control.

Safe Deposit Box

Once you have organized your documents, you’ll want to consider getting an off-site storage location, such as a safe deposit box. Use the safe deposit box for originals, but remember, you'll still need copies at home if something tragic should happen to you and your safe deposit box gets sealed. Always seal documents stored in a safe deposit box in airtight waterproof containers (like Ziploc bags) to ensure they don’t get damaged. If you'd rather keep your records at home, then get a fireproof/waterproof safe. A good rule of thumb is: Put documents in the box if you can't easily replace them or if you don't know what might happen if you don't have them.

If applicable, you should have official or certified copies of documents for your safe deposit box. "Official" means an original copy with all required signatures. Select documents, such as birth certificates, must also be certified or notarized to be considered valid. You can get most government records for free or at low cost from a government office or online at a government agency's website. If you are unsure whether you need a certified copy, or want more information about which local government office can give you originals of these documents, contact your local consumer protection office. Consult your attorney before you put an original copy of your will in a safe deposit box—some states don’t permit access after a person dies.

If you need to obtain documents regarding birth, death, marriage, or divorce, check out Where to Write for Vital Records for guidance. Be wary of companies that offer to sell you copies of official papers; you should check with the appropriate government agency to see if they will provide the same information free or at a lower price.

Consider keeping copies of the following documents in a safe deposit box or locked in a fireproof/waterproof safe in your home:

  • Adoption papers
  • Advance directives*
  • Birth and death certificates
  • Citizenship papers
  • Contracts of importance
  • Deeds and property titles
  • Household inventory
  • Life insurance policies
  • Marriage licenses and divorce decrees
  • Military discharge papers
  • Passports
  • Powers of attorney*
  • Social Security cards
  • Stock and bond certificates
  • Wills*

*Since the safe deposit box will be sealed at your death, keep a copy of your will somewhere accessible. The same goes for the advance directive and powers of attorney since you may not be able to give others access to the safe deposit box.

Grab and Go Kit for Emergencies

Disasters like floods, fires, earthquakes, and tornadoes strike without warning and can affect anyone. Your number one priority in these situations is making sure your family is safe—not finding your most recent copies of insurance policies or bank statements. An easy-to-grab emergency financial records kit (PDF | download Adobe Reader) will make sure you have access to important documents in case the unexpected happens to you.

What Documents Should You Have Ready?

Store the documents in an accordion file and keep it in your emergency supply kit so that everything you need is together. Items you should put in the kit include originals or copies of:

  • Birth and marriage certificates, divorce decrees
  • Social Security cards of household members
  • Driver's license and other wallet cards
  • Will and/or trust documents; powers of attorney
  • Recent income tax return
  • Passports and/or other identity documents
  • Military discharge papers
  • A list of your prescriptions: name of medication, dosage, pharmacy

Other important papers include:

  • Contacts for family members, employer, financial advisors, attorney, accountant, and banker
  • Insurance policy information
  • Bank, credit union, and credit card account list
  • Summary of personal, financial, property, and other vital information

Other items to consider including:

  • Safe deposit box keys and/or safe combination
  • Computer user names and passwords; CD with relevant personal, financial, legal files
  • Some emergency cash

Remember that these documents contain personal information like social security numbers and bank account information that could be used against you if it fell into the wrong hands. Be sure your emergency financial records kit is stored in a secure location in your home so it is easy for you to carry away in a disaster not for a thief to carry away in a robbery.

The Https Www Freefilefillableforms Org

Https www freefilefillableforms org 3. Https www freefilefillableforms org   Environmental Taxes Table of Contents Oil Spill Liability Tax ODCs Imported Taxable Products Floor Stocks Tax Environmental taxes are imposed on crude oil and petroleum products (oil spill liability), the sale or use of ozone-depleting chemicals (ODCs), and imported products containing or manufactured with ODCs. Https www freefilefillableforms org In addition, a floor stocks tax is imposed on ODCs held on January 1 by any person (other than the manufacturer or importer of the ODCs) for sale or for use in further manufacture. Https www freefilefillableforms org Figure the environmental tax on Form 6627. Https www freefilefillableforms org Enter the tax on the appropriate lines of Form 720 and attach Form 6627 to Form 720. Https www freefilefillableforms org For environmental tax purposes, United States includes the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, any possession of the United States, the Commonwealth of the Northern Mariana Islands, the Trust Territory of the Pacific Islands, the continental shelf areas (applying the principles of section 638), and foreign trade zones. Https www freefilefillableforms org No one is exempt from the environmental taxes, including the federal government, state and local governments, Indian tribal governments, and nonprofit educational organizations. Https www freefilefillableforms org Oil Spill Liability Tax The oil spill liability tax is reported on Form 6627, Environmental Taxes, and Form 720, Quarterly Federal Excise Tax Return (IRS Nos. Https www freefilefillableforms org 18 and 21). Https www freefilefillableforms org The oil spill liability tax rate is $. Https www freefilefillableforms org 08 per barrel and generally applies to crude oil received at a U. Https www freefilefillableforms org S. Https www freefilefillableforms org refinery and to petroleum products entered into the United States for consumption, use, or warehousing. Https www freefilefillableforms org The tax also applies to certain uses and the exportation of domestic crude oil. Https www freefilefillableforms org Crude oil includes crude oil condensates and natural gasoline. Https www freefilefillableforms org Petroleum products include crude oil, refined and residual oil, and other liquid hydrocarbon refinery products. Https www freefilefillableforms org Crude oil. Https www freefilefillableforms org   Tax is imposed on crude oil when it is received at a United Sates refinery. Https www freefilefillableforms org The operator of the refinery is liable for the tax. Https www freefilefillableforms org   Tax is imposed on domestic crude oil used or exported before it is received at a United States refinery. Https www freefilefillableforms org However, the use of crude oil for extracting oil or natural gas on the premises where such crude oil was produced is not taxable. Https www freefilefillableforms org The user or exporter is liable for the tax. Https www freefilefillableforms org Imported petroleum products. Https www freefilefillableforms org   Tax is imposed on petroleum products when they enter the United States for consumption, use, or warehousing. Https www freefilefillableforms org The person entering the petroleum product into the country is liable for the tax, including the tax on imported crude oil, even if it is subsequently received at a U. Https www freefilefillableforms org S. Https www freefilefillableforms org refinery. Https www freefilefillableforms org   Tax is imposed only once on any imported petroleum product. Https www freefilefillableforms org Thus, the operator of a U. Https www freefilefillableforms org S. Https www freefilefillableforms org refinery that receives imported crude oil must establish that the petroleum tax has already been imposed on such crude oil in order not to be liable for the tax. Https www freefilefillableforms org ODCs For a list of the taxable ODCs and tax rates, see the Form 6627 instructions. Https www freefilefillableforms org Taxable event. Https www freefilefillableforms org   Tax is imposed on an ODC when it is first used or sold by its manufacturer or importer. Https www freefilefillableforms org The manufacturer or importer is liable for the tax. Https www freefilefillableforms org Use of ODCs. Https www freefilefillableforms org   You use an ODC if you put it into service in a trade or business or for the production of income. Https www freefilefillableforms org Also, an ODC is used if you use it in the making of an article, including incorporation into the article, chemical transformation, or release into the air. Https www freefilefillableforms org The loss, destruction, packaging, repackaging, or warehousing of ODCs is not a use of the ODC. Https www freefilefillableforms org   The creation of a mixture containing an ODC is treated as a taxable use of the ODC contained in the mixture. Https www freefilefillableforms org An ODC is contained in a mixture only if the chemical identity of the ODC is not changed. Https www freefilefillableforms org Generally, tax is imposed when the mixture is created and not on its sale or use. Https www freefilefillableforms org However, you can choose to have the tax imposed on its sale or use by checking the appropriate box on Form 6627. Https www freefilefillableforms org You can revoke this choice only with IRS consent. Https www freefilefillableforms org   The creation of a mixture for export or for use as a feedstock is not a taxable use of the ODCs contained in the mixture. Https www freefilefillableforms org Exceptions. Https www freefilefillableforms org   The following may be exempt from the tax on ODCs. Https www freefilefillableforms org Metered-dose inhalers. Https www freefilefillableforms org Recycled ODCs. Https www freefilefillableforms org Exported ODCs. Https www freefilefillableforms org ODCs used as feedstock. Https www freefilefillableforms org Metered-dose inhalers. Https www freefilefillableforms org   There is no tax on ODCs used or sold for use as propellants in metered-dose inhalers. Https www freefilefillableforms org For a sale to be nontaxable, you must obtain from the purchaser an exemption certificate that you rely on in good faith. Https www freefilefillableforms org The certificate must be in substantially the form as the sample certificate set forth in Regulations section 52. Https www freefilefillableforms org 4682-2(d)(5). Https www freefilefillableforms org The certificate may be included as part of the sales documentation. Https www freefilefillableforms org Keep the certificate with your records. Https www freefilefillableforms org Recycled ODCs. Https www freefilefillableforms org   There is no tax on any ODC diverted or recovered in the United States as part of a recycling process (and not as part of the original manufacturing or production process). Https www freefilefillableforms org There is no tax on recycled Halon-1301 or recycled Halon-2402 imported from a country that has signed the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol). Https www freefilefillableforms org   The Montreal Protocol is administered by the United Nations (U. Https www freefilefillableforms org N. Https www freefilefillableforms org ). Https www freefilefillableforms org To determine if a country has signed the Montreal Protocol, contact the U. Https www freefilefillableforms org N. Https www freefilefillableforms org The website is untreaty. Https www freefilefillableforms org un. Https www freefilefillableforms org org. Https www freefilefillableforms org Exported ODCs. Https www freefilefillableforms org   Generally, there is no tax on ODCs sold for export if certain requirements are met. Https www freefilefillableforms org For a sale to be nontaxable, you and the purchaser must be registered. Https www freefilefillableforms org See Form 637, Application for Registration (for Certain Excise Tax Activities). Https www freefilefillableforms org Also, you must obtain from the purchaser an exemption certificate that you rely on in good faith. Https www freefilefillableforms org Keep the certificate with your records. Https www freefilefillableforms org The certificate must be in substantially the form as the sample certificate set forth in Regulations section 52. Https www freefilefillableforms org 4682-5(d)(3). Https www freefilefillableforms org The tax benefit of this exemption is limited. Https www freefilefillableforms org For more information, see Regulations section 52. Https www freefilefillableforms org 4682-5. Https www freefilefillableforms org ODCs used as feedstock. Https www freefilefillableforms org   There is no tax on ODCs sold for use or used as a feedstock. Https www freefilefillableforms org An ODC is used as a feedstock only if the ODC is entirely consumed in the manufacture of another chemical. Https www freefilefillableforms org The transformation of an ODC into one or more new compounds qualifies as use as a feedstock, but use of an ODC in a mixture does not qualify. Https www freefilefillableforms org   For a sale to be nontaxable, you must obtain from the purchaser an exemption certificate that you rely on in good faith. Https www freefilefillableforms org The certificate must be in substantially the form as the sample certificate set forth in Regulations section 52. Https www freefilefillableforms org 4682-2(d)(2). Https www freefilefillableforms org Keep the certificate with your records. Https www freefilefillableforms org Credits or refunds. Https www freefilefillableforms org   A credit or refund (without interest) of tax paid on ODCs may be claimed if a taxed ODC is: Used as a propellant in a metered-dose inhaler (the person who used the ODC as a propellant may file a claim), Exported (the manufacturer may file a claim), or Used as a feedstock (the person who used the ODC may file a claim). Https www freefilefillableforms org For information on how to file for credits or refunds, see the Instructions for Form 720 or Schedule 6 (Form 8849). Https www freefilefillableforms org Conditions to allowance for ODCs exported. Https www freefilefillableforms org   To claim a credit or refund for ODCs that are exported, you must have repaid or agreed to repay the tax to the exporter, or obtained the exporter's written consent to allowance of the credit or refund. Https www freefilefillableforms org You must also have the evidence required by the EPA as proof that the ODCs were exported. Https www freefilefillableforms org Imported Taxable Products An imported product containing or manufactured with ODCs is subject to tax if it is entered into the United States for consumption, use, or warehousing and is listed in the Imported Products Table. Https www freefilefillableforms org The Imported Products Table is listed in Regulations section 52. Https www freefilefillableforms org 4682-3(f)(6). Https www freefilefillableforms org The tax is based on the weight of the ODCs used in the manufacture of the product. Https www freefilefillableforms org Use the following methods to figure the ODC weight. Https www freefilefillableforms org The actual (exact) weight of each ODC used as a material in manufacturing the product. Https www freefilefillableforms org If the actual weight cannot be determined, the ODC weight listed for the product in the Imported Products Table. Https www freefilefillableforms org However, if you cannot determine the actual weight and the table does not list an ODC weight for the product, the rate of tax is 1% of the entry value of the product. Https www freefilefillableforms org Taxable event. Https www freefilefillableforms org   Tax is imposed on an imported taxable product when the product is first sold or used by its importer. Https www freefilefillableforms org The importer is liable for the tax. Https www freefilefillableforms org Use of imported products. Https www freefilefillableforms org   You use an imported product if you put it into service in a trade or business or for the production of income or use it in the making of an article, including incorporation into the article. Https www freefilefillableforms org The loss, destruction, packaging, repackaging, warehousing, or repair of an imported product is not a use of that product. Https www freefilefillableforms org Entry as use. Https www freefilefillableforms org   The importer may choose to treat the entry of a product into the United States as the use of the product. Https www freefilefillableforms org Tax is imposed on the date of entry instead of when the product is sold or used. Https www freefilefillableforms org The choice applies to all imported taxable products that you own and have not used when you make the choice and all later entries. Https www freefilefillableforms org Make the choice by checking the box in Part II of Form 6627. Https www freefilefillableforms org The choice is effective as of the beginning of the calendar quarter to which the Form 6627 applies. Https www freefilefillableforms org You can revoke this choice only with IRS consent. Https www freefilefillableforms org Sale of article incorporating imported product. Https www freefilefillableforms org   The importer may treat the sale of an article manufactured or assembled in the United States as the first sale or use of an imported taxable product incorporated in that article if both the following apply. Https www freefilefillableforms org The importer has consistently treated the sale of similar items as the first sale or use of similar taxable imported products. Https www freefilefillableforms org The importer has not chosen to treat entry into the United States as use of the product. Https www freefilefillableforms org Imported products table. Https www freefilefillableforms org   The table lists all the products that are subject to the tax on imported taxable products and specifies the ODC weight (discussed later) of each product. Https www freefilefillableforms org   Each listing in the table identifies a product by name and includes only products that are described by that name. Https www freefilefillableforms org Most listings identify a product by both name and Harmonized Tariff Schedule (HTS) heading. Https www freefilefillableforms org In those cases, a product is included in that listing only if the product is described by that name and the rate of duty on the product is determined by reference to that HTS heading. Https www freefilefillableforms org A product is included in the listing even if it is manufactured with or contains a different ODC than the one specified in the table. Https www freefilefillableforms org   Part II of the table lists electronic items that are not included within any other list in the table. Https www freefilefillableforms org An imported product is included in this list only if the product meets one of the following tests. Https www freefilefillableforms org It is an electronic component whose operation involves the use of nonmechanical amplification or switching devices such as tubes, transistors, and integrated circuits. Https www freefilefillableforms org It contains components described in (1), which account for more than 15% of the cost of the product. Https www freefilefillableforms org   These components do not include passive electrical devices, such as resistors and capacitors. Https www freefilefillableforms org Items such as screws, nuts, bolts, plastic parts, and similar specially fabricated parts that may be used to construct an electronic item are not themselves included in the listing for electronic items. Https www freefilefillableforms org Rules for listing products. Https www freefilefillableforms org   Products are listed in the table according to the following rules. Https www freefilefillableforms org A product is listed in Part I of the table if it is a mixture containing ODCs. Https www freefilefillableforms org A product is listed in Part II of the table if the Commissioner has determined that the ODCs used as materials in the manufacture of the product under the predominant method are used for purposes of refrigeration or air conditioning, creating an aerosol or foam, or manufacturing electronic components. Https www freefilefillableforms org A product is listed in Part III of the table if the Commissioner has determined that the product meets both the following tests. Https www freefilefillableforms org It is not an imported taxable product. Https www freefilefillableforms org It would otherwise be included within a list in Part II of the table. Https www freefilefillableforms org   For example, floppy disk drive units are listed in Part III because they are not imported taxable products and would have been included in the Part II list for electronic items not specifically identified, but for their listing in Part III. Https www freefilefillableforms org ODC weight. Https www freefilefillableforms org   The Table ODC weight of a product is the weight, determined by the Commissioner, of the ODCs used as materials in the manufacture of the product under the predominant method of manufacturing. Https www freefilefillableforms org The ODC weight is listed in Part II in pounds per single unit of product unless otherwise specified. Https www freefilefillableforms org Modifying the table. Https www freefilefillableforms org   A manufacturer or importer of a product may request the IRS add a product and its ODC weight to the table. Https www freefilefillableforms org They also may request the IRS remove a product from the table, or change or specify the ODC weight of a product. Https www freefilefillableforms org To request a modification, see Regulations section 52. Https www freefilefillableforms org 4682-3(g) for the mailing address and information that must be included in the request. Https www freefilefillableforms org Floor Stocks Tax Tax is imposed on any ODC held (other than by the manufacturer or importer of the ODC) on January 1 for sale or use in further manufacturing. Https www freefilefillableforms org The person holding title (as determined under local law) to the ODC is liable for the tax, whether or not delivery has been made. Https www freefilefillableforms org These chemicals are taxable without regard to the type or size of storage container in which the ODCs are held. Https www freefilefillableforms org The tax may apply to an ODC whether it is in a 14-ounce can or a 30-pound tank. Https www freefilefillableforms org You are liable for the floor stocks tax if you hold any of the following on January 1. Https www freefilefillableforms org At least 400 pounds of ODCs other than halons or methyl chloroform, At least 50 pounds of halons, or At least 1,000 pounds of methyl chloroform. Https www freefilefillableforms org If you are liable for the tax, prepare an inventory on January 1 of the taxable ODCs held on that date for sale or for use in further manufacturing. Https www freefilefillableforms org You must pay this floor stocks tax by June 30 of each year. Https www freefilefillableforms org Report the tax on Form 6627 and Part II of Form 720 for the second calendar quarter. Https www freefilefillableforms org For the tax rates, see the Form 6627 instructions. Https www freefilefillableforms org ODCs not subject to floor stocks tax. Https www freefilefillableforms org   The floor stocks tax is not imposed on any of the following ODCs. Https www freefilefillableforms org ODCs mixed with other ingredients that contribute to achieving the purpose for which the mixture will be used, unless the mixture contains only ODCs and one or more stabilizers. Https www freefilefillableforms org ODCs contained in a manufactured article in which the ODCs will be used for their intended purpose without being released from the article. Https www freefilefillableforms org ODCs that have been reclaimed or recycled. Https www freefilefillableforms org ODCs sold in a qualifying sale for: Use as a feedstock, Export, or Use as a propellant in a metered-dose inhaler. Https www freefilefillableforms org Prev  Up  Next   Home   More Online Publications