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Irs 2010 Form 1040

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Irs 2010 Form 1040

Irs 2010 form 1040 Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. Irs 2010 form 1040 S. Irs 2010 form 1040 Taxpayer Identification NumbersUnexpected payment. Irs 2010 form 1040 Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Irs 2010 form 1040 Electronic reporting. Irs 2010 form 1040 Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Irs 2010 form 1040 S. Irs 2010 form 1040 Real Property InterestForeign corporations. Irs 2010 form 1040 Domestic corporations. Irs 2010 form 1040 U. Irs 2010 form 1040 S. Irs 2010 form 1040 real property holding corporations. Irs 2010 form 1040 Partnerships. Irs 2010 form 1040 Trusts and estates. Irs 2010 form 1040 Domestically controlled QIE. Irs 2010 form 1040 Late filing of certifications or notices. Irs 2010 form 1040 Certifications. Irs 2010 form 1040 Liability of agent or qualified substitute. Irs 2010 form 1040 Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Irs 2010 form 1040 Withholding of Tax In most cases, a foreign person is subject to U. Irs 2010 form 1040 S. Irs 2010 form 1040 tax on its U. Irs 2010 form 1040 S. Irs 2010 form 1040 source income. Irs 2010 form 1040 Most types of U. Irs 2010 form 1040 S. Irs 2010 form 1040 source income received by a foreign person are subject to U. Irs 2010 form 1040 S. Irs 2010 form 1040 tax of 30%. Irs 2010 form 1040 A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. Irs 2010 form 1040 The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Irs 2010 form 1040 The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Irs 2010 form 1040 In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Irs 2010 form 1040 S. Irs 2010 form 1040 source income. Irs 2010 form 1040 Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Irs 2010 form 1040 NRA withholding does not include withholding under section 1445 of the Code (see U. Irs 2010 form 1040 S. Irs 2010 form 1040 Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Irs 2010 form 1040 A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Irs 2010 form 1040 However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person is not required to withhold. Irs 2010 form 1040 In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. Irs 2010 form 1040 Withholding Agent You are a withholding agent if you are a U. Irs 2010 form 1040 S. Irs 2010 form 1040 or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. Irs 2010 form 1040 A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch of certain foreign banks and insurance companies. Irs 2010 form 1040 You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. Irs 2010 form 1040 Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Irs 2010 form 1040 In most cases, the U. Irs 2010 form 1040 S. Irs 2010 form 1040 person who pays an amount subject to NRA withholding is the person responsible for withholding. Irs 2010 form 1040 However, other persons may be required to withhold. Irs 2010 form 1040 For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. Irs 2010 form 1040 In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. Irs 2010 form 1040 Liability for tax. Irs 2010 form 1040   As a withholding agent, you are personally liable for any tax required to be withheld. Irs 2010 form 1040 This liability is independent of the tax liability of the foreign person to whom the payment is made. Irs 2010 form 1040 If you fail to withhold and the foreign payee fails to satisfy its U. Irs 2010 form 1040 S. Irs 2010 form 1040 tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Irs 2010 form 1040   The applicable tax will be collected only once. Irs 2010 form 1040 If the foreign person satisfies its U. Irs 2010 form 1040 S. Irs 2010 form 1040 tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Irs 2010 form 1040 Determination of amount to withhold. Irs 2010 form 1040   You must withhold on the gross amount subject to NRA withholding. Irs 2010 form 1040 You cannot reduce the gross amount by any deductions. Irs 2010 form 1040 However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Irs 2010 form 1040   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. Irs 2010 form 1040 In no case, however, should you withhold more than 30% of the total amount paid. Irs 2010 form 1040 Or, you may make a reasonable estimate of the amount from U. Irs 2010 form 1040 S. Irs 2010 form 1040 sources and put a corresponding part of the amount due in escrow until the amount from U. Irs 2010 form 1040 S. Irs 2010 form 1040 sources can be determined, at which time withholding becomes due. Irs 2010 form 1040 When to withhold. Irs 2010 form 1040   Withholding is required at the time you make a payment of an amount subject to withholding. Irs 2010 form 1040 A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. Irs 2010 form 1040 A payment is considered made to a person if it is paid for that person's benefit. Irs 2010 form 1040 For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. Irs 2010 form 1040 A payment also is considered made to a person if it is made to that person's agent. Irs 2010 form 1040   A U. Irs 2010 form 1040 S. Irs 2010 form 1040 partnership should withhold when any distributions that include amounts subject to withholding are made. Irs 2010 form 1040 However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Irs 2010 form 1040 S. Irs 2010 form 1040 partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. Irs 2010 form 1040 If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Irs 2010 form 1040 A U. Irs 2010 form 1040 S. Irs 2010 form 1040 trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. Irs 2010 form 1040 To the extent a U. Irs 2010 form 1040 S. Irs 2010 form 1040 trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. Irs 2010 form 1040 Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. Irs 2010 form 1040 (See Returns Required , later. Irs 2010 form 1040 ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. Irs 2010 form 1040 Form 1099 reporting and backup withholding. Irs 2010 form 1040    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person. Irs 2010 form 1040 You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person that is subject to Form 1099 reporting if any of the following apply. Irs 2010 form 1040 The U. Irs 2010 form 1040 S. Irs 2010 form 1040 person has not provided its taxpayer identification number (TIN) in the manner required. Irs 2010 form 1040 The IRS notifies you that the TIN furnished by the payee is incorrect. Irs 2010 form 1040 There has been a notified payee underreporting. Irs 2010 form 1040 There has been a payee certification failure. Irs 2010 form 1040 In most cases, a TIN must be provided by a U. Irs 2010 form 1040 S. Irs 2010 form 1040 non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Irs 2010 form 1040 A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Irs 2010 form 1040 You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. Irs 2010 form 1040 S. Irs 2010 form 1040 person. Irs 2010 form 1040 For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person subject to Form 1099 reporting. Irs 2010 form 1040 See Identifying the Payee , later, for more information. Irs 2010 form 1040 Also see Section S. Irs 2010 form 1040 Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. Irs 2010 form 1040 Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. Irs 2010 form 1040 Wages paid to employees. Irs 2010 form 1040   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Irs 2010 form 1040 See Pay for Personal Services Performed , later. Irs 2010 form 1040 Effectively connected income by partnerships. Irs 2010 form 1040   A withholding agent that is a partnership (whether U. Irs 2010 form 1040 S. Irs 2010 form 1040 or foreign) is also responsible for withholding on its income effectively connected with a U. Irs 2010 form 1040 S. Irs 2010 form 1040 trade or business that is allocable to foreign partners. Irs 2010 form 1040 See Partnership Withholding on Effectively Connected Income , later, for more information. Irs 2010 form 1040 U. Irs 2010 form 1040 S. Irs 2010 form 1040 real property interest. Irs 2010 form 1040   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Irs 2010 form 1040 S. Irs 2010 form 1040 real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Irs 2010 form 1040 S. Irs 2010 form 1040 real property interest to a shareholder, partner, or beneficiary that is a foreign person. Irs 2010 form 1040 See U. Irs 2010 form 1040 S. Irs 2010 form 1040 Real Property Interest , later. Irs 2010 form 1040 Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Irs 2010 form 1040 It does not apply to payments made to U. Irs 2010 form 1040 S. Irs 2010 form 1040 persons. Irs 2010 form 1040 Usually, you determine the payee's status as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 or foreign person based on the documentation that person provides. Irs 2010 form 1040 See Documentation , later. Irs 2010 form 1040 However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. Irs 2010 form 1040 Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. Irs 2010 form 1040 However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Irs 2010 form 1040 U. Irs 2010 form 1040 S. Irs 2010 form 1040 agent of foreign person. Irs 2010 form 1040   If you make a payment to a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person and you have actual knowledge that the U. Irs 2010 form 1040 S. Irs 2010 form 1040 person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Irs 2010 form 1040 However, if the U. Irs 2010 form 1040 S. Irs 2010 form 1040 person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. Irs 2010 form 1040   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person and not as a payment to a foreign person. Irs 2010 form 1040 You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Irs 2010 form 1040 Disregarded entities. Irs 2010 form 1040   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. Irs 2010 form 1040 The payee of a payment made to a disregarded entity is the owner of the entity. Irs 2010 form 1040   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. Irs 2010 form 1040   If the owner is a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person, you do not apply NRA withholding. Irs 2010 form 1040 However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Irs 2010 form 1040 You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. Irs 2010 form 1040 Flow-Through Entities The payees of payments (other than income effectively connected with a U. Irs 2010 form 1040 S. Irs 2010 form 1040 trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Irs 2010 form 1040 This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Irs 2010 form 1040 Income that is, or is deemed to be, effectively connected with the conduct of a U. Irs 2010 form 1040 S. Irs 2010 form 1040 trade or business of a flow-through entity is treated as paid to the entity. Irs 2010 form 1040 All of the following are flow-through entities. Irs 2010 form 1040 A foreign partnership (other than a withholding foreign partnership). Irs 2010 form 1040 A foreign simple or foreign grantor trust (other than a withholding foreign trust). Irs 2010 form 1040 A fiscally transparent entity receiving income for which treaty benefits are claimed. Irs 2010 form 1040 See Fiscally transparent entity , later. Irs 2010 form 1040 In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. Irs 2010 form 1040 You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Irs 2010 form 1040 You must determine whether the owners or beneficiaries of a flow-through entity are U. Irs 2010 form 1040 S. Irs 2010 form 1040 or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. Irs 2010 form 1040 You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. Irs 2010 form 1040 If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. Irs 2010 form 1040 See Documentation and Presumption Rules , later. Irs 2010 form 1040 Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Irs 2010 form 1040 Foreign partnerships. Irs 2010 form 1040    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. Irs 2010 form 1040 If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. Irs 2010 form 1040 However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Irs 2010 form 1040 If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. Irs 2010 form 1040 Example 1. Irs 2010 form 1040 A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizen. Irs 2010 form 1040 You make a payment of U. Irs 2010 form 1040 S. Irs 2010 form 1040 source interest to the partnership. Irs 2010 form 1040 It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizen. Irs 2010 form 1040 The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Irs 2010 form 1040 You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Irs 2010 form 1040 Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Irs 2010 form 1040 Report the payment to the U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizen on Form 1099-INT. Irs 2010 form 1040 Example 2. Irs 2010 form 1040 A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Irs 2010 form 1040 The second partnership has two partners, both nonresident alien individuals. Irs 2010 form 1040 You make a payment of U. Irs 2010 form 1040 S. Irs 2010 form 1040 source interest to the first partnership. Irs 2010 form 1040 It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. Irs 2010 form 1040 In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Irs 2010 form 1040 The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Irs 2010 form 1040 Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. Irs 2010 form 1040 Example 3. Irs 2010 form 1040 You make a payment of U. Irs 2010 form 1040 S. Irs 2010 form 1040 source dividends to a withholding foreign partnership. Irs 2010 form 1040 The partnership has two partners, both foreign corporations. Irs 2010 form 1040 You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. Irs 2010 form 1040 You must treat the partnership as the payee of the dividends. Irs 2010 form 1040 Foreign simple and grantor trust. Irs 2010 form 1040   A trust is foreign unless it meets both of the following tests. Irs 2010 form 1040 A court within the United States is able to exercise primary supervision over the administration of the trust. Irs 2010 form 1040 One or more U. Irs 2010 form 1040 S. Irs 2010 form 1040 persons have the authority to control all substantial decisions of the trust. Irs 2010 form 1040   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Irs 2010 form 1040 A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Irs 2010 form 1040   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Irs 2010 form 1040 The payees of a payment made to a foreign grantor trust are the owners of the trust. Irs 2010 form 1040 However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Irs 2010 form 1040 If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. Irs 2010 form 1040 Example. Irs 2010 form 1040 A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizen. Irs 2010 form 1040 You make a payment of interest to the foreign trust. Irs 2010 form 1040 It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizen. Irs 2010 form 1040 The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. Irs 2010 form 1040 You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Irs 2010 form 1040 Report the payment to the nonresident aliens on Forms 1042-S. Irs 2010 form 1040 Report the payment to the U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizen on Form 1099-INT. Irs 2010 form 1040 Fiscally transparent entity. Irs 2010 form 1040   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. Irs 2010 form 1040 The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. Irs 2010 form 1040 ). Irs 2010 form 1040 The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. Irs 2010 form 1040 An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. Irs 2010 form 1040 Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. Irs 2010 form 1040   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Irs 2010 form 1040 Example. Irs 2010 form 1040 Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. Irs 2010 form 1040 A has two interest holders, B and C. Irs 2010 form 1040 B is a corporation organized under the laws of country Y. Irs 2010 form 1040 C is a corporation organized under the laws of country Z. Irs 2010 form 1040 Both countries Y and Z have an income tax treaty in force with the United States. Irs 2010 form 1040 A receives royalty income from U. Irs 2010 form 1040 S. Irs 2010 form 1040 sources that is not effectively connected with the conduct of a trade or business in the United States. Irs 2010 form 1040 For U. Irs 2010 form 1040 S. Irs 2010 form 1040 income tax purposes, A is treated as a partnership. Irs 2010 form 1040 Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. Irs 2010 form 1040 The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. Irs 2010 form 1040 Accordingly, A is fiscally transparent in its jurisdiction, country X. Irs 2010 form 1040 B and C are not fiscally transparent under the laws of their respective countries of incorporation. Irs 2010 form 1040 Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. Irs 2010 form 1040 Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. Irs 2010 form 1040 S. Irs 2010 form 1040 source royalty income for purposes of the U. Irs 2010 form 1040 S. Irs 2010 form 1040 -Y income tax treaty. Irs 2010 form 1040 Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. Irs 2010 form 1040 Therefore, A is not treated as fiscally transparent under the laws of country Z. Irs 2010 form 1040 Accordingly, C is not treated as deriving its share of the U. Irs 2010 form 1040 S. Irs 2010 form 1040 source royalty income for purposes of the U. Irs 2010 form 1040 S. Irs 2010 form 1040 -Z income tax treaty. Irs 2010 form 1040 Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. Irs 2010 form 1040 This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Irs 2010 form 1040 You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. Irs 2010 form 1040 An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Irs 2010 form 1040 A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Irs 2010 form 1040 In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. Irs 2010 form 1040 You must determine whether the customers or account holders of a foreign intermediary are U. Irs 2010 form 1040 S. Irs 2010 form 1040 or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Irs 2010 form 1040 You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Irs 2010 form 1040 If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. Irs 2010 form 1040 See Documentation and Presumption Rules , later. Irs 2010 form 1040 Nonqualified intermediary. Irs 2010 form 1040   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Irs 2010 form 1040 The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Irs 2010 form 1040 Example. Irs 2010 form 1040 You make a payment of interest to a foreign bank that is a nonqualified intermediary. Irs 2010 form 1040 The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person for whom the bank is collecting the payments. Irs 2010 form 1040 The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. Irs 2010 form 1040 The account holders are the payees of the interest payment. Irs 2010 form 1040 You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. Irs 2010 form 1040 S. Irs 2010 form 1040 person on Form 1099-INT. Irs 2010 form 1040 Qualified intermediary. Irs 2010 form 1040   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Irs 2010 form 1040 S. Irs 2010 form 1040 intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Irs 2010 form 1040 You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. Irs 2010 form 1040 In this situation, the QI is required to withhold the tax. Irs 2010 form 1040 You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Irs 2010 form 1040   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. Irs 2010 form 1040 If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. Irs 2010 form 1040 S. Irs 2010 form 1040 person. Irs 2010 form 1040 Branches of financial institutions. Irs 2010 form 1040   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. Irs 2010 form 1040 The countries with approved KYC rules are listed on IRS. Irs 2010 form 1040 gov. Irs 2010 form 1040 QI withholding agreement. Irs 2010 form 1040   Foreign financial institutions and foreign branches of U. Irs 2010 form 1040 S. Irs 2010 form 1040 financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Irs 2010 form 1040   A QI is entitled to certain simplified withholding and reporting rules. Irs 2010 form 1040 In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Irs 2010 form 1040   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Irs 2010 form 1040 These forms, and the procedures required to obtain a QI withholding agreement are available at www. Irs 2010 form 1040 irs. Irs 2010 form 1040 gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Irs 2010 form 1040 Documentation. Irs 2010 form 1040   A QI is not required to forward documentation obtained from foreign account holders to the U. Irs 2010 form 1040 S. Irs 2010 form 1040 withholding agent from whom the QI receives a payment of U. Irs 2010 form 1040 S. Irs 2010 form 1040 source income. Irs 2010 form 1040 The QI maintains such documentation at its location and provides the U. Irs 2010 form 1040 S. Irs 2010 form 1040 withholding agent with withholding rate pools. Irs 2010 form 1040 A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Irs 2010 form 1040   A QI is required to provide the U. Irs 2010 form 1040 S. Irs 2010 form 1040 withholding agent with information regarding U. Irs 2010 form 1040 S. Irs 2010 form 1040 persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Irs 2010 form 1040   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. Irs 2010 form 1040 This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. Irs 2010 form 1040 Form 1042-S reporting. Irs 2010 form 1040   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. Irs 2010 form 1040 Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Irs 2010 form 1040 Collective refund procedures. Irs 2010 form 1040   A QI may seek a refund on behalf of its direct account holders. Irs 2010 form 1040 The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. Irs 2010 form 1040 U. Irs 2010 form 1040 S. Irs 2010 form 1040 branches of foreign banks and foreign insurance companies. Irs 2010 form 1040   Special rules apply to a U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Irs 2010 form 1040 If you agree to treat the branch as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person, you may treat the branch as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch on which the agreement is evidenced. Irs 2010 form 1040 If you treat the branch as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 payee, you are not required to withhold. Irs 2010 form 1040 Even though you agree to treat the branch as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person, you must report the payment on Form 1042-S. Irs 2010 form 1040   A financial institution organized in a U. Irs 2010 form 1040 S. Irs 2010 form 1040 possession is treated as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch. Irs 2010 form 1040 The special rules discussed in this section apply to a possessions financial institution. Irs 2010 form 1040   If you are paying a U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person for amounts subject to NRA withholding. Irs 2010 form 1040 Consequently, amounts not subject to NRA withholding that are paid to a U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch are not subject to Form 1099 reporting or backup withholding. Irs 2010 form 1040   Alternatively, a U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Irs 2010 form 1040 In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. Irs 2010 form 1040 See Nonqualified Intermediaries under  Documentation, later. Irs 2010 form 1040   If the U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. Irs 2010 form 1040 Withholding foreign partnership and foreign trust. Irs 2010 form 1040   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. Irs 2010 form 1040 A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. Irs 2010 form 1040   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. Irs 2010 form 1040 A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Irs 2010 form 1040 You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. Irs 2010 form 1040 WP and WT withholding agreements. Irs 2010 form 1040   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Irs 2010 form 1040 Also see the following items. Irs 2010 form 1040 Revenue Procedure 2004-21. Irs 2010 form 1040 Revenue Procedure 2005-77. Irs 2010 form 1040 Employer identification number (EIN). Irs 2010 form 1040   A completed Form SS-4 must be submitted with the application for being a WP or WT. Irs 2010 form 1040 The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Irs 2010 form 1040 Documentation. Irs 2010 form 1040   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. Irs 2010 form 1040 The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. Irs 2010 form 1040 The Form W-8IMY must contain the WP-EIN or WT-EIN. Irs 2010 form 1040 Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Irs 2010 form 1040 A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person. Irs 2010 form 1040 It also includes a foreign branch of a U. Irs 2010 form 1040 S. Irs 2010 form 1040 financial institution if the foreign branch is a qualified intermediary. Irs 2010 form 1040 In most cases, the U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch of a foreign corporation or partnership is treated as a foreign person. Irs 2010 form 1040 Nonresident alien. Irs 2010 form 1040   A nonresident alien is an individual who is not a U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizen or a resident alien. Irs 2010 form 1040 A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Irs 2010 form 1040 Married to U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizen or resident alien. Irs 2010 form 1040   Nonresident alien individuals married to U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Irs 2010 form 1040 However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Irs 2010 form 1040 Wages paid to these individuals are subject to graduated withholding. Irs 2010 form 1040 See Wages Paid to Employees—Graduated Withholding . Irs 2010 form 1040 Resident alien. Irs 2010 form 1040   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. Irs 2010 form 1040 Green card test. Irs 2010 form 1040 An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. Irs 2010 form 1040 This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Irs 2010 form 1040 Substantial presence test. Irs 2010 form 1040 An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Irs 2010 form 1040 Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. Irs 2010 form 1040   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. Irs 2010 form 1040 This exception is for a limited period of time. Irs 2010 form 1040   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Irs 2010 form 1040 Note. Irs 2010 form 1040   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. Irs 2010 form 1040 For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Irs 2010 form 1040 Resident of a U. Irs 2010 form 1040 S. Irs 2010 form 1040 possession. Irs 2010 form 1040   A bona fide resident of Puerto Rico, the U. Irs 2010 form 1040 S. Irs 2010 form 1040 Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Irs 2010 form 1040 S. Irs 2010 form 1040 citizen or a U. Irs 2010 form 1040 S. Irs 2010 form 1040 national is treated as a nonresident alien for the withholding rules explained here. Irs 2010 form 1040 A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. Irs 2010 form 1040   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Irs 2010 form 1040 S. Irs 2010 form 1040 Possessions. Irs 2010 form 1040 Foreign corporations. Irs 2010 form 1040   A foreign corporation is one that does not fit the definition of a domestic corporation. Irs 2010 form 1040 A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. Irs 2010 form 1040 Guam or Northern Mariana Islands corporations. Irs 2010 form 1040   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). Irs 2010 form 1040 Note. Irs 2010 form 1040   The provisions discussed below under U. Irs 2010 form 1040 S. Irs 2010 form 1040 Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. Irs 2010 form 1040 U. Irs 2010 form 1040 S. Irs 2010 form 1040 Virgin Islands and American Samoa corporations. Irs 2010 form 1040   A corporation created or organized in, or under the laws of, the U. Irs 2010 form 1040 S. Irs 2010 form 1040 Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. Irs 2010 form 1040 S. Irs 2010 form 1040 Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. Irs 2010 form 1040 S. Irs 2010 form 1040 Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Irs 2010 form 1040 Foreign private foundations. Irs 2010 form 1040   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Irs 2010 form 1040 Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. Irs 2010 form 1040 Other foreign organizations, associations, and charitable institutions. Irs 2010 form 1040   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. Irs 2010 form 1040 In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. Irs 2010 form 1040   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Irs 2010 form 1040   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. Irs 2010 form 1040 U. Irs 2010 form 1040 S. Irs 2010 form 1040 branches of foreign persons. Irs 2010 form 1040   In most cases, a payment to a U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch of a foreign person is a payment made to the foreign person. Irs 2010 form 1040 However, you may treat payments to U. Irs 2010 form 1040 S. Irs 2010 form 1040 branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Irs 2010 form 1040 S. Irs 2010 form 1040 regulatory supervision as payments made to a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person, if you and the U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Irs 2010 form 1040 For this purpose, a financial institution organized under the laws of a U. Irs 2010 form 1040 S. Irs 2010 form 1040 possession is treated as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch. Irs 2010 form 1040 Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. Irs 2010 form 1040 The payee is a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person. Irs 2010 form 1040 The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Irs 2010 form 1040 In most cases, you must get the documentation before you make the payment. Irs 2010 form 1040 The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Irs 2010 form 1040 See Standards of Knowledge , later. Irs 2010 form 1040 If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Irs 2010 form 1040 For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. Irs 2010 form 1040 The specific types of documentation are discussed in this section. Irs 2010 form 1040 However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Irs 2010 form 1040 As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. Irs 2010 form 1040 Section 1446 withholding. Irs 2010 form 1040   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Irs 2010 form 1040 In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. Irs 2010 form 1040 This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. Irs 2010 form 1040 Joint owners. Irs 2010 form 1040    If you make a payment to joint owners, you need to get documentation from each owner. Irs 2010 form 1040 Form W-9. Irs 2010 form 1040   In most cases, you can treat the payee as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person if the payee gives you a Form W-9. Irs 2010 form 1040 The Form W-9 can be used only by a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person and must contain the payee's taxpayer identification number (TIN). Irs 2010 form 1040 If there is more than one owner, you may treat the total amount as paid to a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person if any one of the owners gives you a Form W-9. Irs 2010 form 1040 See U. Irs 2010 form 1040 S. Irs 2010 form 1040 Taxpayer Identification Numbers , later. Irs 2010 form 1040 U. Irs 2010 form 1040 S. Irs 2010 form 1040 persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Irs 2010 form 1040 Form W-8. Irs 2010 form 1040   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Irs 2010 form 1040 Until further notice, you can rely upon Forms W-8 that contain a P. Irs 2010 form 1040 O. Irs 2010 form 1040 box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person and that a street address is available. Irs 2010 form 1040 You may rely on Forms W-8 for which there is a U. Irs 2010 form 1040 S. Irs 2010 form 1040 mailing address provided you received the form prior to December 31, 2001. Irs 2010 form 1040   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Irs 2010 form 1040 You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Irs 2010 form 1040 S. Irs 2010 form 1040 possession. Irs 2010 form 1040 Other documentation. Irs 2010 form 1040   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Irs 2010 form 1040 The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Irs 2010 form 1040 These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Irs 2010 form 1040 Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. Irs 2010 form 1040 Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Irs 2010 form 1040   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. Irs 2010 form 1040   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. Irs 2010 form 1040 For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. Irs 2010 form 1040 Claiming treaty benefits. Irs 2010 form 1040   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. Irs 2010 form 1040 S. Irs 2010 form 1040 TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. Irs 2010 form 1040   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. Irs 2010 form 1040   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Irs 2010 form 1040 See Fiscally transparent entity discussed earlier under Flow-Through Entities. Irs 2010 form 1040   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Irs 2010 form 1040 For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. Irs 2010 form 1040   The exemptions from, or reduced rates of, U. Irs 2010 form 1040 S. Irs 2010 form 1040 tax vary under each treaty. Irs 2010 form 1040 You must check the provisions of the tax treaty that apply. Irs 2010 form 1040 Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. Irs 2010 form 1040   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. Irs 2010 form 1040 You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. Irs 2010 form 1040 Exceptions to TIN requirement. Irs 2010 form 1040   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. Irs 2010 form 1040 Income from marketable securities (discussed next). Irs 2010 form 1040 Unexpected payments to an individual (discussed under U. Irs 2010 form 1040 S. Irs 2010 form 1040 Taxpayer Identification Numbers ). Irs 2010 form 1040 Marketable securities. Irs 2010 form 1040   A Form W-8BEN provided to claim treaty benefits does not need a U. Irs 2010 form 1040 S. Irs 2010 form 1040 TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Irs 2010 form 1040 For this purpose, income from a marketable security consists of the following items. Irs 2010 form 1040 Dividends and interest from stocks and debt obligations that are actively traded. Irs 2010 form 1040 Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Irs 2010 form 1040 Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. Irs 2010 form 1040 Income related to loans of any of the above securities. Irs 2010 form 1040 Offshore accounts. Irs 2010 form 1040   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. Irs 2010 form 1040   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. Irs 2010 form 1040 However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. Irs 2010 form 1040 An offshore account is an account maintained at an office or branch of a U. Irs 2010 form 1040 S. Irs 2010 form 1040 or foreign bank or other financial institution at any location outside the United States. Irs 2010 form 1040   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Irs 2010 form 1040 This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Irs 2010 form 1040 In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. Irs 2010 form 1040 Documentary evidence. Irs 2010 form 1040   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. Irs 2010 form 1040 To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. Irs 2010 form 1040 Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. Irs 2010 form 1040 Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. Irs 2010 form 1040 In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. Irs 2010 form 1040 Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. Irs 2010 form 1040   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. Irs 2010 form 1040 (See Effectively Connected Income , later. Irs 2010 form 1040 )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Irs 2010 form 1040   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Irs 2010 form 1040 S. Irs 2010 form 1040 trade or business is subject to withholding under section 1446. Irs 2010 form 1040 If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. Irs 2010 form 1040    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. Irs 2010 form 1040 Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Irs 2010 form 1040   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. Irs 2010 form 1040 S. Irs 2010 form 1040 possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. Irs 2010 form 1040   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. Irs 2010 form 1040   See Foreign Governments and Certain Other Foreign Organizations , later. Irs 2010 form 1040 Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. Irs 2010 form 1040 The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. Irs 2010 form 1040 The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Irs 2010 form 1040 Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Irs 2010 form 1040 S. Irs 2010 form 1040 Branches for United States Tax Withholding. Irs 2010 form 1040   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Irs 2010 form 1040 S. Irs 2010 form 1040 branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. Irs 2010 form 1040 For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Irs 2010 form 1040 1446-5. Irs 2010 form 1040 Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Irs 2010 form 1040 A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. Irs 2010 form 1040 The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Irs 2010 form 1040 The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. Irs 2010 form 1040 Responsibilities. Irs 2010 form 1040   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Irs 2010 form 1040 However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Irs 2010 form 1040 Instead, it provides you with a withholding statement that contains withholding rate pool information. Irs 2010 form 1040 A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. Irs 2010 form 1040 A qualified intermediary is required to provide you with information regarding U. Irs 2010 form 1040 S. Irs 2010 form 1040 persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Irs 2010 form 1040 S. Irs 2010 form 1040 person unless it has assumed Form 1099 reporting and backup withholding responsibility. Irs 2010 form 1040 For the alternative procedure for providing rate pool information for U. Irs 2010 form 1040 S. Irs 2010 form 1040 non-exempt persons, see the Form W-8IMY instructions. Irs 2010 form 1040   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. Irs 2010 form 1040   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Irs 2010 form 1040 Primary responsibility not assumed. Irs 2010 form 1040   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. Irs 2010 form 1040 Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Irs 2010 form 1040 S. Irs 2010 form 1040 person subject to Form 1099 reporting and/or backup withholding. Irs 2010 form 1040 The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Irs 2010 form 1040 Primary NRA withholding responsibility assumed. Irs 2010 form 1040   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. Irs 2010 form 1040 S. Irs 2010 form 1040 person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Irs 2010 form 1040 The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Irs 2010 form 1040 Primary NRA and Form 1099 responsibility assumed. Irs 2010 form 1040   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. Irs 2010 form 1040 It is not necessary to associate the payment with withholding rate pools. Irs 2010 form 1040 Example. Irs 2010 form 1040 You make a payment of dividends to a QI. Irs 2010 form 1040 It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. Irs 2010 form 1040 S. Irs 2010 form 1040 individual who provides it with a Form W-9. Irs 2010 form 1040 Each customer is entitled to 20% of the dividend payment. Irs 2010 form 1040 The QI does not assume any primary withholding responsibility. Irs 2010 form 1040 The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. Irs 2010 form 1040 S. Irs 2010 form 1040 individual. Irs 2010 form 1040 You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. Irs 2010 form 1040 The part of the payment allocable to the U. Irs 2010 form 1040 S. Irs 2010 form 1040 individual (20%) is reportable on Form 1099-DIV. Irs 2010 form 1040 Smaller partnerships and trusts. Irs 2010 form 1040   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. Irs 2010 form 1040 It is a foreign partnership or foreign simple or grantor trust. Irs 2010 form 1040 It is a direct account holder of the QI. Irs 2010 form 1040 It does not have any partner, beneficiary, or owner that is a U. Irs 2010 form 1040 S. Irs 2010 form 1040 person or a pass- through partner, beneficiary, or owner. Irs 2010 form 1040   For information on these rules, see section 4A. Irs 2010 form 1040 01 of the QI agreement. Irs 2010 form 1040 This is found in Appendix 3 of Revenue Procedure 2003-64. Irs 2010 form 1040 Also see Revenue Procedure 2004-21. Irs 2010 form 1040 Related partnerships and trusts. Irs 2010 form 1040    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Irs 2010 form 1040 It is a foreign partnership or foreign simple or grantor trust. Irs 2010 form 1040 It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. Irs 2010 form 1040 For information on these rules, see section 4A. Irs 2010 form 1040 02 of the QI agreement. Irs 2010 form 1040 This is found in Appendix 3 of Revenue Procedure 2003-64. Irs 2010 form 1040 Also see Revenue Procedure 2005-77. Irs 2010 form 1040 Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Irs 2010 form 1040 The NQI, flow-through entity, or U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Irs 2010 form 1040 A withholding statement must be updated to keep the information accurate prior to each payment. Irs 2010 form 1040 Withholding statement. Irs 2010 form 1040   In most cases, a withholding statement must contain the following information. Irs 2010 form 1040 The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Irs 2010 form 1040 The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Irs 2010 form 1040 The status of the person for whom the documentation has been provided, such as whether the person is a U. Irs 2010 form 1040 S. Irs 2010 form 1040 exempt recipient (U. Irs 2010 form 1040 S. Irs 2010 form 1040 person exempt from Form 1099 reporting), U. Irs 2010 form 1040 S. Irs 2010 form 1040 non-exempt recipient (U. Irs 2010 form 1040 S. Irs 2010 form 1040 person subject to Form 1099 reporting), or a foreign person. Irs 2010 form 1040 For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch. Irs 2010 form 1040 The type of recipient the person is, based on the recipient codes used on Form 1042-S. Irs 2010 form 1040 Information allocating each payment, by income type, to each payee (including U. Irs 2010 form 1040 S. Irs 2010 form 1040 exempt and U. Irs 2010 form 1040 S. Irs 2010 form 1040 non-exempt recipients) for whom documentation has been provided. Irs 2010 form 1040 The rate of withholding that applies to each foreign person to whom a payment is allocated. Irs 2010 form 1040 A foreign payee's country of residence. Irs 2010 form 1040 If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Irs 2010 form 1040 ). Irs 2010 form 1040 In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. Irs 2010 form 1040 The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Irs 2010 form 1040 S. Irs 2010 form 1040 branch from which the payee will directly receive a payment. Irs 2010 form 1040 Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Irs 2010 form 1040 Alternative procedure. Irs 2010 form 1040   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Irs 2010 form 1040 S. Irs 2010 form 1040 exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Irs 2010 form 1040 To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. Irs 2010 form 1040 You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Irs 2010 form 1040    This alternative procedure cannot be used for payments to U. Irs 2010 form 1040 S. Irs 2010 form 1040 non-exempt recipients. Irs 2010 form 1040 Therefore, an NQI must always provide you with allocation information for all U. Irs 2010 form 1040 S. Irs 2010 form 1040 non-exempt recipients prior to a payment being made. Irs 2010 form 1040 Pooled withholding information. Irs 2010 form 1040   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. Irs 2010 form 1040 A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. Irs 2010 form 1040 For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). Irs 2010 form 1040 The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. Irs 2010 form 1040 Failure to provide allocation information. Irs 2010 form 1040   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. Irs 2010 form 1040 You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Irs 2010 form 1040 An NQI is deemed to have f
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1099-K Reporting Requirements for Payment Settlement Entities

Beginning in January, 2012, payment settlement entities (PSEs) are required by the Housing Assistance Tax Act of 2008 to report on Form 1099-K the following transactions:

  • All payments made in settlement of payment card transactions (e.g., credit card);
  • Payments in settlement of third party network transactions IF:
    -Gross payments to a participating payee exceed $20,000; AND
    -There are more than 200 transactions with the participating payee.

Filing Deadlines & Procedures

Your 1099-Ks are due to merchants by January 31, 2014. Electronically filed 1099-Ks are due to the IRS April 1, 2014 (normally March 31), while paper 1099-Ks are due February 28, 2014.

File your 1099-K electronically through the FIRE (Filing Information Returns Electronically) option. For information, review Publication 1220 (PDF). If you are considering filing on paper, review General Instructions for Certain Information Returns.

Verification Processes

We verify that tax returns are correct and complete using the following processes:

More Information

You can find more about the 1099-K and other information returns at our Third Party Reporting Information Center.

You may also want to see Frequently Asked Question about Backup Withholding

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Page Last Reviewed or Updated: 20-Mar-2014

The Irs 2010 Form 1040

Irs 2010 form 1040 3. Irs 2010 form 1040   Limit on Annual Additions Table of Contents Ministers and church employees. Irs 2010 form 1040 Includible Compensation for Your Most Recent Year of ServiceMost Recent Year of Service Includible Compensation The first component of MAC is the limit on annual additions. Irs 2010 form 1040 This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. Irs 2010 form 1040 The limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or 100% of your includible compensation for your most recent year of service. Irs 2010 form 1040 More than one 403(b) account. Irs 2010 form 1040 If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts on your behalf by your employer. Irs 2010 form 1040 Ministers and church employees. Irs 2010 form 1040   If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. Irs 2010 form 1040 For more information, see chapter 5. Irs 2010 form 1040 Participation in a qualified plan. Irs 2010 form 1040 If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. Irs 2010 form 1040 You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions. Irs 2010 form 1040 Includible Compensation for Your Most Recent Year of Service Definition. Irs 2010 form 1040   Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service. Irs 2010 form 1040 When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. Irs 2010 form 1040 This can happen if your tax year is not the same as your employer's annual work period. Irs 2010 form 1040 When figuring includible compensation for your most recent year of service, do not mix compensation or service of one employer with compensation or service of another employer. Irs 2010 form 1040 Most Recent Year of Service Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf. Irs 2010 form 1040 Tax year different from employer's annual work period. Irs 2010 form 1040   If your tax year is not the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods. Irs 2010 form 1040 Example. Irs 2010 form 1040 A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). Irs 2010 form 1040 To figure her includible compensation for 2013, the professor's most recent year of service is her service from January through May 2013 and from October through December 2013. Irs 2010 form 1040 Figuring Your Most Recent Year of Service To figure your most recent year of service, begin by determining what is a full year of service for your position. Irs 2010 form 1040 A full year of service is equal to full-time employment for your employer's annual work period. Irs 2010 form 1040 After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year. Irs 2010 form 1040 Part-time or employed only part of the year. Irs 2010 form 1040   If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. Irs 2010 form 1040 To determine your most recent year of service, add the following periods of service: Your service during the year for which you are figuring the limit on annual additions, and Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer. Irs 2010 form 1040 Example. Irs 2010 form 1040 You were employed on a full-time basis from July through December 2011 (1/2 year of service), July through December 2012 (1/2 year of service), and October through December 2013 (1/4 year of service). Irs 2010 form 1040 Your most recent year of service for computing your limit on annual additions for 2013 is the total of your service during 2013 (1/4 year of service), your service during 2012 (1/2 year of service), and your service during the months October through December 2011 (1/4 year of service). Irs 2010 form 1040 Not yet employed for 1 year. Irs 2010 form 1040   If, at the close of the year, you have not yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service. Irs 2010 form 1040 Includible Compensation After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service. Irs 2010 form 1040 Includible compensation is not the same as income included on your tax return. Irs 2010 form 1040 Compensation is a combination of income and benefits received in exchange for services provided to your employer. Irs 2010 form 1040 Generally, includible compensation is the amount of income and benefits: Received from the employer who maintains your 403(b) account, and Must be included in your income. Irs 2010 form 1040 Includible compensation includes the following amounts. Irs 2010 form 1040 Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement). Irs 2010 form 1040 Amounts contributed or deferred by your employer under a section 125 cafeteria plan. Irs 2010 form 1040 Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan). Irs 2010 form 1040  Note. Irs 2010 form 1040 For information about treating elective deferrals under section 457 plans as Roth contributions, see Publication 575. Irs 2010 form 1040 Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account. Irs 2010 form 1040 Income otherwise excluded under the foreign earned income exclusion. Irs 2010 form 1040 Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan. Irs 2010 form 1040 Includible compensation does not include the following items. Irs 2010 form 1040 Your employer's contributions to your 403(b) account. Irs 2010 form 1040 Compensation earned while your employer was not an eligible employer. Irs 2010 form 1040 Your employer's contributions to a qualified plan that: Are on your behalf, and Are excludable from income. Irs 2010 form 1040 The cost of incidental life insurance. Irs 2010 form 1040 See Cost of Incidental Life Insurance, later. Irs 2010 form 1040 If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5. Irs 2010 form 1040 Contributions after retirement. Irs 2010 form 1040   Nonelective contributions may be made for an employee for up to 5 years after retirement. Irs 2010 form 1040 These contributions would be based on includible compensation for the last year of service before retirement. Irs 2010 form 1040 Cost of Incidental Life Insurance Includible compensation does not include the cost of incidental life insurance. Irs 2010 form 1040 If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance. Irs 2010 form 1040 If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. Irs 2010 form 1040 If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. Irs 2010 form 1040 Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2. Irs 2010 form 1040 Not all annuity contracts include life insurance. Irs 2010 form 1040 Contact your plan administrator to determine if your contract includes incidental life insurance. Irs 2010 form 1040 If it does, you will need to figure the cost of life insurance each year the policy is in effect. Irs 2010 form 1040 Figuring the cost of incidental life insurance. Irs 2010 form 1040 If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation. Irs 2010 form 1040 To determine the amount of the life insurance premiums, you will need to know the following information. Irs 2010 form 1040 The value of your life insurance contract, which is the amount payable upon your death. Irs 2010 form 1040 The cash value of your life insurance contract at the end of the tax year. Irs 2010 form 1040 Your age on your birthday nearest the beginning of the policy year. Irs 2010 form 1040 Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year. Irs 2010 form 1040 You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance. Irs 2010 form 1040 Example. Irs 2010 form 1040 Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. Irs 2010 form 1040 Your cash value in the contract at the end of the first year is zero. Irs 2010 form 1040 Your current life insurance protection for the first year is $10,000 ($10,000 − 0). Irs 2010 form 1040 The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000). Irs 2010 form 1040 The 1-year cost of the protection can be calculated by using Figure 3-1, Table of One-Year Term Premiums for $1,000 Life Insurance Protection . Irs 2010 form 1040 The premium rate is determined based on your age on your birthday nearest the beginning of the policy year. Irs 2010 form 1040 Figure 3-1. Irs 2010 form 1040 Table of One-Year Term Premiums for $1,000 Life Insurance Protection Age Cost   Age Cost   Age Cost 0 $0. Irs 2010 form 1040 70   35 $0. Irs 2010 form 1040 99   70 $20. Irs 2010 form 1040 62 1 0. Irs 2010 form 1040 41   36 1. Irs 2010 form 1040 01   71 22. Irs 2010 form 1040 72 2 0. Irs 2010 form 1040 27   37 1. Irs 2010 form 1040 04   72 25. Irs 2010 form 1040 07 3 0. Irs 2010 form 1040 19   38 1. Irs 2010 form 1040 06   73 27. Irs 2010 form 1040 57 4 0. Irs 2010 form 1040 13   39 1. Irs 2010 form 1040 07   74 30. Irs 2010 form 1040 18 5 0. Irs 2010 form 1040 13   40 1. Irs 2010 form 1040 10   75 33. Irs 2010 form 1040 05 6 0. Irs 2010 form 1040 14   41 1. Irs 2010 form 1040 13   76 36. Irs 2010 form 1040 33 7 0. Irs 2010 form 1040 15   42 1. Irs 2010 form 1040 20   77 40. Irs 2010 form 1040 17 8 0. Irs 2010 form 1040 16   43 1. Irs 2010 form 1040 29   78 44. Irs 2010 form 1040 33 9 0. Irs 2010 form 1040 16   44 1. Irs 2010 form 1040 40   79 49. Irs 2010 form 1040 23 10 0. Irs 2010 form 1040 16   45 1. Irs 2010 form 1040 53   80 54. Irs 2010 form 1040 56 11 0. Irs 2010 form 1040 19   46 1. Irs 2010 form 1040 67   81 60. Irs 2010 form 1040 51 12 0. Irs 2010 form 1040 24   47 1. Irs 2010 form 1040 83   82 66. Irs 2010 form 1040 74 13 0. Irs 2010 form 1040 28   48 1. Irs 2010 form 1040 98   83 73. Irs 2010 form 1040 07 14 0. Irs 2010 form 1040 33   49 2. Irs 2010 form 1040 13   84 80. Irs 2010 form 1040 35 15 0. Irs 2010 form 1040 38   50 2. Irs 2010 form 1040 30   85 88. Irs 2010 form 1040 76 16 0. Irs 2010 form 1040 52   51 2. Irs 2010 form 1040 52   86 99. Irs 2010 form 1040 16 17 0. Irs 2010 form 1040 57   52 2. Irs 2010 form 1040 81   87 110. Irs 2010 form 1040 40 18 0. Irs 2010 form 1040 59   53 3. Irs 2010 form 1040 20   88 121. Irs 2010 form 1040 85 19 0. Irs 2010 form 1040 61   54 3. Irs 2010 form 1040 65   89 133. Irs 2010 form 1040 40 20 0. Irs 2010 form 1040 62   55 4. Irs 2010 form 1040 15   90 144. Irs 2010 form 1040 30 21 0. Irs 2010 form 1040 62   56 4. Irs 2010 form 1040 68   91 155. Irs 2010 form 1040 80 22 0. Irs 2010 form 1040 64   57 5. Irs 2010 form 1040 20   92 168. Irs 2010 form 1040 75 23 0. Irs 2010 form 1040 66   58 5. Irs 2010 form 1040 66   93 186. Irs 2010 form 1040 44 24 0. Irs 2010 form 1040 68   59 6. Irs 2010 form 1040 06   94 206. Irs 2010 form 1040 70 25 0. Irs 2010 form 1040 71   60 6. Irs 2010 form 1040 51   95 228. Irs 2010 form 1040 35 26 0. Irs 2010 form 1040 73   61 7. Irs 2010 form 1040 11   96 250. Irs 2010 form 1040 01 27 0. Irs 2010 form 1040 76   62 7. Irs 2010 form 1040 96   97 265. Irs 2010 form 1040 09 28 0. Irs 2010 form 1040 80   63 9. Irs 2010 form 1040 08   98 270. Irs 2010 form 1040 11 29 0. Irs 2010 form 1040 83   64 10. Irs 2010 form 1040 41   99 281. Irs 2010 form 1040 05 30 0. Irs 2010 form 1040 87   65 11. Irs 2010 form 1040 90       31 0. Irs 2010 form 1040 90   66 13. Irs 2010 form 1040 51       32 0. Irs 2010 form 1040 93   67 15. Irs 2010 form 1040 20       33 0. Irs 2010 form 1040 96   68 16. Irs 2010 form 1040 92       34 0. Irs 2010 form 1040 98   69 18. Irs 2010 form 1040 70                       If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer. Irs 2010 form 1040 Example 1. Irs 2010 form 1040 Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. Irs 2010 form 1040 The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. Irs 2010 form 1040 Using the facts presented we can determine the cost of Lynne's life insurance protection as shown in Table 3-1. Irs 2010 form 1040 Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. Irs 2010 form 1040 When figuring her includible compensation for this year, Lynne will subtract $28. Irs 2010 form 1040 Table 3-1. Irs 2010 form 1040 Worksheet A. Irs 2010 form 1040 Cost of Incidental Life Insurance Note. Irs 2010 form 1040 Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Irs 2010 form 1040 This amount will be used to figure includible compensation for your most recent year of service. Irs 2010 form 1040 1. Irs 2010 form 1040 Enter the value of the contract (amount payable upon your death) 1. Irs 2010 form 1040 $20,000. Irs 2010 form 1040 00 2. Irs 2010 form 1040 Enter the cash value in the contract at the end of the year 2. Irs 2010 form 1040 0. Irs 2010 form 1040 00 3. Irs 2010 form 1040 Subtract line 2 from line 1. Irs 2010 form 1040 This is the value of your current life insurance protection 3. Irs 2010 form 1040 $20,000. Irs 2010 form 1040 00 4. Irs 2010 form 1040 Enter your age on your birthday nearest the beginning of the policy year 4. Irs 2010 form 1040 44 5. Irs 2010 form 1040 Enter the 1-year term premium for $1,000 of life insurance based on your age. Irs 2010 form 1040 (From Figure 3-1) 5. Irs 2010 form 1040 $1. Irs 2010 form 1040 40 6. Irs 2010 form 1040 Divide line 3 by $1,000 6. Irs 2010 form 1040 20 7. Irs 2010 form 1040 Multiply line 6 by line 5. Irs 2010 form 1040 This is the cost of your incidental life insurance 7. Irs 2010 form 1040 $28. Irs 2010 form 1040 00 Example 2. Irs 2010 form 1040 Lynne's cash value in the contract at the end of the second year is $1,000. Irs 2010 form 1040 In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2. Irs 2010 form 1040 In year two, Lynne's employer will include $29. Irs 2010 form 1040 07 in her current year's income. Irs 2010 form 1040 Lynne will subtract this amount when figuring her includible compensation. Irs 2010 form 1040 Table 3-2. Irs 2010 form 1040 Worksheet A. Irs 2010 form 1040 Cost of Incidental Life Insurance Note. Irs 2010 form 1040 Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. Irs 2010 form 1040 This amount will be used to figure includible compensation for your most recent year of service. Irs 2010 form 1040 1. Irs 2010 form 1040 Enter the value of the contract (amount payable upon your death) 1. Irs 2010 form 1040 $20,000. Irs 2010 form 1040 00 2. Irs 2010 form 1040 Enter the cash value in the contract at the end of the year 2. Irs 2010 form 1040 $1,000. Irs 2010 form 1040 00 3. Irs 2010 form 1040 Subtract line 2 from line 1. Irs 2010 form 1040 This is the value of your current life insurance protection 3. Irs 2010 form 1040 $19,000. Irs 2010 form 1040 00 4. Irs 2010 form 1040 Enter your age on your birthday nearest the beginning of the policy year 4. Irs 2010 form 1040 45 5. Irs 2010 form 1040 Enter the 1-year term premium for $1,000 of life insurance based on your age. Irs 2010 form 1040 (From Figure 3-1) 5. Irs 2010 form 1040 $1. Irs 2010 form 1040 53 6. Irs 2010 form 1040 Divide line 3 by $1,000 6. Irs 2010 form 1040 19 7. Irs 2010 form 1040 Multiply line 6 by line 5. Irs 2010 form 1040 This is the cost of your incidental life insurance 7. Irs 2010 form 1040 $29. Irs 2010 form 1040 07 Figuring Includible Compensation for Your Most Recent Year of Service You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service. Irs 2010 form 1040 Example. Irs 2010 form 1040 Floyd has been periodically working full-time for a local hospital since September 2011. Irs 2010 form 1040 He needs to figure his limit on annual additions for 2014. Irs 2010 form 1040 The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December. Irs 2010 form 1040 During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. Irs 2010 form 1040 Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan. Irs 2010 form 1040 Floyd has never worked abroad and there is no life insurance provided under the plan. Irs 2010 form 1040 Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages. Irs 2010 form 1040 Table 3-3. Irs 2010 form 1040 Floyd's Compensation Note. Irs 2010 form 1040 This table shows information Floyd will use to figure includible compensation for his most recent year of service. Irs 2010 form 1040   Year Years of Service Taxable Wages Elective Deferrals 2014 6/12 of  a year $42,000 $2,000 2013 4/12 of  a year $16,000 $1,650 2012 4/12 of  a year $16,000 $1,650 Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service. Irs 2010 form 1040 Because Floyd is not planning to work the entire 2014 year, his most recent year of service will include the time he is planning to work in 2014 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. Irs 2010 form 1040 If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. Irs 2010 form 1040 He figures his most recent year of service shown in the following list. Irs 2010 form 1040 Time he will work in 2014 is 6/12 of a year. Irs 2010 form 1040 Time worked in 2013 is 4/12 of a year. Irs 2010 form 1040 All of this time will be used to determine Floyd's most recent year of service. Irs 2010 form 1040 Time worked in 2012 is 4/12 of a year. Irs 2010 form 1040 Floyd only needs 2 months of the 4 months he worked in 2012 to have enough time to total 1 full year. Irs 2010 form 1040 Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation. Irs 2010 form 1040 Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). Irs 2010 form 1040 His includible compensation for his most recent year of service is figured as shown in Table 3-4. Irs 2010 form 1040 After figuring his includible compensation, Floyd determines his limit on annual additions for 2014 to be $52,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $52,000. Irs 2010 form 1040 Table 3-4. Irs 2010 form 1040 Worksheet B. Irs 2010 form 1040 Includible Compensation for Your Most Recent Year of Service1 Note. Irs 2010 form 1040 Use this worksheet to figure includible compensation for your most recent year of service. Irs 2010 form 1040 1. Irs 2010 form 1040 Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. Irs 2010 form 1040 $66,000 2. Irs 2010 form 1040 Enter elective deferrals excluded from your gross income for your most recent year of service2 2. Irs 2010 form 1040 4,4753 3. Irs 2010 form 1040 Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. Irs 2010 form 1040 -0- 4. Irs 2010 form 1040 Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. Irs 2010 form 1040 -0- 5. Irs 2010 form 1040 Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. Irs 2010 form 1040 -0- 6. Irs 2010 form 1040 Enter your foreign earned income exclusion for your most recent year of service 6. Irs 2010 form 1040 -0- 7. Irs 2010 form 1040 Add lines 1, 2, 3, 4, 5, and 6 7. Irs 2010 form 1040 70,475 8. Irs 2010 form 1040 Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. Irs 2010 form 1040 -0- 9. Irs 2010 form 1040 Enter compensation that was both: Earned during your most recent year of service, and Earned while your employer was not qualified to maintain a 403(b) plan 9. Irs 2010 form 1040 -0- 10. Irs 2010 form 1040 Add lines 8 and 9 10. Irs 2010 form 1040 -0- 11. Irs 2010 form 1040 Subtract line 10 from line 7. Irs 2010 form 1040 This is your includible compensation for your most recent year of service 11. Irs 2010 form 1040 70,475 1Use estimated amounts if figuring includible compensation before the end of the year. Irs 2010 form 1040 2Elective deferrals made to a designated Roth account are not excluded from your gross income and should not be included on this line. Irs 2010 form 1040  3$4,475 ($2,000 + $1,650 + $825). Irs 2010 form 1040 Prev  Up  Next   Home   More Online Publications