Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Irs File 1040ez

Amend 2012 Tax Return FreeTurbotax 2010 FreeDfas MilAmended Tax Return Form1040ez Tax Form And BookletFile An Extension For 2012 TaxesFile 2012 Tax ReturnsAmendment Form 1040xHow Do I File My 2010 TaxesHow To Amend A Tax Return2012 Form 1040Irs Gov 2012 Tax Forms2009 Turbotax DownloadFree Online Tax Preparation1040ez Fillable Form 2012Federal Tax Forms 2007How To Fill Out 1040x Step By Step1040nr EzIrs Form 1040 Ez InstructionsFiling 1040xState Tax Return 2012File State Return For FreeWww Freefillableforms ComIrs 1040 Ez FormState Tax Return OnlyLa State Tax Forms 2012H&r Block Taxcut Free FileTurbo Tax 2005Tax Act 2011 Login1014 Ez FormDo I Have To File State Taxes1040 Tax Form For 20121040nr-ez1040nr Online FreeHow Do I Amend My Tax ReturnInstructionsH&r Block Free Online E FileHow To Amend Tax ReturnIrs Form 1040 2010Irs Form 1040a Or 1040ez

Irs File 1040ez

Irs file 1040ez Publication 544 - Introductory Material Table of Contents Future Developments What's New Important Reminders IntroductionOrdering forms and publications. Irs file 1040ez Tax questions. Irs file 1040ez Future Developments For the latest information about developments related to Publication 544, such as legislation enacted after it was published, go to www. Irs file 1040ez irs. Irs file 1040ez gov/pub544. Irs file 1040ez What's New Direct reporting on Schedule D. Irs file 1040ez   For 2013, certain transactions may be combined and the totals reported directly on Schedule D. Irs file 1040ez If you choose to do that, you do not need to include these transactions on Form 8949, Sales and Other Dispositions of Capital Assets. Irs file 1040ez For additional information, see Schedule D and Form 8949 in chapter 4. Irs file 1040ez Tax rate on net capital gain and qualified dividends. Irs file 1040ez   The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some taxpayers. Irs file 1040ez See Capital Gains Tax Rates in chapter 4. Irs file 1040ez Important Reminders Dispositions of U. Irs file 1040ez S. Irs file 1040ez real property interests by foreign persons. Irs file 1040ez  If you are a foreign person or firm and you sell or otherwise dispose of a U. Irs file 1040ez S. Irs file 1040ez real property interest, the buyer (or other transferee) may have to withhold income tax on the amount you receive for the property (including cash, the fair market value of other property, and any assumed liability). Irs file 1040ez Corporations, partnerships, trusts, and estates also may have to withhold on certain U. Irs file 1040ez S. Irs file 1040ez real property interests they distribute to you. Irs file 1040ez You must report these dispositions and distributions and any income tax withheld on your U. Irs file 1040ez S. Irs file 1040ez income tax return. Irs file 1040ez For more information on dispositions of U. Irs file 1040ez S. Irs file 1040ez real property interests, see Publication 519, U. Irs file 1040ez S. Irs file 1040ez Tax Guide for Aliens. Irs file 1040ez Also see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Irs file 1040ez Foreign source income. Irs file 1040ez  If you are a U. Irs file 1040ez S. Irs file 1040ez citizen with income from dispositions of property outside the United States (foreign income), you must report all such income on your tax return unless it is exempt from U. Irs file 1040ez S. Irs file 1040ez law. Irs file 1040ez This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payor. Irs file 1040ez Photographs of missing children. Irs file 1040ez  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Irs file 1040ez Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Irs file 1040ez You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Irs file 1040ez Introduction You dispose of property when any of the following occurs. Irs file 1040ez You sell property. Irs file 1040ez You exchange property for other property. Irs file 1040ez Your property is condemned or disposed of under threat of condemnation. Irs file 1040ez Your property is repossessed. Irs file 1040ez You abandon property. Irs file 1040ez You give property away. Irs file 1040ez This publication explains the tax rules that apply when you dispose of property. Irs file 1040ez It discusses the following topics. Irs file 1040ez How to figure a gain or loss. Irs file 1040ez Whether your gain or loss is ordinary or capital. Irs file 1040ez How to treat your gain or loss when you dispose of business property. Irs file 1040ez How to report a gain or loss. Irs file 1040ez This publication also explains whether your gain is taxable or your loss is deductible. Irs file 1040ez This publication does not discuss certain transactions covered in other IRS publications. Irs file 1040ez These include the following. Irs file 1040ez Most transactions involving stocks, bonds, options, forward and futures contracts, and similar investments. Irs file 1040ez See chapter 4 of Publication 550, Investment Income and Expenses. Irs file 1040ez Sale of your main home. Irs file 1040ez See Publication 523, Selling Your Home. Irs file 1040ez Installment sales. Irs file 1040ez See Publication 537, Installment Sales. Irs file 1040ez Transfers of property at death. Irs file 1040ez See Publication 559, Survivors, Executors, and Administrators. Irs file 1040ez Forms to file. Irs file 1040ez   When you dispose of property, you usually will have to file one or more of the following forms. Irs file 1040ez Schedule D, Capital Gains and Losses. Irs file 1040ez Form 4797, Sales of Business Property. Irs file 1040ez Form 8824, Like-Kind Exchanges. Irs file 1040ez Form 8949, Sales and Other Dispositions of Capital Assets. Irs file 1040ez    Although the discussions in this publication may at times refer mainly to individuals, many of the rules discussed also apply to taxpayers other than individuals. Irs file 1040ez However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Irs file 1040ez Comments and suggestions. Irs file 1040ez   We welcome your comments about this publication and your suggestions for future editions. Irs file 1040ez   You can send your comments to the following address. Irs file 1040ez Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Irs file 1040ez NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Irs file 1040ez Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Irs file 1040ez You can also send us comments from www. Irs file 1040ez irs. Irs file 1040ez gov/formspubs/. Irs file 1040ez Click on “More Information ” and then on “Give us feedback. Irs file 1040ez ” Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products. Irs file 1040ez Ordering forms and publications. Irs file 1040ez   Visit www. Irs file 1040ez irs. Irs file 1040ez gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Irs file 1040ez Internal Revenue Service 1201 N. Irs file 1040ez Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Irs file 1040ez   If you have a tax question, check the information available on IRS. Irs file 1040ez gov or call 1-800-829-1040. Irs file 1040ez We cannot answer tax questions sent to either of the above addresses. Irs file 1040ez Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Do I Have Cancellation of Debt Income on My Personal Residence?

Information You Will Need:

  • Filing Status
  • Form 1099-C, Cancellation of Debt, received from your mortgage lender

Note: This application is not designed to address the cancellation of debt that applies to a joint liability when debt was cancelled in bankruptcy and only 1 individual filed for bankruptcy. Please refer to Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

Estimated Completion Time: 10 minutes. However: 5 minutes of inactivity will end the interview and you will be forced to start over.

Begin

Page Last Reviewed or Updated: 14-Feb-2014

The Irs File 1040ez

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