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Irs Form 1040x 2011

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Irs Form 1040x 2011

Irs form 1040x 2011 Publication 525 - Main Content Table of Contents Employee CompensationBabysitting. Irs form 1040x 2011 Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Business and Investment IncomeRents From Personal Property Royalties Partnership Income S Corporation Income Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Miscellaneous IncomeBartering Canceled Debts Host or Hostess Life Insurance Proceeds Recoveries Survivor Benefits Unemployment Benefits Welfare and Other Public Assistance Benefits Other Income RepaymentsMethod 1. Irs form 1040x 2011 Method 2. Irs form 1040x 2011 How To Get Tax HelpLow Income Taxpayer Clinics Employee Compensation In most cases, you must include in gross income everything you receive in payment for personal services. Irs form 1040x 2011 In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. Irs form 1040x 2011 You should receive a Form W-2 from your employer or former employer showing the pay you received for your services. Irs form 1040x 2011 Include all your pay on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ, even if you do not receive Form W-2, or you receive a Form W-2 that does not include all pay that should be included on the Form W-2. Irs form 1040x 2011 If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Irs form 1040x 2011 These wages must be included on line 7 of Form 1040. Irs form 1040x 2011 See Form 8919 for more information. Irs form 1040x 2011 Childcare providers. Irs form 1040x 2011   If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Irs form 1040x 2011 If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Irs form 1040x 2011 You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Irs form 1040x 2011 Babysitting. Irs form 1040x 2011   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Irs form 1040x 2011 Bankruptcy. Irs form 1040x 2011   If you filed for bankruptcy under Chapter 11 of the Bankruptcy Code, you must allocate your wages and withheld income tax. Irs form 1040x 2011 Your W-2 will show your total wages and withheld income tax for the year. Irs form 1040x 2011 On your tax return, you report the wages and withheld income tax for the period before you filed for bankruptcy. Irs form 1040x 2011 Your bankruptcy estate reports the wages and withheld income tax for the period after you filed for bankruptcy. Irs form 1040x 2011 If you receive other information returns (such as Form 1099-DIV, Dividends and Distributions, or 1099-INT, Interest Income) that report gross income to you, rather than to the bankruptcy estate, you must allocate that income. Irs form 1040x 2011   The only exception is for purposes of figuring your self-employment tax, if you are self-employed. Irs form 1040x 2011 For that purpose, you must take into account all your self-employment income for the year from services performed both before and after the beginning of the case. Irs form 1040x 2011   You must file a statement with your income tax return stating you filed a Chapter 11 bankruptcy case. Irs form 1040x 2011 The statement must show the allocation and describe the method used to make the allocation. Irs form 1040x 2011 For a sample of this statement and other information, see Notice 2006-83, 2006-40 I. Irs form 1040x 2011 R. Irs form 1040x 2011 B. Irs form 1040x 2011 596, available at www. Irs form 1040x 2011 irs. Irs form 1040x 2011 gov/irb/2006-40_IRB/ar12. Irs form 1040x 2011 html. Irs form 1040x 2011 Miscellaneous Compensation This section discusses many types of employee compensation. Irs form 1040x 2011 The subjects are arranged in alphabetical order. Irs form 1040x 2011 Advance commissions and other earnings. Irs form 1040x 2011   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Irs form 1040x 2011    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Irs form 1040x 2011 If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Itemized Deductions, or you may be able to take a credit for that year. Irs form 1040x 2011 See Repayments , later. Irs form 1040x 2011 Allowances and reimbursements. Irs form 1040x 2011    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Irs form 1040x 2011 If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Irs form 1040x 2011 Back pay awards. Irs form 1040x 2011   Include in income amounts you are awarded in a settlement or judgment for back pay. Irs form 1040x 2011 These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Irs form 1040x 2011 They should be reported to you by your employer on Form W-2. Irs form 1040x 2011 Bonuses and awards. Irs form 1040x 2011    Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Irs form 1040x 2011 These include prizes such as vacation trips for meeting sales goals. Irs form 1040x 2011 If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Irs form 1040x 2011 However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Irs form 1040x 2011 Employee achievement award. Irs form 1040x 2011   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Irs form 1040x 2011 However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Irs form 1040x 2011 Your employer can tell you whether your award is a qualified plan award. Irs form 1040x 2011 Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Irs form 1040x 2011   However, the exclusion does not apply to the following awards. Irs form 1040x 2011 A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Irs form 1040x 2011 A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Irs form 1040x 2011 Example. Irs form 1040x 2011 Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Irs form 1040x 2011 Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Irs form 1040x 2011 However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 − $1,600) in his income. Irs form 1040x 2011 Differential wage payments. Irs form 1040x 2011   This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. Irs form 1040x 2011 These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Irs form 1040x 2011 The payments are reported as wages on Form W-2. Irs form 1040x 2011 Government cost-of-living allowances. Irs form 1040x 2011   Most payments received by U. Irs form 1040x 2011 S. Irs form 1040x 2011 Government civilian employees for working abroad are taxable. Irs form 1040x 2011 However, certain cost-of-living allowances are tax free. Irs form 1040x 2011 Publication 516, U. Irs form 1040x 2011 S. Irs form 1040x 2011 Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Irs form 1040x 2011 Nonqualified deferred compensation plans. Irs form 1040x 2011   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Irs form 1040x 2011 This amount is shown on Form W-2, box 12, using code Y. Irs form 1040x 2011 This amount is not included in your income. Irs form 1040x 2011   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Irs form 1040x 2011 This amount is included in your wages shown on Form W-2, box 1. Irs form 1040x 2011 It is also shown on Form W-2, box 12, using code Z. Irs form 1040x 2011 Nonqualified deferred compensation plans of nonqualified entities. Irs form 1040x 2011   In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. Irs form 1040x 2011 For this purpose, a nonqualified entity is: A foreign corporation unless substantially all of its income is: Effectively connected with the conduct of a trade or business in the United States, or Subject to a comprehensive foreign income tax. Irs form 1040x 2011 A partnership unless substantially all of its income is allocated to persons other than: Foreign persons for whom the income is not subject to a comprehensive foreign income tax, and Tax-exempt organizations. Irs form 1040x 2011 Note received for services. Irs form 1040x 2011   If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Irs form 1040x 2011 When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Irs form 1040x 2011 Do not include that part again in your income. Irs form 1040x 2011 Include the rest of the payment in your income in the year of payment. Irs form 1040x 2011   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Irs form 1040x 2011 Severance pay. Irs form 1040x 2011   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Irs form 1040x 2011 Accrued leave payment. Irs form 1040x 2011   If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Irs form 1040x 2011   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Irs form 1040x 2011 You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Irs form 1040x 2011 Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2. Irs form 1040x 2011 Outplacement services. Irs form 1040x 2011   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Irs form 1040x 2011    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Irs form 1040x 2011 Sick pay. Irs form 1040x 2011   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Irs form 1040x 2011 In addition, you must include in your income sick pay benefits received from any of the following payers. Irs form 1040x 2011 A welfare fund. Irs form 1040x 2011 A state sickness or disability fund. Irs form 1040x 2011 An association of employers or employees. Irs form 1040x 2011 An insurance company, if your employer paid for the plan. Irs form 1040x 2011 However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Irs form 1040x 2011 For more information, see Other Sickness and Injury Benefits under Sickness and Injury Benefits, later. Irs form 1040x 2011 Social security and Medicare taxes paid by employer. Irs form 1040x 2011   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Irs form 1040x 2011 The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Irs form 1040x 2011 However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Irs form 1040x 2011 Stock appreciation rights. Irs form 1040x 2011   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Irs form 1040x 2011 When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Irs form 1040x 2011 You include the cash payment in income in the year you use the right. Irs form 1040x 2011 Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Irs form 1040x 2011 Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Irs form 1040x 2011 See Valuation of Fringe Benefits , later in this discussion, for information on how to determine the amount to include in income. Irs form 1040x 2011 Recipient of fringe benefit. Irs form 1040x 2011   You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. Irs form 1040x 2011 You are considered to be the recipient even if it is given to another person, such as a member of your family. Irs form 1040x 2011 An example is a car your employer gives to your spouse for services you perform. Irs form 1040x 2011 The car is considered to have been provided to you and not to your spouse. Irs form 1040x 2011   You do not have to be an employee of the provider to be a recipient of a fringe benefit. Irs form 1040x 2011 If you are a partner, director, or independent contractor, you also can be the recipient of a fringe benefit. Irs form 1040x 2011 Provider of benefit. Irs form 1040x 2011   Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. Irs form 1040x 2011 The provider can be a client or customer of an independent contractor. Irs form 1040x 2011 Accounting period. Irs form 1040x 2011   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Irs form 1040x 2011 Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Irs form 1040x 2011 The general rule: benefits are reported for a full calendar year (January 1–December 31). Irs form 1040x 2011 The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Irs form 1040x 2011 For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Irs form 1040x 2011 Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Irs form 1040x 2011   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Irs form 1040x 2011 Form W-2. Irs form 1040x 2011   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Irs form 1040x 2011 Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Irs form 1040x 2011 However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Irs form 1040x 2011 Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Irs form 1040x 2011 Benefits you receive from the plan may be taxable, as explained, later, under Sickness and Injury Benefits . Irs form 1040x 2011 For information on the items covered in this section, other than Long-term care coverage , see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Irs form 1040x 2011 Long-term care coverage. Irs form 1040x 2011   Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Irs form 1040x 2011 However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Irs form 1040x 2011 This amount will be reported as wages in box 1 of your Form W-2. Irs form 1040x 2011 Archer MSA contributions. Irs form 1040x 2011    Contributions by your employer to your Archer MSA generally are not included in your income. Irs form 1040x 2011 Their total will be reported in box 12 of Form W-2, with code R. Irs form 1040x 2011 You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Irs form 1040x 2011 File the form with your return. Irs form 1040x 2011 Health flexible spending arrangement (health FSA). Irs form 1040x 2011   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Irs form 1040x 2011   Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Irs form 1040x 2011 The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Irs form 1040x 2011 For more information, see Notice 2012-40, 2012-26 I. Irs form 1040x 2011 R. Irs form 1040x 2011 B. Irs form 1040x 2011 1046, available at www. Irs form 1040x 2011 irs. Irs form 1040x 2011 gov/irb/2012-26 IRB/ar09. Irs form 1040x 2011 html. Irs form 1040x 2011 Health reimbursement arrangement (HRA). Irs form 1040x 2011   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Irs form 1040x 2011 Health savings accounts (HSA). Irs form 1040x 2011   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Irs form 1040x 2011 Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Irs form 1040x 2011 Contributions made by your employer are not included in your income. Irs form 1040x 2011 Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Irs form 1040x 2011 Distributions not used for qualified medical expenses are included in your income. Irs form 1040x 2011 See Publication 969 for the requirements of an HSA. Irs form 1040x 2011   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Irs form 1040x 2011 The contributions are treated as a distribution of money and are not included in the partner's gross income. Irs form 1040x 2011 Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Irs form 1040x 2011 In both situations, the partner can deduct the contribution made to the partner's HSA. Irs form 1040x 2011   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Irs form 1040x 2011 The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Irs form 1040x 2011 Qualified HSA funding distribution. Irs form 1040x 2011   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Irs form 1040x 2011 See Publication 590, Individual Retirement Arrangements (IRAs), for the requirements for these qualified HSA funding distributions. Irs form 1040x 2011 Failure to maintain eligibility. Irs form 1040x 2011   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Irs form 1040x 2011 If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Irs form 1040x 2011 This income is also subject to an additional 10% tax. Irs form 1040x 2011 Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Irs form 1040x 2011 See Instructions for Form 8839, Qualified Adoption Expenses, for more information. Irs form 1040x 2011 Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Irs form 1040x 2011 They also are included as social security and Medicare wages in boxes 3 and 5. Irs form 1040x 2011 However, they are not included as wages in box 1. Irs form 1040x 2011 To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Irs form 1040x 2011 File the form with your return. Irs form 1040x 2011 Athletic Facilities If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer's premises, the value is not included in your compensation. Irs form 1040x 2011 The gym must be used primarily by employees, their spouses, and their dependent children. Irs form 1040x 2011 If your employer pays for a fitness program provided to you at an off-site resort hotel or athletic club, the value of the program is included in your compensation. Irs form 1040x 2011 De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Irs form 1040x 2011 In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Irs form 1040x 2011 Also see Employee Discounts , later. Irs form 1040x 2011 Holiday gifts. Irs form 1040x 2011   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Irs form 1040x 2011 However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Irs form 1040x 2011 Dependent Care Benefits If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Irs form 1040x 2011 Dependent care benefits include: Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and The fair market value of care in a daycare facility provided or sponsored by your employer. Irs form 1040x 2011 The amount you can exclude is limited to the lesser of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Irs form 1040x 2011 Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of your Form W-2. Irs form 1040x 2011 Your employer also will include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W-2. Irs form 1040x 2011 To claim the exclusion, you must complete Part III of Form 2441, Child and Dependent Care Expenses. Irs form 1040x 2011 See the Instructions for Form 2441 for more information. Irs form 1040x 2011 Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Irs form 1040x 2011 For more information, see Publication 970. Irs form 1040x 2011 Employee Discounts If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. Irs form 1040x 2011 The exclusion applies to discounts on property or services offered to customers in the ordinary course of the line of business in which you work. Irs form 1040x 2011 However, it does not apply to discounts on real property or property commonly held for investment (such as stocks or bonds). Irs form 1040x 2011 The exclusion is limited to the price charged nonemployee customers multiplied by the following percentage. Irs form 1040x 2011 For a discount on property, your employer's gross profit percentage (gross profit divided by gross sales) on all property sold during the employer's previous tax year. Irs form 1040x 2011 (Ask your employer for this percentage. Irs form 1040x 2011 ) For a discount on services, 20%. Irs form 1040x 2011 Financial Counseling Fees Financial counseling fees paid for you by your employer are included in your income and must be reported as part of wages. Irs form 1040x 2011 If the fees are for tax or investment counseling, they can be deducted on Schedule A (Form 1040) as a miscellaneous deduction (subject to the 2%-of-AGI limit). Irs form 1040x 2011 Qualified retirement planning services paid for you by your employer may be excluded from your income. Irs form 1040x 2011 For more information, see Retirement Planning Services , later. Irs form 1040x 2011 Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Irs form 1040x 2011 However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Irs form 1040x 2011 For exceptions to this rule, see Entire cost excluded , and Entire cost taxed , later. Irs form 1040x 2011 If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Irs form 1040x 2011 Also, it is shown separately in box 12 with code C. Irs form 1040x 2011 Group-term life insurance. Irs form 1040x 2011   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Irs form 1040x 2011 Permanent benefits. Irs form 1040x 2011   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Irs form 1040x 2011 Your employer should be able to tell you the amount to include in your income. Irs form 1040x 2011 Accidental death benefits. Irs form 1040x 2011   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Irs form 1040x 2011 Former employer. Irs form 1040x 2011   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Irs form 1040x 2011 Also, it is shown separately in box 12 with code C. Irs form 1040x 2011 Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Irs form 1040x 2011 You must pay these taxes with your income tax return. Irs form 1040x 2011 Include them on line 60, Form 1040, and follow the instructions forline 60. Irs form 1040x 2011 For more information, see the Instructions for Form 1040. Irs form 1040x 2011 Two or more employers. Irs form 1040x 2011   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Irs form 1040x 2011 If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Irs form 1040x 2011 You must figure how much to include in your income. Irs form 1040x 2011 Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Irs form 1040x 2011 Figuring the taxable cost. Irs form 1040x 2011    Use the following worksheet to figure the amount to include in your income. Irs form 1040x 2011   If you pay any part of the cost of the insurance, your entire payment reduces, dollar for dollar, the amount you otherwise would include in your income. Irs form 1040x 2011 However, you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, or Payments for coverage not taxed to you because of the exceptions discussed later under Entire cost excluded . Irs form 1040x 2011 Worksheet 1. Irs form 1040x 2011 Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Irs form 1040x 2011 Enter the total amount of your insurance coverage from your employer(s) 1. Irs form 1040x 2011   2. Irs form 1040x 2011 Limit on exclusion for employer-provided group-term life insurance coverage 2. Irs form 1040x 2011 50,000 3. Irs form 1040x 2011 Subtract line 2 from line 1 3. Irs form 1040x 2011   4. Irs form 1040x 2011 Divide line 3 by $1,000. Irs form 1040x 2011 Figure to the nearest tenth 4. Irs form 1040x 2011   5. Irs form 1040x 2011 Go to Table 1. Irs form 1040x 2011 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Irs form 1040x 2011   6. Irs form 1040x 2011 Multiply line 4 by line 5 6. Irs form 1040x 2011     7. Irs form 1040x 2011 Enter the number of full months of coverage at this cost 7. Irs form 1040x 2011   8. Irs form 1040x 2011 Multiply line 6 by line 7 8. Irs form 1040x 2011   9. Irs form 1040x 2011 Enter the premiums you paid per month 9. Irs form 1040x 2011       10. Irs form 1040x 2011 Enter the number of months you paid the  premiums 10. Irs form 1040x 2011       11. Irs form 1040x 2011 Multiply line 9 by line 10. Irs form 1040x 2011 11. Irs form 1040x 2011   12. Irs form 1040x 2011 Subtract line 11 from line 8. Irs form 1040x 2011 Include this amount in your income as wages 12. Irs form 1040x 2011   Table 1. Irs form 1040x 2011 Cost of $1,000 of Group-Term Life Insurance for One Month   Age Cost     Under 25 $ . Irs form 1040x 2011 05     25 through 29 . Irs form 1040x 2011 06     30 through 34 . Irs form 1040x 2011 08     35 through 39 . Irs form 1040x 2011 09     40 through 44 . Irs form 1040x 2011 10     45 through 49 . Irs form 1040x 2011 15     50 through 54 . Irs form 1040x 2011 23     55 through 59 . Irs form 1040x 2011 43     60 through 64 . Irs form 1040x 2011 66     65 through 69 1. Irs form 1040x 2011 27     70 and older 2. Irs form 1040x 2011 06   Example. Irs form 1040x 2011 You are 51 years old and work for employers A and B. Irs form 1040x 2011 Both employers provide group-term life insurance coverage for you for the entire year. Irs form 1040x 2011 Your coverage is $35,000 with employer A and $45,000 with employer B. Irs form 1040x 2011 You pay premiums of $4. Irs form 1040x 2011 15 a month under the employer B group plan. Irs form 1040x 2011 You figure the amount to include in your income as follows. Irs form 1040x 2011   Worksheet 1. Irs form 1040x 2011 Figuring the Cost of Group-Term Life Insurance To Include in Income—Illustrated 1. Irs form 1040x 2011 Enter the total amount of your insurance coverage from your employer(s) 1. Irs form 1040x 2011 80,000 2. Irs form 1040x 2011 Limit on exclusion for employer-provided group-term life insurance coverage 2. Irs form 1040x 2011 50,000 3. Irs form 1040x 2011 Subtract line 2 from line 1 3. Irs form 1040x 2011 30,000 4. Irs form 1040x 2011 Divide line 3 by $1,000. Irs form 1040x 2011 Figure to the nearest tenth 4. Irs form 1040x 2011 30. Irs form 1040x 2011 0 5. Irs form 1040x 2011 Go to Table 1. Irs form 1040x 2011 Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Irs form 1040x 2011 . Irs form 1040x 2011 23 6. Irs form 1040x 2011 Multiply line 4 by line 5 6. Irs form 1040x 2011 6. Irs form 1040x 2011 90 7. Irs form 1040x 2011 Enter the number of full months of coverage at this cost. Irs form 1040x 2011 7. Irs form 1040x 2011 12 8. Irs form 1040x 2011 Multiply line 6 by line 7 8. Irs form 1040x 2011 82. Irs form 1040x 2011 80 9. Irs form 1040x 2011 Enter the premiums you paid per month 9. Irs form 1040x 2011 4. Irs form 1040x 2011 15     10. Irs form 1040x 2011 Enter the number of months you paid the premiums 10. Irs form 1040x 2011 12     11. Irs form 1040x 2011 Multiply line 9 by line 10. Irs form 1040x 2011 11. Irs form 1040x 2011 49. Irs form 1040x 2011 80 12. Irs form 1040x 2011 Subtract line 11 from line 8. Irs form 1040x 2011 Include this amount in your income as wages 12. Irs form 1040x 2011 33. Irs form 1040x 2011 00 The total amount to include in income for the cost of excess group-term life insurance is $33. Irs form 1040x 2011 Neither employer provided over $50,000 insurance coverage, so the wages shown on your Forms W-2 do not include any part of that $33. Irs form 1040x 2011 You must add it to the wages shown on your Forms W-2 and include the total on your return. Irs form 1040x 2011 Entire cost excluded. Irs form 1040x 2011   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Irs form 1040x 2011 You are permanently and totally disabled and have ended your employment. Irs form 1040x 2011 Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Irs form 1040x 2011 A charitable organization to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Irs form 1040x 2011 (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Irs form 1040x 2011 ) The plan existed on January 1, 1984, and: You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Irs form 1040x 2011 Entire cost taxed. Irs form 1040x 2011   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply. Irs form 1040x 2011 The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Irs form 1040x 2011 You are a key employee and your employer's plan discriminates in favor of key employees. Irs form 1040x 2011 Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Irs form 1040x 2011 The meals are: Furnished on the business premises of your employer, and Furnished for the convenience of your employer. Irs form 1040x 2011 The lodging is: Furnished on the business premises of your employer, Furnished for the convenience of your employer, and A condition of your employment. Irs form 1040x 2011 (You must accept it in order to be able to properly perform your duties. Irs form 1040x 2011 ) You also do not include in your income the value of meals or meal money that qualifies as a de minimis fringe benefit. Irs form 1040x 2011 See De Minimis (Minimal) Benefits , earlier. Irs form 1040x 2011 Faculty lodging. Irs form 1040x 2011   If you are an employee of an educational institution or an academic health center and you are provided with lodging that does not meet the three conditions given earlier, you still may not have to include the value of the lodging in income. Irs form 1040x 2011 However, the lodging must be qualified campus lodging, and you must pay an adequate rent. Irs form 1040x 2011 Academic health center. Irs form 1040x 2011   This is an organization that meets the following conditions. Irs form 1040x 2011 Its principal purpose or function is to provide medical or hospital care or medical education or research. Irs form 1040x 2011 It receives payments for graduate medical education under the Social Security Act. Irs form 1040x 2011 One of its principal purposes or functions is to provide and teach basic and clinical medical science and research using its own faculty. Irs form 1040x 2011 Qualified campus lodging. Irs form 1040x 2011   Qualified campus lodging is lodging furnished to you, your spouse, or one of your dependents by, or on behalf of, the institution or center for use as a home. Irs form 1040x 2011 The lodging must be located on or near a campus of the educational institution or academic health center. Irs form 1040x 2011 Adequate rent. Irs form 1040x 2011   The amount of rent you pay for the year for qualified campus lodging is considered adequate if it is at least equal to the lesser of: 5% of the appraised value of the lodging, or The average of rentals paid by individuals (other than employees or students) for comparable lodging held for rent by the educational institution. Irs form 1040x 2011 If the amount you pay is less than the lesser of these amounts, you must include the difference in your income. Irs form 1040x 2011   The lodging must be appraised by an independent appraiser and the appraisal must be reviewed on an annual basis. Irs form 1040x 2011 Example. Irs form 1040x 2011 Carl Johnson, a sociology professor for State University, rents a home from the university that is qualified campus lodging. Irs form 1040x 2011 The house is appraised at $200,000. Irs form 1040x 2011 The average rent paid for comparable university lodging by persons other than employees or students is $14,000 a year. Irs form 1040x 2011 Carl pays an annual rent of $11,000. Irs form 1040x 2011 Carl does not include in his income any rental value because the rent he pays equals at least 5% of the appraised value of the house (5% × $200,000 = $10,000). Irs form 1040x 2011 If Carl paid annual rent of only $8,000, he would have to include $2,000 in his income ($10,000 − $8,000). Irs form 1040x 2011 Moving Expense Reimbursements In most cases, if your employer pays for your moving expenses (either directly or indirectly) and the expenses would have been deductible if you paid them yourself, the value is not included in your income. Irs form 1040x 2011 See Publication 521 for more information. Irs form 1040x 2011 No-Additional-Cost Services The value of services you receive from your employer for free, at cost, or for a reduced price is not included in your income if your employer: Offers the same service for sale to customers in the ordinary course of the line of business in which you work, and Does not have a substantial additional cost (including any sales income given up) to provide you with the service (regardless of what you paid for the service). Irs form 1040x 2011 In most cases, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services. Irs form 1040x 2011 Example. Irs form 1040x 2011 You are employed as a flight attendant for a company that owns both an airline and a hotel chain. Irs form 1040x 2011 Your employer allows you to take personal flights (if there is an unoccupied seat) and stay in any one of their hotels (if there is an unoccupied room) at no cost to you. Irs form 1040x 2011 The value of the personal flight is not included in your income. Irs form 1040x 2011 However, the value of the hotel room is included in your income because you do not work in the hotel business. Irs form 1040x 2011 Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Irs form 1040x 2011 Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Irs form 1040x 2011 You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Irs form 1040x 2011 Also, see Financial Counseling Fees , earlier. Irs form 1040x 2011 Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Irs form 1040x 2011 A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Irs form 1040x 2011 Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Irs form 1040x 2011 However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Irs form 1040x 2011 Exclusion limit. Irs form 1040x 2011   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Irs form 1040x 2011   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Irs form 1040x 2011   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Irs form 1040x 2011   If the benefits have a value that is more than these limits, the excess must be included in your income. Irs form 1040x 2011 You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Irs form 1040x 2011 Commuter highway vehicle. Irs form 1040x 2011   This is a highway vehicle that seats at least six adults (not including the driver). Irs form 1040x 2011 At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Irs form 1040x 2011 Transit pass. Irs form 1040x 2011   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Irs form 1040x 2011 Qualified parking. Irs form 1040x 2011   This is parking provided to an employee at or near the employer's place of business. Irs form 1040x 2011 It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Irs form 1040x 2011 It does not include parking at or near the employee's home. Irs form 1040x 2011 Qualified bicycle commuting. Irs form 1040x 2011   This is reimbursement based on the number of qualified bicycle commuting months for the year. Irs form 1040x 2011 A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Irs form 1040x 2011 The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Irs form 1040x 2011 Tuition Reduction You can exclude a qualified tuition reduction from your income. Irs form 1040x 2011 This is the amount of a reduction in tuition: For education (below graduate level) furnished by an educational institution to an employee, former employee who retired or became disabled, or his or her spouse and dependent children. Irs form 1040x 2011 For education furnished to a graduate student at an educational institution if the graduate student is engaged in teaching or research activities for that institution. Irs form 1040x 2011 Representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance program. Irs form 1040x 2011 For more information, see Publication 970. Irs form 1040x 2011 Working Condition Benefits If your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, the cost is not included in your income. Irs form 1040x 2011 Example. Irs form 1040x 2011 You work as an engineer and your employer provides you with a subscription to an engineering trade magazine. Irs form 1040x 2011 The cost of the subscription is not included in your income because the cost would have been allowable to you as a business deduction if you had paid for the subscription yourself. Irs form 1040x 2011 Valuation of Fringe Benefits If a fringe benefit is included in your income, the amount included is generally its value determined under the general valuation rule or under the special valuation rules. Irs form 1040x 2011 For an exception, see Group-Term Life Insurance , earlier. Irs form 1040x 2011 General valuation rule. Irs form 1040x 2011   You must include in your income the amount by which the fair market value of the fringe benefit is more than the sum of: The amount, if any, you paid for the benefit, plus The amount, if any, specifically excluded from your income by law. Irs form 1040x 2011 If you pay fair market value for a fringe benefit, no amount is included in your income. Irs form 1040x 2011 Fair market value. Irs form 1040x 2011   The fair market value of a fringe benefit is determined by all the facts and circumstances. Irs form 1040x 2011 It is the amount you would have to pay a third party to buy or lease the benefit. Irs form 1040x 2011 This is determined without regard to: Your perceived value of the benefit, or The amount your employer paid for the benefit. Irs form 1040x 2011 Employer-provided vehicles. Irs form 1040x 2011   If your employer provides a car (or other highway motor vehicle) to you, your personal use of the car is usually a taxable noncash fringe benefit. Irs form 1040x 2011   Under the general valuation rules, the value of an employer-provided vehicle is the amount you would have to pay a third party to lease the same or a similar vehicle on the same or comparable terms in the same geographic area where you use the vehicle. Irs form 1040x 2011 An example of a comparable lease term is the amount of time the vehicle is available for your use, such as a 1-year period. Irs form 1040x 2011 The value cannot be determined by multiplying a cents-per-mile rate times the number of miles driven unless you prove the vehicle could have been leased on a cents-per-mile basis. Irs form 1040x 2011 Flights on employer-provided aircraft. Irs form 1040x 2011   Under the general valuation rules, if your flight on an employer-provided piloted aircraft is primarily personal and you control the use of the aircraft for the flight, the value is the amount it would cost to charter the flight from a third party. Irs form 1040x 2011   If there is more than one employee on the flight, the cost to charter the aircraft must be divided among those employees. Irs form 1040x 2011 The division must be based on all the facts, including which employee or employees control the use of the aircraft. Irs form 1040x 2011 Special valuation rules. Irs form 1040x 2011   You generally can use a special valuation rule for a fringe benefit only if your employer uses the rule. Irs form 1040x 2011 If your employer uses a special valuation rule, you cannot use a different special rule to value that benefit. Irs form 1040x 2011 You always can use the general valuation rule discussed earlier, based on facts and circumstances, even if your employer uses a special rule. Irs form 1040x 2011   If you and your employer use a special valuation rule, you must include in your income the amount your employer determines under the special rule minus the sum of: Any amount you repaid your employer, plus Any amount specifically excluded from income by law. Irs form 1040x 2011 The special valuation rules are the following. Irs form 1040x 2011 The automobile lease rule. Irs form 1040x 2011 The vehicle cents-per-mile rule. Irs form 1040x 2011 The commuting rule. Irs form 1040x 2011 The unsafe conditions commuting rule. Irs form 1040x 2011 The employer-operated eating-facility rule. Irs form 1040x 2011   For more information on these rules, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Irs form 1040x 2011    For information on the non-commercial flight and commercial flight valuation rules, see sections 1. Irs form 1040x 2011 61-21(g) and 1. Irs form 1040x 2011 61-21(h) of the regulations. Irs form 1040x 2011 Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Irs form 1040x 2011 (Your employer can tell you whether your retirement plan is qualified. Irs form 1040x 2011 ) However, the cost of life insurance coverage included in the plan may have to be included. Irs form 1040x 2011 See Group-Term Life Insurance , earlier, under Fringe Benefits. Irs form 1040x 2011 If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Irs form 1040x 2011 However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Irs form 1040x 2011 For information on distributions from retirement plans, see Publication 575 (or Publication 721, Tax Guide to U. Irs form 1040x 2011 S. Irs form 1040x 2011 Civil Service Retirement Benefits, if you are a federal employee or retiree). Irs form 1040x 2011 Elective Deferrals If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Irs form 1040x 2011 The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Irs form 1040x 2011 An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Irs form 1040x 2011 However, it is included in wages subject to social security and Medicare taxes. Irs form 1040x 2011 Elective deferrals include elective contributions to the following retirement plans. Irs form 1040x 2011 Cash or deferred arrangements (section 401(k) plans). Irs form 1040x 2011 The Thrift Savings Plan for federal employees. Irs form 1040x 2011 Salary reduction simplified employee pension plans (SARSEP). Irs form 1040x 2011 Savings incentive match plans for employees (SIMPLE plans). Irs form 1040x 2011 Tax-sheltered annuity plans (403(b) plans). Irs form 1040x 2011 Section 501(c)(18)(D) plans. Irs form 1040x 2011 (But see Reporting by employer , later. Irs form 1040x 2011 ) Section 457 plans. Irs form 1040x 2011 Qualified automatic contribution arrangements. Irs form 1040x 2011   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Irs form 1040x 2011 You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Irs form 1040x 2011 The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Irs form 1040x 2011   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Irs form 1040x 2011 Overall limit on deferrals. Irs form 1040x 2011   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3), earlier. Irs form 1040x 2011 The specific plan limits for the plans listed in (4) through (7), earlier, are discussed later. Irs form 1040x 2011 Amounts deferred under specific plan limits are part of the overall limit on deferrals. Irs form 1040x 2011   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Irs form 1040x 2011 However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Irs form 1040x 2011 Catch-up contributions. Irs form 1040x 2011   You may be allowed catch-up contributions (additional elective deferrals) if you are age 50 or older by the end of your tax year. Irs form 1040x 2011 For more information about catch-up contributions to 403(b) plans, see chapter 6 of Publication 571, Tax Sheltered Annuity Plans. Irs form 1040x 2011   For more information about additional elective deferrals to: SEPs (SARSEPs), see Salary Reduction Simplified Employee Pension in chapter 2 of Publication 560, Retirement Plans for Small Business. Irs form 1040x 2011 SIMPLE plans, see How Much Can Be Contributed on Your Behalf? in chapter 3 of Publication 590. Irs form 1040x 2011 Section 457 plans, see Limit for deferrals under section 457 plans , later. Irs form 1040x 2011 Limit for deferrals under SIMPLE plans. Irs form 1040x 2011   If you are a participant in a SIMPLE plan, you generally should not have deferred more than $12,000 in 2013. Irs form 1040x 2011 Amounts you defer under a SIMPLE plan count toward the overall limit ($17,500 for 2013) and may affect the amount you can defer under other elective deferral plans. Irs form 1040x 2011 Limit for tax-sheltered annuities. Irs form 1040x 2011   If you are a participant in a tax-sheltered annuity plan (403(b) plan), the limit on elective deferrals for 2013 generally is $17,500. Irs form 1040x 2011 However, if you have at least 15 years of service with a public school system, a hospital, a home health service agency, a health and welfare service agency, a church, or a convention or association of churches (or associated organization), the limit on elective deferrals is increased by the least of the following amounts. Irs form 1040x 2011 $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in earlier years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. Irs form 1040x 2011   If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013. Irs form 1040x 2011   For more information, see Publication 571. Irs form 1040x 2011 Limit for deferral under section 501(c)(18) plans. Irs form 1040x 2011   If you are a participant in a section 501(c)(18) plan (a trust created before June 25, 1959, funded only by employee contributions), you should have deferred no more than the lesser of $7,000 or 25% of your compensation. Irs form 1040x 2011 Amounts you defer under a section 501(c)(18) plan count toward the overall limit ($17,500 in 2013) and may affect the amount you can defer under other elective deferral plans. Irs form 1040x 2011 Limit for deferrals under section 457 plans. Irs form 1040x 2011   If you are a participant in a section 457 plan (a deferred compensation plan for employees of state or local governments or tax-exempt organizations), you should have deferred no more than the lesser of your includible compensation or $17,500 in 2013. Irs form 1040x 2011 However, if you are within 3 years of normal retirement age, you may be allowed an increased limit if the plan allows it. Irs form 1040x 2011 See Increased limit , later. Irs form 1040x 2011 Includible compensation. Irs form 1040x 2011   This is the pay you received for the year from the employer who maintained the section 457 plan. Irs form 1040x 2011 In most cases, it includes all the following payments. Irs form 1040x 2011 Wages and salaries. Irs form 1040x 2011 Fees for professional services. Irs form 1040x 2011 The value of any employer-provided qualified transportation fringe benefit (defined under Transportation , earlier) that is not included in your income. Irs form 1040x 2011 Other amounts received (cash or noncash) for personal services you performed, including, but not limited to, the following items. Irs form 1040x 2011 Commissions and tips. Irs form 1040x 2011 Fringe benefits. Irs form 1040x 2011 Bonuses. Irs form 1040x 2011 Employer contributions (elective deferrals) to: The section 457 plan. Irs form 1040x 2011 Qualified cash or deferred arrangements (section 401(k) plans) that are not included in your income. Irs form 1040x 2011 A salary reduction simplified employee pension (SARSEP). Irs form 1040x 2011 A tax-sheltered annuity (section 403(b) plan). Irs form 1040x 2011 A savings incentive match plan for employees (SIMPLE plan). Irs form 1040x 2011 A section 125 cafeteria plan. Irs form 1040x 2011   Instead of using the amounts listed earlier to determine your includible compensation, your employer can use any of the following amounts. Irs form 1040x 2011 Your wages as defined for income tax withholding purposes. Irs form 1040x 2011 Your wages as reported in box 1 of Form W-2. Irs form 1040x 2011 Your wages that are subject to social security withholding (including elective deferrals). Irs form 1040x 2011 Increased limit. Irs form 1040x 2011   During any, or all, of the last 3 years ending before you reach normal retirement age under the plan, your plan may provide that your limit is the lesser of: Twice the annual limit ($35,000 for 2013), or The basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions). Irs form 1040x 2011 Catch-up contributions. Irs form 1040x 2011   You generally can have additional elective deferrals made to your governmental section 457 plan if: You reached age 50 by the end of the year, and No other elective deferrals can be made for you to the plan for the year because of limits or restrictions. Irs form 1040x 2011 If you qualify, your limit can be the lesser of your includible compensation or $17,500, plus $5,500. Irs form 1040x 2011 However, if you are within 3 years of retirement age and your plan provides the increased limit, discussed earlier, that limit may be higher. Irs form 1040x 2011 Designated Roth contributions. Irs form 1040x 2011   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Irs form 1040x 2011 Designated Roth contributions are treated as elective deferrals, except that they are included in income. Irs form 1040x 2011 Your retirement plan must maintain separate accounts and recordkeeping for the designated Roth contributions. Irs form 1040x 2011   Qualified distributions from a Roth plan are not included in income. Irs form 1040x 2011 In most cases, a distribution made before the end of the 5-tax-year period beginning with the first tax year for which you made a designated Roth contribution to the plan is not a qualified distribution. Irs form 1040x 2011 Reporting by employer. Irs form 1040x 2011   Your employer generally should not include elective deferrals in your wages in box 1 of Form W-2. Irs form 1040x 2011 Instead, your employer should mark the Retirement plan checkbox in box 13 and show the total amount deferred in box 12. Irs form 1040x 2011 Section 501(c)(18)(D) contributions. Irs form 1040x 2011   Wages shown in box 1 of your Form W-2 should not have been reduced for contributions you made to a section 501(c)(18)(D) retirement plan. Irs form 1040x 2011 The amount you contributed should be identified with code “H” in box 12. Irs form 1040x 2011 You may deduct the amount deferred subject to the limits that apply. Irs form 1040x 2011 Include your deduction in the total on Form 1040, line 36. Irs form 1040x 2011 Enter the amount and “501(c)(18)(D)” on the dotted line next to line 36. Irs form 1040x 2011 Designated Roth contributions. Irs form 1040x 2011    These contributions are elective deferrals but are included in your wages in box 1 of Form W-2. Irs form 1040x 2011 Designated Roth contributions to a section 401(k) plan are reported using code AA in box 12, or, for section 403(b) plans, code BB in box 12. Irs form 1040x 2011 Excess deferrals. Irs form 1040x 2011   If your deferrals exceed the limit, you must notify your plan by the date required by the plan. Irs form 1040x 2011 If the plan permits, the excess amount will be distributed to you. Irs form 1040x 2011 If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. Irs form 1040x 2011 You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. Irs form 1040x 2011 The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year. Irs form 1040x 2011   You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. Irs form 1040x 2011 File Form 1040 to add the excess deferral amount to your wages on line 7. Irs form 1040x 2011 Do not use Form 1040A or Form 1040EZ to report excess deferral amounts. Irs form 1040x 2011 Excess not distributed. Irs form 1040x 2011   If you do not take out the excess amount, you cannot include it in the cost of the contract even though you included it in your income. Irs form 1040x 2011 Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. Irs form 1040x 2011 Excess distributed to you. Irs form 1040x 2011   If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, do not include it in income again in the year you receive it. Irs form 1040x 2011 If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. Irs form 1040x 2011 Any income on the excess deferral taken out is taxable in the tax year in which you take it out. Irs form 1040x 2011 If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. Irs form 1040x 2011    You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Irs form 1040x 2011 Use the following rules to report a corrective distribution shown on Form 1099-R for 2013. Irs form 1040x 2011 If the distribution was for a 2013 excess deferral, your Form 1099-R should have the code “8” in box 7. Irs form 1040x 2011 Add the excess deferral amount to your wages on your 2013 tax return. Irs form 1040x 2011 If the distribution was for a 2013 excess deferral to a designated Roth account, your Form 1099-R should have code “B” in box 7. Irs form 1040x 2011 Do not add this amount to your wages on your 2013 return. Irs form 1040x 2011 If the distribution was for a 2012 excess deferral, your Form 1099-R should have the code “P” in box 7. Irs form 1040x 2011 If you did not add the excess deferral amount to your wages on your 2012 tax return, you must file an amended return on Form 1040X, Amended U. Irs form 1040x 2011 S. Irs form 1040x 2011 Individual Income Tax Return. Irs form 1040x 2011 If you did not receive the distribution by April 15, 2013, you also must add it to your wages on your 2013 tax return. Irs form 1040x 2011 If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code “8” in box 7. Irs form 1040x 2011 Add the income amount to your wages on your 2013 income tax return, regardless of when the excess deferral was made. Irs form 1040x 2011 Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Irs form 1040x 2011 Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution. Irs form 1040x 2011 ”    Even though a corrective distribution of excess deferrals is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Irs form 1040x 2011 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Irs form 1040x 2011 Excess Contributions If you are a highly compensated employee, the total of your elective deferrals and other contributions made for you for any year under a section 401(k) plan or SARSEP can be, as a percentage of pay, no more than 125% of the average deferral percentage (ADP) of all eligible non-highly compensated employees. Irs form 1040x 2011 If the total contributed to the plan is more than the amount allowed under the ADP test, the excess contributions must be either distributed to you or recharacterized as after-tax employee contributions by treating them as distributed to you and then contributed by you to the plan. Irs form 1040x 2011 You must include the excess contributions in your income as wages on Form 1040, line 7. Irs form 1040x 2011 You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. Irs form 1040x 2011 If you receive a corrective distribution of excess contributions (and allocable income), it is included in your income in the year of the distribution. Irs form 1040x 2011 The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is allocable to the excess contributions. Irs form 1040x 2011 You should receive a Form 1099-R for the year the excess contributions are distributed to you. Irs form 1040x 2011 Add the distribution to your wages for that year. Irs form 1040x 2011 Even though a corrective distribution of excess contributions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Irs form 1040x 2011 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Irs form 1040x 2011 Excess Annual Additions The amount contributed in 2013 to a defined contribution plan is generally limited to the lesser of 100% of your compensation or $51,000. Irs form 1040x 2011 Under certain circumstances, contributions that exceed these limits (excess annual additions) may be corrected by a distribution of your elective deferrals or a return of your after-tax contributions and earnings from these contributions. Irs form 1040x 2011 A corrective payment of excess annual additions consisting of elective deferrals or earnings from your after-tax contributions is fully taxable in the year paid. Irs form 1040x 2011 A corrective payment consisting of your after-tax contributions is not taxable. Irs form 1040x 2011 If you received a corrective payment of excess annual additions, you should receive a separate Form 1099-R for the year of the payment with the code “E” in box 7. Irs form 1040x 2011 Report the total payment shown in box 1 of Form 1099-R on line 16a of Form 1040 or line 12a of Form 1040A. Irs form 1040x 2011 Report the taxable amount shown in box 2a of Form 1099-R on line 16b of Form 1040 or line 12b of Form 1040A. Irs form 1040x 2011 Even though a corrective distribution of excess annual additions is reported on Form 1099-R, it is not otherwise treated as a distribution from the plan. Irs form 1040x 2011 It cannot be rolled over into another plan, and it is not subject to the additional tax on early distributions. Irs form 1040x 2011 Stock Options If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. Irs form 1040x 2011 The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. Irs form 1040x 2011 Your employer can tell you which kind of option you hold. Irs form 1040x 2011 Nonstatutory Stock Options Grant of option. Irs form 1040x 2011   If you are granted a nonstatutory stock option, you may have income when you receive the option. Irs form 1040x 2011 The amount of income to include and the time to include it depend on whether the fair market value of the option can be readily determined. Irs form 1040x 2011 The fair market value of an option can be readily determined if it is actively traded on an established market. Irs form 1040x 2011    The fair market value of an option that is not traded on an established market can be readily determined only if all of the following conditions exist. Irs form 1040x 2011 You can transfer the option. Irs form 1040x 2011 You can exercise the option immediately in full. Irs form 1040x 2011 The option or the property subject to the option is not subject to any condition or restriction (other than a condition to secure payment of the purchase price) that has a significant effect on the fair market value of the option. Irs form 1040x 2011 The fair market value of the option privilege can be readily determined. Irs form 1040x 2011 The option privilege for an option to buy is the opportunity to benefit during the option's exercise period from any increase in the value of property subject to the option without risking any capital. Irs form 1040x 2011 For example, if during the exercise period the fair market value of stock subject to an option is greater than the option's exercise price, a profit may be realized by exercising the option and immediately selling the stock at its higher value. Irs form 1040x 2011 The option privilege for an option to sell is the opportunity to benefit during the exercise period from a decrease in the value of the property subject to the option. Irs form 1040x 2011 If you or a member of your family is an officer, director, or more-than-10% owner of an expatriated corporation, you may owe an excise tax on the value of nonstatutory options and other stock-based compensation from that corporation. Irs form 1040x 2011 For more information on the excise tax, see Internal Revenue Code section 4985. Irs form 1040x 2011 Option with readily determinable value. Irs form 1040x 2011   If you receive a nonstatutory stock option that has a readily determinable fair market value at the time it is granted to you, the option is treated like other property received as compensation. Irs form 1040x 2011 See Restricted Property , later, for rules on how much income to include and when to include it. Irs form 1040x 2011 However, the rule described in that discussion for choosing to include the value of property in your income for the year of the transfer does not apply to a nonstatutory option. Irs form 1040x 2011 Option without readily determinable value. Irs form 1040x 2011   If the fair market value of the option is not readily determinable at the time it is granted to you (even if it is determined later), you do not have income until you exercise or transfer the option. Irs form 1040x 2011    Exercise or transfer of option. Irs form 1040x 2011   When you exercise a nonstatutory stock option, the amount to include in your income depends on whether the option had a readily determinable value. Irs form 1040x 2011 Option with readily determinable value. Irs form 1040x 2011   When you exercise a nonstatutory stock option that had a readily determinable value at the time the option was granted, you do not have to include any amount in income. Irs form 1040x 2011 Option without readily determinable value. Irs form 1040x 2011   When you exercise a nonstatutory stock option that did not have a readily determinable value at the time the option was granted, the restricted prope
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Wage & Income

Wage and Income Transcripts show data from information returns, such as W-2s, 1099s and 1098s, reported to the IRS. Most recent year information may not be complete until July. 

Page Last Reviewed or Updated: 10-Jan-2014

The Irs Form 1040x 2011

Irs form 1040x 2011 Publication 15-A - Main Content Table of Contents 1. Irs form 1040x 2011 Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Irs form 1040x 2011 Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Irs form 1040x 2011 Employees of Exempt OrganizationsSocial security and Medicare taxes. Irs form 1040x 2011 FUTA tax. Irs form 1040x 2011 4. Irs form 1040x 2011 Religious Exemptions and Special Rules for MinistersForm W-2. Irs form 1040x 2011 Self-employed. Irs form 1040x 2011 Employees. Irs form 1040x 2011 5. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Irs form 1040x 2011 Pensions and AnnuitiesFederal Income Tax Withholding 9. Irs form 1040x 2011 Alternative Methods for Figuring WithholdingTerm of continuous employment. Irs form 1040x 2011 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 form 1040x 2011 Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Irs form 1040x 2011 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 form 1040x 2011 The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Irs form 1040x 2011 This discussion explains these four categories. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Irs form 1040x 2011 See Publication 15 (Circular E) for information on backup withholding. Irs form 1040x 2011 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 form 1040x 2011 However, whether such people are employees or independent contractors depends on the facts in each case. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 This is so even when you give the employee freedom of action. Irs form 1040x 2011 What matters is that you have the right to control the details of how the services are performed. Irs form 1040x 2011 For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. Irs form 1040x 2011 If you have an employer-employee relationship, it makes no difference how it is labeled. Irs form 1040x 2011 The substance of the relationship, not the label, governs the worker's status. Irs form 1040x 2011 It does not matter whether the individual is employed full time or part time. Irs form 1040x 2011 For employment tax purposes, no distinction is made between classes of employees. Irs form 1040x 2011 Superintendents, managers, and other supervisory personnel are all employees. Irs form 1040x 2011 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 form 1040x 2011 A director of a corporation is not an employee with respect to services performed as a director. Irs form 1040x 2011 You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. Irs form 1040x 2011 However, the wages of certain employees may be exempt from one or more of these taxes. Irs form 1040x 2011 See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Irs form 1040x 2011 Leased employees. Irs form 1040x 2011   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Irs form 1040x 2011 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 form 1040x 2011   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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Additional information. Irs form 1040x 2011   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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Irs form 1040x 2011 The work performed for you must be the salesperson's principal business activity. Irs form 1040x 2011 See Salesperson in section 2. Irs form 1040x 2011 Social security and Medicare taxes. Irs form 1040x 2011   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Irs form 1040x 2011 The service contract states or implies that substantially all the services are to be performed personally by them. Irs form 1040x 2011 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 form 1040x 2011 The services are performed on a continuing basis for the same payer. Irs form 1040x 2011 Federal unemployment (FUTA) tax. Irs form 1040x 2011   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 form 1040x 2011 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 form 1040x 2011 Income tax. Irs form 1040x 2011   Do not withhold federal income tax from the wages of statutory employees. Irs form 1040x 2011 Reporting payments to statutory employees. Irs form 1040x 2011   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Irs form 1040x 2011 Show your payments to the employee as “other compensation” in box 1. Irs form 1040x 2011 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 form 1040x 2011 The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 H-2A agricultural workers. Irs form 1040x 2011   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Irs form 1040x 2011 Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Irs form 1040x 2011 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 form 1040x 2011 Direct sellers. Irs form 1040x 2011   Direct sellers include persons falling within any of the following three groups. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011   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 form 1040x 2011 Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Irs form 1040x 2011 Licensed real estate agents. Irs form 1040x 2011   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Irs form 1040x 2011 Companion sitters. Irs form 1040x 2011   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Irs form 1040x 2011 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 form 1040x 2011 Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Irs form 1040x 2011 Misclassification of Employees Consequences of treating an employee as an independent contractor. Irs form 1040x 2011   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 form 1040x 2011 See section 2 in Publication 15 (Circular E) for more information. Irs form 1040x 2011 Relief provision. Irs form 1040x 2011   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 form 1040x 2011 To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Irs form 1040x 2011 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 form 1040x 2011 Technical service specialists. Irs form 1040x 2011   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 form 1040x 2011 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 form 1040x 2011   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 form 1040x 2011 The common-law rules control whether the specialist is treated as an employee or an independent contractor. Irs form 1040x 2011 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 form 1040x 2011 Test proctors and room supervisors. Irs form 1040x 2011   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 form 1040x 2011 Voluntary Classification Settlement Program (VCSP). Irs form 1040x 2011   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 form 1040x 2011 To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Irs form 1040x 2011 For more information, visit IRS. Irs form 1040x 2011 gov and enter “VCSP” in the search box. Irs form 1040x 2011 2. Irs form 1040x 2011 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 form 1040x 2011 An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 These facts are discussed next. Irs form 1040x 2011 Behavioral control. Irs form 1040x 2011   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 form 1040x 2011   An employee is generally subject to the business' instructions about when, where, and how to work. Irs form 1040x 2011 All of the following are examples of types of instructions about how to do work. Irs form 1040x 2011 When and where to do the work. Irs form 1040x 2011 What tools or equipment to use. Irs form 1040x 2011 What workers to hire or to assist with the work. Irs form 1040x 2011 Where to purchase supplies and services. Irs form 1040x 2011 What work must be performed by a specified  individual. Irs form 1040x 2011 What order or sequence to follow. Irs form 1040x 2011   The amount of instruction needed varies among different jobs. Irs form 1040x 2011 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 form 1040x 2011 A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Irs form 1040x 2011 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 form 1040x 2011 Training that the business gives to the worker. Irs form 1040x 2011   An employee may be trained to perform services in a particular manner. Irs form 1040x 2011 Independent contractors ordinarily use their own methods. Irs form 1040x 2011 Financial control. Irs form 1040x 2011   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 form 1040x 2011   Independent contractors are more likely to have unreimbursed expenses than are employees. Irs form 1040x 2011 Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Irs form 1040x 2011 However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Irs form 1040x 2011 The extent of the worker's investment. Irs form 1040x 2011   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Irs form 1040x 2011 However, a significant investment is not necessary for independent contractor status. Irs form 1040x 2011 The extent to which the worker makes his or her services available to the relevant market. Irs form 1040x 2011   An independent contractor is generally free to seek out business opportunities. Irs form 1040x 2011 Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Irs form 1040x 2011 How the business pays the worker. Irs form 1040x 2011   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Irs form 1040x 2011 This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Irs form 1040x 2011 An independent contractor is often paid a flat fee or on a time and materials basis for the job. Irs form 1040x 2011 However, it is common in some professions, such as law, to pay independent contractors hourly. Irs form 1040x 2011 The extent to which the worker can realize a profit or loss. Irs form 1040x 2011   An independent contractor can make a profit or loss. Irs form 1040x 2011 Type of relationship. Irs form 1040x 2011   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Irs form 1040x 2011 Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Irs form 1040x 2011 The permanency of the relationship. Irs form 1040x 2011 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 form 1040x 2011 The extent to which services performed by the worker are a key aspect of the regular business of the company. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 This would indicate an employer-employee relationship. Irs form 1040x 2011 IRS help. Irs form 1040x 2011   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 form 1040x 2011 Industry Examples The following examples may help you properly classify your workers. Irs form 1040x 2011 Building and Construction Industry Example 1. Irs form 1040x 2011 Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Irs form 1040x 2011 She did not advance funds to help him carry on the work. Irs form 1040x 2011 She makes direct payments to the suppliers for all necessary materials. Irs form 1040x 2011 She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Irs form 1040x 2011 She pays them an hourly rate and exercises almost constant supervision over the work. Irs form 1040x 2011 Jerry is not free to transfer his assistants to other jobs. Irs form 1040x 2011 He may not work on other jobs while working for Wilma. Irs form 1040x 2011 He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Irs form 1040x 2011 He and his assistants perform personal services for hourly wages. Irs form 1040x 2011 Jerry Jones and his assistants are employees of Wilma White. Irs form 1040x 2011 Example 2. Irs form 1040x 2011 Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Irs form 1040x 2011 He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Irs form 1040x 2011 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 form 1040x 2011 He does not have a place of business or hold himself out to perform similar services for others. Irs form 1040x 2011 Either party can end the services at any time. Irs form 1040x 2011 Milton Manning is an employee of the corporation. Irs form 1040x 2011 Example 3. Irs form 1040x 2011 Wallace Black agreed with the Sawdust Co. Irs form 1040x 2011 to supply the construction labor for a group of houses. Irs form 1040x 2011 The company agreed to pay all construction costs. Irs form 1040x 2011 However, he supplies all the tools and equipment. Irs form 1040x 2011 He performs personal services as a carpenter and mechanic for an hourly wage. Irs form 1040x 2011 He also acts as superintendent and foreman and engages other individuals to assist him. Irs form 1040x 2011 The company has the right to select, approve, or discharge any helper. Irs form 1040x 2011 A company representative makes frequent inspections of the construction site. Irs form 1040x 2011 When a house is finished, Wallace is paid a certain percentage of its costs. Irs form 1040x 2011 He is not responsible for faults, defects of construction, or wasteful operation. Irs form 1040x 2011 At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Irs form 1040x 2011 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 form 1040x 2011 Wallace Black and his assistants are employees of the Sawdust Co. Irs form 1040x 2011 Example 4. Irs form 1040x 2011 Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Irs form 1040x 2011 A signed contract established a flat amount for the services rendered by Bill Plum. Irs form 1040x 2011 Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Irs form 1040x 2011 He hires his own roofers who are treated as employees for federal employment tax purposes. Irs form 1040x 2011 If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Irs form 1040x 2011 Bill Plum, doing business as Plum Roofing, is an independent contractor. Irs form 1040x 2011 Example 5. Irs form 1040x 2011 Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Irs form 1040x 2011 She is to receive $1,280 every 2 weeks for the next 10 weeks. Irs form 1040x 2011 This is not considered payment by the hour. Irs form 1040x 2011 Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Irs form 1040x 2011 She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Irs form 1040x 2011 Vera is an independent contractor. Irs form 1040x 2011 Trucking Industry Example. Irs form 1040x 2011 Rose Trucking contracts to deliver material for Forest, Inc. Irs form 1040x 2011 , at $140 per ton. Irs form 1040x 2011 Rose Trucking is not paid for any articles that are not delivered. Irs form 1040x 2011 At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Irs form 1040x 2011 All operating expenses, including insurance coverage, are paid by Jan Rose. Irs form 1040x 2011 All equipment is owned or rented by Jan and she is responsible for all maintenance. Irs form 1040x 2011 None of the drivers are provided by Forest, Inc. Irs form 1040x 2011 Jan Rose, operating as Rose Trucking, is an independent contractor. Irs form 1040x 2011 Computer Industry Example. Irs form 1040x 2011 Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Irs form 1040x 2011 , downsizes. Irs form 1040x 2011 Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Irs form 1040x 2011 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 form 1040x 2011 Megabyte provides Steve with no instructions beyond the specifications for the product itself. Irs form 1040x 2011 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 form 1040x 2011 Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Irs form 1040x 2011 Steve works at home and is not expected or allowed to attend meetings of the software development group. Irs form 1040x 2011 Steve is an independent contractor. Irs form 1040x 2011 Automobile Industry Example 1. Irs form 1040x 2011 Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Irs form 1040x 2011 She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Irs form 1040x 2011 She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Irs form 1040x 2011 Lists of prospective customers belong to the dealer. Irs form 1040x 2011 She is required to develop leads and report results to the sales manager. Irs form 1040x 2011 Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Irs form 1040x 2011 She is paid a commission and is eligible for prizes and bonuses offered by Bob. Irs form 1040x 2011 Bob also pays the cost of health insurance and group-term life insurance for Donna. Irs form 1040x 2011 Donna is an employee of Bob Blue. Irs form 1040x 2011 Example 2. Irs form 1040x 2011 Sam Sparks performs auto repair services in the repair department of an auto sales company. Irs form 1040x 2011 He works regular hours and is paid on a percentage basis. Irs form 1040x 2011 He has no investment in the repair department. Irs form 1040x 2011 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 form 1040x 2011 Sam is an employee of the sales company. Irs form 1040x 2011 Example 3. Irs form 1040x 2011 An auto sales agency furnishes space for Helen Bach to perform auto repair services. Irs form 1040x 2011 She provides her own tools, equipment, and supplies. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Helen is an independent contractor and the helpers are her employees. Irs form 1040x 2011 Attorney Example. Irs form 1040x 2011 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 form 1040x 2011 Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Irs form 1040x 2011 Donna has a part-time receptionist who also does the bookkeeping. Irs form 1040x 2011 She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Irs form 1040x 2011 For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Irs form 1040x 2011 Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Irs form 1040x 2011 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 form 1040x 2011 Donna is an independent contractor. Irs form 1040x 2011 Taxicab Driver Example. Irs form 1040x 2011 Tom Spruce rents a cab from Taft Cab Co. Irs form 1040x 2011 for $150 per day. Irs form 1040x 2011 He pays the costs of maintaining and operating the cab. Irs form 1040x 2011 Tom Spruce keeps all fares that he receives from customers. Irs form 1040x 2011 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 form 1040x 2011 Tom Spruce is an independent contractor. Irs form 1040x 2011 Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 3. Irs form 1040x 2011 Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Irs form 1040x 2011 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 form 1040x 2011 However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Irs form 1040x 2011 Section 501(c)(3) organizations. Irs form 1040x 2011   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 form 1040x 2011 These organizations are usually corporations and are exempt from federal income tax under section 501(a). Irs form 1040x 2011 Social security and Medicare taxes. Irs form 1040x 2011   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 form 1040x 2011 The organization pays an employee less than $100 in a calendar year. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011   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 form 1040x 2011 28 or more in a year. Irs form 1040x 2011 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 form 1040x 2011 See Members of recognized religious sects opposed to insurance in section 4. Irs form 1040x 2011 FUTA tax. Irs form 1040x 2011   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 form 1040x 2011 This exemption cannot be waived. Irs form 1040x 2011 Do not file Form 940 to report wages paid by these organizations or pay the tax. Irs form 1040x 2011 Note. Irs form 1040x 2011 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 form 1040x 2011 Other than section 501(c)(3) organizations. Irs form 1040x 2011   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 form 1040x 2011 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 form 1040x 2011 Two special rules for social security, Medicare, and FUTA taxes apply. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Irs form 1040x 2011 4. Irs form 1040x 2011 Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Irs form 1040x 2011 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 form 1040x 2011 For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Irs form 1040x 2011 Ministers. Irs form 1040x 2011   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Irs form 1040x 2011 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 form 1040x 2011   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 For more information, see Publication 517. Irs form 1040x 2011 Form W-2. Irs form 1040x 2011   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Irs form 1040x 2011 Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Irs form 1040x 2011 Do not include a parsonage allowance (excludable housing allowance) in this amount. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 For more information on ministers, see Publication 517. Irs form 1040x 2011 Exemptions for ministers and others. Irs form 1040x 2011   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 form 1040x 2011 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 form 1040x 2011 The exemption applies only to qualified services performed for the religious organization. Irs form 1040x 2011 See Revenue Procedure 91-20, 1991-1 C. Irs form 1040x 2011 B. Irs form 1040x 2011 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Irs form 1040x 2011   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 form 1040x 2011 See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Irs form 1040x 2011 Members of recognized religious sects opposed to insurance. Irs form 1040x 2011   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 form 1040x 2011 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 form 1040x 2011 If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Irs form 1040x 2011 Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Irs form 1040x 2011 In addition, your religious sect (or division) must have existed since December 31, 1950. Irs form 1040x 2011 Self-employed. Irs form 1040x 2011   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 form 1040x 2011 Employees. Irs form 1040x 2011   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 form 1040x 2011 This applies to partnerships only if each partner is a member of the sect. Irs form 1040x 2011 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 form 1040x 2011 To get the exemption, the employee must file Form 4029. Irs form 1040x 2011   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 form 1040x 2011 5. Irs form 1040x 2011 Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Irs form 1040x 2011 Publication 15-B discusses fringe benefits. Irs form 1040x 2011 The following topics supplement those discussions. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Irs form 1040x 2011 These rules generally apply to temporary work assignments both inside and outside the U. Irs form 1040x 2011 S. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Excludable employee achievement awards also are not subject to FUTA tax. Irs form 1040x 2011 Limits. Irs form 1040x 2011   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Irs form 1040x 2011 A higher limit of $1,600 applies to qualified plan awards. Irs form 1040x 2011 Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Irs form 1040x 2011 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 form 1040x 2011   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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 These amounts are reportable on Form W-2. Irs form 1040x 2011 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 form 1040x 2011 Any amounts that you pay for room and board are not excludable from the recipient's gross income. Irs form 1040x 2011 A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Irs form 1040x 2011 For more information, see Publication 970, Tax Benefits for Education. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Irs form 1040x 2011 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 form 1040x 2011 It does not matter whether the separation is temporary or permanent. Irs form 1040x 2011 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 form 1040x 2011 To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Irs form 1040x 2011 Benefits are paid only to unemployed former employees who are laid off by the employer. Irs form 1040x 2011 Eligibility for benefits depends on meeting prescribed conditions after termination. Irs form 1040x 2011 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 form 1040x 2011 The right to benefits does not accrue until a prescribed period after termination. Irs form 1040x 2011 Benefits are not attributable to the performance of particular services. Irs form 1040x 2011 No employee has any right to the benefits until qualified and eligible to receive benefits. Irs form 1040x 2011 Benefits may not be paid in a lump sum. Irs form 1040x 2011 Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Irs form 1040x 2011 See Regulations section 1. Irs form 1040x 2011 280G-1 for more information. Irs form 1040x 2011 No deduction is allowed to the corporation for any excess parachute payment. Irs form 1040x 2011 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 form 1040x 2011 A parachute payment for purposes of section 280G is any payment that meets all of the following. Irs form 1040x 2011 The payment is in the nature of compensation. Irs form 1040x 2011 The payment is to, or for the benefit of, a disqualified individual. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 The payment has an aggregate present value of at least three times the individual's base amount. Irs form 1040x 2011 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 form 1040x 2011 An excess parachute payment amount is the excess of any parachute payment over the base amount. Irs form 1040x 2011 For more information, see Regulations section 1. Irs form 1040x 2011 280G-1. Irs form 1040x 2011 The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Irs form 1040x 2011 If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Irs form 1040x 2011 Example. Irs form 1040x 2011 An officer of a corporation receives a golden parachute payment of $400,000. Irs form 1040x 2011 This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Irs form 1040x 2011 The excess parachute payment is $300,000 ($400,000 minus $100,000). Irs form 1040x 2011 The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Irs form 1040x 2011 Reporting golden parachute payments. Irs form 1040x 2011   Golden parachute payments to employees must be reported on Form W-2. Irs form 1040x 2011 See the General Instructions for Forms W-2 and W-3 for details. Irs form 1040x 2011 For nonemployee reporting of these payments, see Box 7. Irs form 1040x 2011 Nonemployee Compensation in the Instructions for Form 1099-MISC. Irs form 1040x 2011 Exempt payments. Irs form 1040x 2011   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Irs form 1040x 2011 See section 280G(b)(5) and (6) for more information. Irs form 1040x 2011 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 form 1040x 2011 This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Irs form 1040x 2011 This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Irs form 1040x 2011 Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Irs form 1040x 2011 The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Irs form 1040x 2011 You can get these rates by calling 1-800-829-4933 or by visiting IRS. Irs form 1040x 2011 gov. Irs form 1040x 2011 For more information, see section 7872 and its related regulations. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Do not include these amounts in the income of the transferors. Irs form 1040x 2011 These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Irs form 1040x 2011 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 form 1040x 2011 Specific rules for reporting are provided in the instructions to the forms. Irs form 1040x 2011 The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Irs form 1040x 2011 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 form 1040x 2011 For more information about nonqualified deferred compensation plans, see Regulations sections 1. Irs form 1040x 2011 409A-1 through 1. Irs form 1040x 2011 409A-6. Irs form 1040x 2011 Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Irs form 1040x 2011 Notice 2008-113, 2008-51 I. Irs form 1040x 2011 R. Irs form 1040x 2011 B. Irs form 1040x 2011 1305, is available at www. Irs form 1040x 2011 irs. Irs form 1040x 2011 gov/irb/2008-51_IRB/ar12. Irs form 1040x 2011 html. Irs form 1040x 2011 Also see Notice 2010-6, 2010-3 I. Irs form 1040x 2011 R. Irs form 1040x 2011 B. Irs form 1040x 2011 275, available at www. Irs form 1040x 2011 irs. Irs form 1040x 2011 gov/irb/2010-03_IRB/ar08. Irs form 1040x 2011 html and Notice 2010-80, 2010-51 I. Irs form 1040x 2011 R. Irs form 1040x 2011 B. Irs form 1040x 2011 853, available at www. Irs form 1040x 2011 irs. Irs form 1040x 2011 gov/irb/2010-51_IRB/ar08. Irs form 1040x 2011 html. Irs form 1040x 2011 Social security, Medicare, and FUTA taxes. Irs form 1040x 2011   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 form 1040x 2011   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 form 1040x 2011 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 form 1040x 2011 You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Irs form 1040x 2011 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 form 1040x 2011 For more information, see Regulations sections 31. Irs form 1040x 2011 3121(v)(2)-1 and 31. Irs form 1040x 2011 3306(r)(2)-1. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 See Regulations section 31. Irs form 1040x 2011 3121(a)(5)-2 for the definition of a salary reduction agreement. Irs form 1040x 2011 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 form 1040x 2011 These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Irs form 1040x 2011 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 form 1040x 2011 See Publication 560 for more information about SEPs. Irs form 1040x 2011 Salary reduction simplified employee pensions (SARSEP) repealed. Irs form 1040x 2011   You may not establish a SARSEP after 1996. Irs form 1040x 2011 However, SARSEPs established before January 1, 1997, may continue to receive contributions. Irs form 1040x 2011 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 form 1040x 2011 An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Irs form 1040x 2011 However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Irs form 1040x 2011 For more information about SIMPLE retirement plans, see Publication 560. Irs form 1040x 2011 6. Irs form 1040x 2011 Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Irs form 1040x 2011 Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Irs form 1040x 2011 gov in December 2014. Irs form 1040x 2011 Special rules apply to the reporting of sick pay payments to employees. Irs form 1040x 2011 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 form 1040x 2011 Sick pay is usually subject to social security, Medicare, and FUTA taxes. Irs form 1040x 2011 For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Irs form 1040x 2011 Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Irs form 1040x 2011 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 form 1040x 2011 It may be paid by either the employer or a third party, such as an insurance company. Irs form 1040x 2011 Sick pay includes both short- and long-term benefits. Irs form 1040x 2011 It is often expressed as a percentage of the employee's regular wages. Irs form 1040x 2011 Payments That Are Not Sick Pay Sick pay does not include the following payments. Irs form 1040x 2011 Disability retirement payments. Irs form 1040x 2011 Disability retirement payments are not sick pay and are not discussed in this section. Irs form 1040x 2011 Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Irs form 1040x 2011 See section 8. Irs form 1040x 2011 Workers' compensation. Irs form 1040x 2011 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 form 1040x 2011 But see Payments in the nature of workers' compensation—public employees next. Irs form 1040x 2011 Payments in the nature of workers' compensation—public employees. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Irs form 1040x 2011 For more information, see Regulations section 31. Irs form 1040x 2011 3121(a)(2)-1. Irs form 1040x 2011 Medical expense payments. Irs form 1040x 2011 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 form 1040x 2011 Payments unrelated to absence from work. Irs form 1040x 2011 Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Irs form 1040x 2011 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 form 1040x 2011 Example. Irs form 1040x 2011 Donald was injured in a car accident and lost an eye. Irs form 1040x 2011 Under a policy paid for by Donald's employer, Delta Insurance Co. Irs form 1040x 2011 paid Donald $20,000 as compensation for the loss of his eye. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Definition of employer. Irs form 1040x 2011   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 form 1040x 2011 Note. Irs form 1040x 2011 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 form 1040x 2011 Third-Party Payers of Sick Pay Employer's agent. Irs form 1040x 2011   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 form 1040x 2011 A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Irs form 1040x 2011 For example, if a third party provides administrative services only, the third party is your agent. Irs form 1040x 2011 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 form 1040x 2011 Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Irs form 1040x 2011   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 form 1040x 2011 This responsibility remains with you. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 Third party not employer's agent. Irs form 1040x 2011   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 form 1040x 2011   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 form 1040x 2011 This liability is transferred if the third party takes the following steps. Irs form 1040x 2011 Withholds the employee social security and Medicare taxes from the sick pay payments. Irs form 1040x 2011 Makes timely deposits of the employee social security and Medicare taxes. Irs form 1040x 2011 Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Irs form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 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 form 1040x 2011 For multi-employer plans, see the special rule discussed next. Irs form 1040x 2011 Multi-employer plan timing rule. Irs form 1040x 2011   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 form 1040x 2011 If the third-party insurer making the payments complies wi