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Irs Gov Freefilefillableforms

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Irs Gov Freefilefillableforms

Irs gov freefilefillableforms Publication 15 - Main Content Table of Contents 1. Irs gov freefilefillableforms Employer Identification Number (EIN) 2. Irs gov freefilefillableforms Who Are Employees?Relief provisions. Irs gov freefilefillableforms Business Owned and Operated by Spouses 3. Irs gov freefilefillableforms Family Employees 4. Irs gov freefilefillableforms Employee's Social Security Number (SSN)Registering for SSNVS. Irs gov freefilefillableforms 5. Irs gov freefilefillableforms Wages and Other CompensationAccountable plan. Irs gov freefilefillableforms Nonaccountable plan. Irs gov freefilefillableforms Per diem or other fixed allowance. Irs gov freefilefillableforms 50% test. Irs gov freefilefillableforms Health Savings Accounts and medical savings accounts. Irs gov freefilefillableforms Nontaxable fringe benefits. Irs gov freefilefillableforms When fringe benefits are treated as paid. Irs gov freefilefillableforms Valuation of fringe benefits. Irs gov freefilefillableforms Withholding on fringe benefits. Irs gov freefilefillableforms Depositing taxes on fringe benefits. Irs gov freefilefillableforms 6. Irs gov freefilefillableforms TipsOrdering rule. Irs gov freefilefillableforms 7. Irs gov freefilefillableforms Supplemental Wages 8. Irs gov freefilefillableforms Payroll Period 9. Irs gov freefilefillableforms Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Irs gov freefilefillableforms Required Notice to Employees About the Earned Income Credit (EIC) 11. Irs gov freefilefillableforms Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Irs gov freefilefillableforms Filing Form 941 or Form 944 13. Irs gov freefilefillableforms Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Irs gov freefilefillableforms Federal Unemployment (FUTA) TaxSuccessor employer. Irs gov freefilefillableforms Household employees. Irs gov freefilefillableforms When to deposit. Irs gov freefilefillableforms Household employees. Irs gov freefilefillableforms Electronic filing by reporting agents. Irs gov freefilefillableforms 16. Irs gov freefilefillableforms How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Irs gov freefilefillableforms Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Irs gov freefilefillableforms The EIN is a nine-digit number the IRS issues. Irs gov freefilefillableforms The digits are arranged as follows: 00-0000000. Irs gov freefilefillableforms It is used to identify the tax accounts of employers and certain others who have no employees. Irs gov freefilefillableforms Use your EIN on all of the items you send to the IRS and SSA. Irs gov freefilefillableforms For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Irs gov freefilefillableforms If you do not have an EIN, you may apply for one online. Irs gov freefilefillableforms Go to the IRS. Irs gov freefilefillableforms gov and click on the Apply for an EIN Online link under Tools. Irs gov freefilefillableforms You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Irs gov freefilefillableforms Do not use an SSN in place of an EIN. Irs gov freefilefillableforms You should have only one EIN. Irs gov freefilefillableforms If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Irs gov freefilefillableforms Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Irs gov freefilefillableforms The IRS will tell you which number to use. Irs gov freefilefillableforms If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Irs gov freefilefillableforms If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. Irs gov freefilefillableforms 2. Irs gov freefilefillableforms Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Irs gov freefilefillableforms See Publication 15-A for details on statutory employees and nonemployees. Irs gov freefilefillableforms Employee status under common law. Irs gov freefilefillableforms   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. Irs gov freefilefillableforms This is so even when you give the employee freedom of action. Irs gov freefilefillableforms What matters is that you have the right to control the details of how the services are performed. Irs gov freefilefillableforms See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Irs gov freefilefillableforms   Generally, people in business for themselves are not employees. Irs gov freefilefillableforms For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Irs gov freefilefillableforms However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Irs gov freefilefillableforms   If an employer-employee relationship exists, it does not matter what it is called. Irs gov freefilefillableforms The employee may be called an agent or independent contractor. Irs gov freefilefillableforms It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Irs gov freefilefillableforms Statutory employees. Irs gov freefilefillableforms   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Irs gov freefilefillableforms Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. Irs gov freefilefillableforms An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Irs gov freefilefillableforms A full-time life insurance salesperson who sells primarily for one company. Irs gov freefilefillableforms A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. Irs gov freefilefillableforms A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. Irs gov freefilefillableforms The orders must be for merchandise for resale or supplies for use in the customer's business. Irs gov freefilefillableforms The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Irs gov freefilefillableforms    Statutory nonemployees. Irs gov freefilefillableforms   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Irs gov freefilefillableforms They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Irs gov freefilefillableforms H-2A agricultural workers. Irs gov freefilefillableforms   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Irs gov freefilefillableforms Treating employees as nonemployees. Irs gov freefilefillableforms   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. Irs gov freefilefillableforms You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. Irs gov freefilefillableforms The applicable rates depend on whether you filed required Forms 1099. Irs gov freefilefillableforms You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. Irs gov freefilefillableforms You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Irs gov freefilefillableforms You continue to owe the full employer share of social security and Medicare taxes. Irs gov freefilefillableforms The employee remains liable for the employee share of social security and Medicare taxes. Irs gov freefilefillableforms See Internal Revenue Code section 3509 for details. Irs gov freefilefillableforms Also see the Instructions for Form 941-X. Irs gov freefilefillableforms   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Irs gov freefilefillableforms Section 3509 is not available for reclassifying statutory employees. Irs gov freefilefillableforms See Statutory employees , earlier in this section. Irs gov freefilefillableforms   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Irs gov freefilefillableforms 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Irs gov freefilefillableforms For Medicare taxes; employer rate of 1. Irs gov freefilefillableforms 45% plus 20% of the employee rate of 1. Irs gov freefilefillableforms 45%, for a total rate of 1. Irs gov freefilefillableforms 74% of wages. Irs gov freefilefillableforms For Additional Medicare Tax; 0. Irs gov freefilefillableforms 18% (20% of the employee rate of 0. Irs gov freefilefillableforms 9%) of wages subject to Additional Medicare Tax. Irs gov freefilefillableforms For income tax withholding, the rate is 1. Irs gov freefilefillableforms 5% of wages. Irs gov freefilefillableforms   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Irs gov freefilefillableforms 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Irs gov freefilefillableforms For Medicare taxes; employer rate of 1. Irs gov freefilefillableforms 45% plus 40% of the employee rate of 1. Irs gov freefilefillableforms 45%, for a total rate of 2. Irs gov freefilefillableforms 03% of wages. Irs gov freefilefillableforms For Additional Medicare Tax; 0. Irs gov freefilefillableforms 36% (40% of the employee rate of 0. Irs gov freefilefillableforms 9%) of wages subject to Additional Medicare Tax. Irs gov freefilefillableforms For income tax withholding, the rate is 3. Irs gov freefilefillableforms 0% of wages. Irs gov freefilefillableforms Relief provisions. Irs gov freefilefillableforms   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 gov freefilefillableforms To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. Irs gov freefilefillableforms 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 gov freefilefillableforms See Publication 1976, Do You Qualify for Relief Under Section 530. Irs gov freefilefillableforms IRS help. Irs gov freefilefillableforms   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Irs gov freefilefillableforms Voluntary Classification Settlement Program (VCSP). Irs gov freefilefillableforms   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 gov freefilefillableforms To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Irs gov freefilefillableforms For more information visit IRS. Irs gov freefilefillableforms gov and enter “VCSP” in the search box. Irs gov freefilefillableforms Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Irs gov freefilefillableforms See Publication 541, Partnerships, for more details. Irs gov freefilefillableforms The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Irs gov freefilefillableforms Exception—Qualified joint venture. Irs gov freefilefillableforms   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. Irs gov freefilefillableforms A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). Irs gov freefilefillableforms   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. Irs gov freefilefillableforms Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Irs gov freefilefillableforms   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Irs gov freefilefillableforms If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. Irs gov freefilefillableforms Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Irs gov freefilefillableforms However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. Irs gov freefilefillableforms    Note. Irs gov freefilefillableforms If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Irs gov freefilefillableforms   For more information on qualified joint ventures, visit IRS. Irs gov freefilefillableforms gov and enter “qualified joint venture” in the search box. Irs gov freefilefillableforms Exception—Community income. Irs gov freefilefillableforms   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Irs gov freefilefillableforms S. Irs gov freefilefillableforms possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Irs gov freefilefillableforms You may still make an election to be taxed as a qualified joint venture instead of a partnership. Irs gov freefilefillableforms See Exception—Qualified joint venture , earlier. Irs gov freefilefillableforms 3. Irs gov freefilefillableforms Family Employees Child employed by parents. Irs gov freefilefillableforms   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Irs gov freefilefillableforms If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. Irs gov freefilefillableforms However, see Covered services of a child or spouse , later in this section. Irs gov freefilefillableforms Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. Irs gov freefilefillableforms Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. Irs gov freefilefillableforms One spouse employed by another. Irs gov freefilefillableforms   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. Irs gov freefilefillableforms However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. Irs gov freefilefillableforms Covered services of a child or spouse. Irs gov freefilefillableforms   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. Irs gov freefilefillableforms Parent employed by son or daughter. Irs gov freefilefillableforms   When the employer is a son or daughter employing his or her parent the following rules apply. Irs gov freefilefillableforms Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. Irs gov freefilefillableforms Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. Irs gov freefilefillableforms    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. Irs gov freefilefillableforms   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Irs gov freefilefillableforms 4. Irs gov freefilefillableforms Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. Irs gov freefilefillableforms This requirement also applies to resident and nonresident alien employees. Irs gov freefilefillableforms You should ask your employee to show you his or her social security card. Irs gov freefilefillableforms The employee may show the card if it is available. Irs gov freefilefillableforms Do not accept a social security card that says “Not valid for employment. Irs gov freefilefillableforms ” A social security number issued with this legend does not permit employment. Irs gov freefilefillableforms You may, but are not required to, photocopy the social security card if the employee provides it. Irs gov freefilefillableforms If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Irs gov freefilefillableforms See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Irs gov freefilefillableforms Applying for a social security card. Irs gov freefilefillableforms   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation. Irs gov freefilefillableforms You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Irs gov freefilefillableforms socialsecurity. Irs gov freefilefillableforms gov/online/ss-5. Irs gov freefilefillableforms html. Irs gov freefilefillableforms The employee must complete and sign Form SS-5; it cannot be filed by the employer. Irs gov freefilefillableforms You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. Irs gov freefilefillableforms Applying for a social security number. Irs gov freefilefillableforms   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Irs gov freefilefillableforms If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Irs gov freefilefillableforms When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. Irs gov freefilefillableforms Furnish copies B, C, and 2 of Form W-2c to the employee. Irs gov freefilefillableforms Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. Irs gov freefilefillableforms For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Irs gov freefilefillableforms socialsecurity. Irs gov freefilefillableforms gov/employer. Irs gov freefilefillableforms Advise your employee to correct the SSN on his or her original Form W-2. Irs gov freefilefillableforms Correctly record the employee's name and SSN. Irs gov freefilefillableforms   Record the name and number of each employee as they are shown on the employee's social security card. Irs gov freefilefillableforms If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Irs gov freefilefillableforms Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. Irs gov freefilefillableforms If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported for the most recently filed Form W-2. Irs gov freefilefillableforms It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. Irs gov freefilefillableforms IRS individual taxpayer identification numbers (ITINs) for aliens. Irs gov freefilefillableforms   Do not accept an ITIN in place of an SSN for employee identification or for work. Irs gov freefilefillableforms An ITIN is only available to resident and nonresident aliens who are not eligible for U. Irs gov freefilefillableforms S. Irs gov freefilefillableforms employment and need identification for other tax purposes. Irs gov freefilefillableforms You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). Irs gov freefilefillableforms    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Irs gov freefilefillableforms If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier. Irs gov freefilefillableforms Do not use an ITIN in place of an SSN on Form W-2. Irs gov freefilefillableforms Verification of social security numbers. Irs gov freefilefillableforms   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Irs gov freefilefillableforms Visit www. Irs gov freefilefillableforms socialsecurity. Irs gov freefilefillableforms gov/employer/ssnv. Irs gov freefilefillableforms htm for more information. Irs gov freefilefillableforms Registering for SSNVS. Irs gov freefilefillableforms   You must register online and receive authorization from your employer to use SSNVS. Irs gov freefilefillableforms To register, visit SSA's website at www. Irs gov freefilefillableforms ssa. Irs gov freefilefillableforms gov/employer and click on the Business Services Online link. Irs gov freefilefillableforms Follow the registration instructions to obtain a user identification (ID) and password. Irs gov freefilefillableforms You will need to provide the following information about yourself and your company. Irs gov freefilefillableforms Name. Irs gov freefilefillableforms SSN. Irs gov freefilefillableforms Date of birth. Irs gov freefilefillableforms Type of employer. Irs gov freefilefillableforms EIN. Irs gov freefilefillableforms Company name, address, and telephone number. Irs gov freefilefillableforms Email address. Irs gov freefilefillableforms   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Irs gov freefilefillableforms You must enter the activation code online to use SSNVS. Irs gov freefilefillableforms 5. Irs gov freefilefillableforms Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Irs gov freefilefillableforms The pay may be in cash or in other forms. Irs gov freefilefillableforms It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Irs gov freefilefillableforms It does not matter how you measure or make the payments. Irs gov freefilefillableforms Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. Irs gov freefilefillableforms Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Irs gov freefilefillableforms More information. Irs gov freefilefillableforms   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Irs gov freefilefillableforms Also, see section 15 for exceptions to the general rules for wages. Irs gov freefilefillableforms Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Irs gov freefilefillableforms Publication 15-B provides information on other forms of compensation, including: Accident and health benefits, Achievement awards, Adoption assistance, Athletic facilities, De minimis (minimal) benefits, Dependent care assistance, Educational assistance, Employee discounts, Employee stock options, Employer-provided cell phones, Group-term life insurance coverage, Health Savings Accounts, Lodging on your business premises, Meals, Moving expense reimbursements, No-additional-cost services, Retirement planning services, Transportation (commuting) benefits, Tuition reduction, and Working condition benefits. Irs gov freefilefillableforms Employee business expense reimbursements. Irs gov freefilefillableforms   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Irs gov freefilefillableforms How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Irs gov freefilefillableforms If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Irs gov freefilefillableforms   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Irs gov freefilefillableforms Accountable plan. Irs gov freefilefillableforms   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Irs gov freefilefillableforms They must have paid or incurred deductible expenses while performing services as your employees. Irs gov freefilefillableforms The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. Irs gov freefilefillableforms They must substantiate these expenses to you within a reasonable period of time. Irs gov freefilefillableforms They must return any amounts in excess of substantiated expenses within a reasonable period of time. Irs gov freefilefillableforms   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Irs gov freefilefillableforms   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. Irs gov freefilefillableforms This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. Irs gov freefilefillableforms   A reasonable period of time depends on the facts and circumstances. Irs gov freefilefillableforms Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Irs gov freefilefillableforms Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. Irs gov freefilefillableforms Nonaccountable plan. Irs gov freefilefillableforms   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Irs gov freefilefillableforms Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. Irs gov freefilefillableforms   See section 7 for more information on supplemental wages. Irs gov freefilefillableforms Per diem or other fixed allowance. Irs gov freefilefillableforms   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Irs gov freefilefillableforms In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Irs gov freefilefillableforms The 2013 standard mileage rate for auto expenses was 56. Irs gov freefilefillableforms 5 cents per mile. Irs gov freefilefillableforms The rate for 2014 is 56 cents per mile. Irs gov freefilefillableforms   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Irs gov freefilefillableforms Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). Irs gov freefilefillableforms   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Irs gov freefilefillableforms This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Irs gov freefilefillableforms Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Irs gov freefilefillableforms ” Wages not paid in money. Irs gov freefilefillableforms   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. Irs gov freefilefillableforms ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Irs gov freefilefillableforms Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Irs gov freefilefillableforms   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. Irs gov freefilefillableforms Withhold income tax on these payments only if you and the employee agree to do so. Irs gov freefilefillableforms Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. Irs gov freefilefillableforms Moving expenses. Irs gov freefilefillableforms   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. Irs gov freefilefillableforms Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Irs gov freefilefillableforms For more information on moving expenses, see Publication 521, Moving Expenses. Irs gov freefilefillableforms Meals and lodging. Irs gov freefilefillableforms   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. Irs gov freefilefillableforms The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. Irs gov freefilefillableforms    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. Irs gov freefilefillableforms For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. Irs gov freefilefillableforms   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Irs gov freefilefillableforms A written statement that the meals or lodging are for your convenience is not sufficient. Irs gov freefilefillableforms 50% test. Irs gov freefilefillableforms   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. Irs gov freefilefillableforms If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. Irs gov freefilefillableforms For more information, see Publication 15-B. Irs gov freefilefillableforms Health insurance plans. Irs gov freefilefillableforms   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Irs gov freefilefillableforms Generally, this exclusion also applies to qualified long-term care insurance contracts. Irs gov freefilefillableforms However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). Irs gov freefilefillableforms For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. Irs gov freefilefillableforms See Announcement 92-16 for more information. Irs gov freefilefillableforms You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Irs gov freefilefillableforms Health Savings Accounts and medical savings accounts. Irs gov freefilefillableforms   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. Irs gov freefilefillableforms To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Irs gov freefilefillableforms Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. Irs gov freefilefillableforms However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. Irs gov freefilefillableforms For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Irs gov freefilefillableforms Medical care reimbursements. Irs gov freefilefillableforms   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. Irs gov freefilefillableforms See Publication 15-B for an exception for highly compensated employees. Irs gov freefilefillableforms Differential wage payments. Irs gov freefilefillableforms   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. Irs gov freefilefillableforms   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Irs gov freefilefillableforms Employers should report differential wage payments in box 1 of Form W-2. Irs gov freefilefillableforms For more information about the tax treatment of differential wage payments, visit IRS. Irs gov freefilefillableforms gov and enter “employees in a combat zone” in the search box. Irs gov freefilefillableforms Fringe benefits. Irs gov freefilefillableforms   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Irs gov freefilefillableforms The benefits are subject to income tax withholding and employment taxes. Irs gov freefilefillableforms Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Irs gov freefilefillableforms In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. Irs gov freefilefillableforms There are other special rules you and your employees may use to value certain fringe benefits. Irs gov freefilefillableforms See Publication 15-B for more information. Irs gov freefilefillableforms Nontaxable fringe benefits. Irs gov freefilefillableforms   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Irs gov freefilefillableforms See Publication 15-B for details. Irs gov freefilefillableforms The following are some examples of nontaxable fringe benefits. Irs gov freefilefillableforms Services provided to your employees at no additional cost to you. Irs gov freefilefillableforms Qualified employee discounts. Irs gov freefilefillableforms Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Irs gov freefilefillableforms Examples include a company car for business use and subscriptions to business magazines. Irs gov freefilefillableforms Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). Irs gov freefilefillableforms Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Irs gov freefilefillableforms Qualified moving expense reimbursement. Irs gov freefilefillableforms See Moving expenses , earlier in this section, for details. Irs gov freefilefillableforms The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Irs gov freefilefillableforms Qualified tuition reduction an educational organization provides to its employees for education. Irs gov freefilefillableforms For more information, see Publication 970, Tax Benefits for Education. Irs gov freefilefillableforms Employer-provided cell phones provided primarily for a noncompensatory business reason. Irs gov freefilefillableforms   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. Irs gov freefilefillableforms No-additional-cost services. Irs gov freefilefillableforms Qualified employee discounts. Irs gov freefilefillableforms Meals provided at an employer operated eating facility. Irs gov freefilefillableforms Reduced tuition for education. Irs gov freefilefillableforms  For more information, including the definition of a highly compensated employee, see Publication 15-B. Irs gov freefilefillableforms When fringe benefits are treated as paid. Irs gov freefilefillableforms   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. Irs gov freefilefillableforms You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Irs gov freefilefillableforms You do not have to make this choice for all employees. Irs gov freefilefillableforms You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. Irs gov freefilefillableforms See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Irs gov freefilefillableforms Valuation of fringe benefits. Irs gov freefilefillableforms   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Irs gov freefilefillableforms Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Irs gov freefilefillableforms Withholding on fringe benefits. Irs gov freefilefillableforms   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. Irs gov freefilefillableforms However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Irs gov freefilefillableforms   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Irs gov freefilefillableforms You must, however, withhold social security and Medicare taxes on the use of the vehicle. Irs gov freefilefillableforms See Publication 15-B for more information on this election. Irs gov freefilefillableforms Depositing taxes on fringe benefits. Irs gov freefilefillableforms   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Irs gov freefilefillableforms To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Irs gov freefilefillableforms   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. Irs gov freefilefillableforms See Valuation of fringe benefits , earlier. Irs gov freefilefillableforms If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Irs gov freefilefillableforms See section 11 for information on deposit penalties. Irs gov freefilefillableforms   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. Irs gov freefilefillableforms However, you must recover the income taxes before April 1 of the following year. Irs gov freefilefillableforms Sick pay. Irs gov freefilefillableforms   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. Irs gov freefilefillableforms These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Irs gov freefilefillableforms In either case, these payments are subject to social security, Medicare, and FUTA taxes. Irs gov freefilefillableforms Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Irs gov freefilefillableforms The payments are always subject to federal income tax. Irs gov freefilefillableforms See Publication 15-A for more information. Irs gov freefilefillableforms 6. Irs gov freefilefillableforms Tips Tips your employee receives from customers are generally subject to withholding. Irs gov freefilefillableforms Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Irs gov freefilefillableforms The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Irs gov freefilefillableforms Both directly and indirectly tipped employees must report tips to you. Irs gov freefilefillableforms No report is required for months when tips are less than $20. Irs gov freefilefillableforms Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Irs gov freefilefillableforms The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period the report covers, and The total of tips received during the month or period. Irs gov freefilefillableforms Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. Irs gov freefilefillableforms You are permitted to establish a system for electronic tip reporting by employees. Irs gov freefilefillableforms See Regulations section 31. Irs gov freefilefillableforms 6053-1(d). Irs gov freefilefillableforms Collecting taxes on tips. Irs gov freefilefillableforms   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Irs gov freefilefillableforms The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. Irs gov freefilefillableforms If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Irs gov freefilefillableforms   You can collect these taxes from the employee's wages or from other funds he or she makes available. Irs gov freefilefillableforms See Tips treated as supplemental wages in section 7 for more information. Irs gov freefilefillableforms Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. Irs gov freefilefillableforms You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Irs gov freefilefillableforms You are responsible for the employer Medicare tax for the whole year on all wages and tips. Irs gov freefilefillableforms File Form 941 or Form 944 to report withholding and employment taxes on tips. Irs gov freefilefillableforms Ordering rule. Irs gov freefilefillableforms   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. Irs gov freefilefillableforms If there are not enough funds available, withhold taxes in the following order. Irs gov freefilefillableforms Withhold on regular wages and other compensation. Irs gov freefilefillableforms Withhold social security and Medicare taxes on tips. Irs gov freefilefillableforms Withhold income tax on tips. Irs gov freefilefillableforms Reporting tips. Irs gov freefilefillableforms   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Irs gov freefilefillableforms Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Irs gov freefilefillableforms Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Irs gov freefilefillableforms ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Irs gov freefilefillableforms See section 13 and the General Instructions for Forms W-2 and W-3. Irs gov freefilefillableforms   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. Irs gov freefilefillableforms See Revenue Ruling 2012-18, 2012-26 I. Irs gov freefilefillableforms R. Irs gov freefilefillableforms B. Irs gov freefilefillableforms 1032, available at www. Irs gov freefilefillableforms irs. Irs gov freefilefillableforms gov/irb/2012-26_IRB/ar07. Irs gov freefilefillableforms html. Irs gov freefilefillableforms Allocated tips. Irs gov freefilefillableforms   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Irs gov freefilefillableforms However, do not withhold income, social security, or Medicare taxes on allocated tips. Irs gov freefilefillableforms   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. Irs gov freefilefillableforms   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Irs gov freefilefillableforms For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. Irs gov freefilefillableforms For information on filing Form 8027 electronically with the IRS, see Publication 1239. Irs gov freefilefillableforms Tip Rate Determination and Education Program. Irs gov freefilefillableforms   Employers may participate in the Tip Rate Determination and Education Program. Irs gov freefilefillableforms The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. Irs gov freefilefillableforms The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Irs gov freefilefillableforms A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Irs gov freefilefillableforms To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Irs gov freefilefillableforms Additionally, visit IRS. Irs gov freefilefillableforms gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Irs gov freefilefillableforms 7. Irs gov freefilefillableforms Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Irs gov freefilefillableforms They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Irs gov freefilefillableforms Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Irs gov freefilefillableforms How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Irs gov freefilefillableforms See Regulations section 31. Irs gov freefilefillableforms 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Irs gov freefilefillableforms Also see Revenue Ruling 2008-29, 2008-24 I. Irs gov freefilefillableforms R. Irs gov freefilefillableforms B. Irs gov freefilefillableforms 1149, available at www. Irs gov freefilefillableforms irs. Irs gov freefilefillableforms gov/irb/2008-24_IRB/ar08. Irs gov freefilefillableforms html. Irs gov freefilefillableforms Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Irs gov freefilefillableforms   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Irs gov freefilefillableforms If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. Irs gov freefilefillableforms 6% (or the highest rate of income tax for the year). Irs gov freefilefillableforms Withhold using the 39. Irs gov freefilefillableforms 6% rate without regard to the employee's Form W-4. Irs gov freefilefillableforms In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Irs gov freefilefillableforms For more information, see Treasury Decision 9276, 2006-37 I. Irs gov freefilefillableforms R. Irs gov freefilefillableforms B. Irs gov freefilefillableforms 423, available at www. Irs gov freefilefillableforms irs. Irs gov freefilefillableforms gov/irb/2006-37_IRB/ar09. Irs gov freefilefillableforms html. Irs gov freefilefillableforms Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Irs gov freefilefillableforms   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. Irs gov freefilefillableforms Supplemental wages combined with regular wages. Irs gov freefilefillableforms   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. Irs gov freefilefillableforms Supplemental wages identified separately from regular wages. Irs gov freefilefillableforms   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages. Irs gov freefilefillableforms If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Irs gov freefilefillableforms Withhold a flat 25% (no other percentage allowed). Irs gov freefilefillableforms If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Irs gov freefilefillableforms If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Irs gov freefilefillableforms Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Irs gov freefilefillableforms Subtract the tax withheld from the regular wages. Irs gov freefilefillableforms Withhold the remaining tax from the supplemental wages. Irs gov freefilefillableforms If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax. Irs gov freefilefillableforms If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. Irs gov freefilefillableforms This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Irs gov freefilefillableforms Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Irs gov freefilefillableforms Example 1. Irs gov freefilefillableforms You pay John Peters a base salary on the 1st of each month. Irs gov freefilefillableforms He is single and claims one withholding allowance. Irs gov freefilefillableforms In January he is paid $1,000. Irs gov freefilefillableforms Using the wage bracket tables, you withhold $50 from this amount. Irs gov freefilefillableforms In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. Irs gov freefilefillableforms You figure the withholding based on the total of $3,000. Irs gov freefilefillableforms The correct withholding from the tables is $338. Irs gov freefilefillableforms Example 2. Irs gov freefilefillableforms You pay Sharon Warren a base salary on the 1st of each month. Irs gov freefilefillableforms She is single and claims one allowance. Irs gov freefilefillableforms Her May 1 pay is $2,000. Irs gov freefilefillableforms Using the wage bracket tables, you withhold $188. Irs gov freefilefillableforms On May 14 she receives a bonus of $1,000. Irs gov freefilefillableforms Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). Irs gov freefilefillableforms Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Irs gov freefilefillableforms Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Irs gov freefilefillableforms Withhold $150 from the bonus payment. Irs gov freefilefillableforms Example 3. Irs gov freefilefillableforms The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Irs gov freefilefillableforms You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Irs gov freefilefillableforms Example 4. Irs gov freefilefillableforms The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Irs gov freefilefillableforms Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). Irs gov freefilefillableforms Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Irs gov freefilefillableforms Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). Irs gov freefilefillableforms Withhold $443 from the second bonus payment. Irs gov freefilefillableforms Tips treated as supplemental wages. Irs gov freefilefillableforms   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Irs gov freefilefillableforms If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Irs gov freefilefillableforms If you have not withheld income tax from the regular wages, add the tips to the regular wages. Irs gov freefilefillableforms Then withhold income tax on the total. Irs gov freefilefillableforms If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. Irs gov freefilefillableforms Vacation pay. Irs gov freefilefillableforms   Vacation pay is subject to withholding as if it were a regular wage payment. Irs gov freefilefillableforms When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Irs gov freefilefillableforms If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. Irs gov freefilefillableforms 8. Irs gov freefilefillableforms Payroll Period Your payroll period is a period of service for which you usually pay wages. Irs gov freefilefillableforms When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Irs gov freefilefillableforms No regular payroll period. Irs gov freefilefillableforms   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Irs gov freefilefillableforms Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Irs gov freefilefillableforms If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. Irs gov freefilefillableforms Employee paid for period less than 1 week. Irs gov freefilefillableforms   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. Irs gov freefilefillableforms If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Irs gov freefilefillableforms You then figure withholding based on the daily or miscellaneous period. Irs gov freefilefillableforms 9. Irs gov freefilefillableforms Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Irs gov freefilefillableforms   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Irs gov freefilefillableforms Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. Irs gov freefilefillableforms Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Irs gov freefilefillableforms irs. Irs gov freefilefillableforms gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Irs gov freefilefillableforms   Ask all new employees to give you a signed Form W-4 when they start work. Irs gov freefilefillableforms Make the form effective with the first wage payment. Irs gov freefilefillableforms If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. Irs gov freefilefillableforms Form in Spanish. Irs gov freefilefillableforms   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. Irs gov freefilefillableforms For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Irs gov freefilefillableforms The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Irs gov freefilefillableforms Electronic system to receive Form W-4. Irs gov freefilefillableforms   You may establish a system to electronically receive Forms W-4 from your employees. Irs gov freefilefillableforms See Regulations section 31. Irs gov freefilefillableforms 3402(f)(5)-1(c) for more information. Irs gov freefilefillableforms Effective date of Form W-4. Irs gov freefilefillableforms   A Form W-4 remains in effect until the employee gives you a new one. Irs gov freefilefillableforms When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. Irs gov freefilefillableforms If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. Irs gov freefilefillableforms For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. Irs gov freefilefillableforms A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Irs gov freefilefillableforms Successor employer. Irs gov freefilefillableforms   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. Irs gov freefilefillableforms See Revenue Procedure 2004-53, 2004-34 I. Irs gov freefilefillableforms R. Irs gov freefilefillableforms B. Irs gov freefilefillableforms 320, available at www. Irs gov freefilefillableforms irs. Irs gov freefilefillableforms gov/irb/2004-34_IRB/ar13. Irs gov freefilefillableforms html. Irs gov freefilefillableforms Completing Form W-4. Irs gov freefilefillableforms   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Irs gov freefilefillableforms Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Irs gov freefilefillableforms However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. Irs gov freefilefillableforms Employees may claim fewer withholding allowances than they are entitled to claim. Irs gov freefilefillableforms They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. Irs gov freefilefillableforms See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Irs gov freefilefillableforms Along with Form W-4, you may wish to order Publication 505 for use by your employees. Irs gov freefilefillableforms Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Irs gov freefilefillableforms If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. Irs gov freefilefillableforms Exemption from federal income tax withholding. Irs gov freefilefillableforms   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. Irs gov freefilefillableforms See the Form W-4 instructions for more information. Irs gov freefilefillableforms However, the wages are still subject to social security and Medicare taxes. Irs gov freefilefillableforms See also Invalid Forms W-4 , later in this section. Irs gov freefilefillableforms   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Irs gov freefilefillableforms To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. Irs gov freefilefillableforms If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. Irs gov freefilefillableforms If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. Irs gov freefilefillableforms Withholding income taxes on the wages of nonresident alien employees. Irs gov freefilefillableforms   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Irs gov freefilefillableforms However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Irs gov freefilefillableforms Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Irs gov freefilefillableforms Withholding adjustment for nonresident alien employees. Irs gov freefilefillableforms   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. Irs gov freefilefillableforms Nonresident alien students from India and business apprentices from India are not subject to this procedure. Irs gov freefilefillableforms Instructions. Irs gov freefilefillableforms   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. Irs gov freefilefillableforms Step 1. Irs gov freefilefillableforms   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. Irs gov freefilefillableforms    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Irs gov freefilefillableforms 30     Biweekly 86. Irs gov freefilefillableforms 50     Semimonthly 93. Irs gov freefilefillableforms 80     Monthly 187. Irs gov freefilefillableforms 50     Quarterly 562. Irs gov freefilefillableforms 50     Semiannually 1,125. Irs gov freefilefillableforms 00     Annually 2,250. Irs gov freefilefillableforms 00     Daily or Miscellaneous (each day of the payroll period) 8. Irs gov freefilefillableforms 70   Step 2. Irs gov freefilefillableforms   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Irs gov freefilefillableforms Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Irs gov freefilefillableforms Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Irs gov freefilefillableforms If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. Irs gov freefilefillableforms If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. Irs gov freefilefillableforms The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Irs gov freefilefillableforms The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Irs gov freefilefillableforms Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Irs gov freefilefillableforms This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Irs gov freefilefillableforms Example. Irs gov freefilefillableforms An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Irs gov freefilefillableforms The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). Irs gov freefilefillableforms The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. Irs gov freefilefillableforms 50 from the chart under Step 1 ($586. Irs gov freefilefillableforms 50 total). Irs gov freefilefillableforms The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Irs gov freefilefillableforms Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. Irs gov freefilefillableforms The $86. Irs gov freefilefillableforms 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. Irs gov freefilefillableforms Also, the $86. Irs gov freefilefillableforms 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Irs gov freefilefillableforms Supplemental wage payment. Irs gov freefilefillableforms   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Irs gov freefilefillableforms 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. Irs gov freefilefillableforms Nonresident alien employee's Form W-4. Irs gov freefilefillableforms   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding, Request withholding as if they are single, regardless of their actual marital status, Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. Irs gov freefilefillableforms   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Irs gov freefilefillableforms A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. Irs gov freefilefillableforms Form 8233. Irs gov freefilefillableforms   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. Irs gov freefilefillableforms See Publication 515 for details. Irs gov freefilefillableforms IRS review of requested Forms W-4. Irs gov freefilefillableforms   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Irs gov freefilefillableforms You may also be directed to send certain Forms W-4 to the IRS. Irs gov freefilefillableforms You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. Irs gov freefilefillableforms Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. Irs gov freefilefillableforms The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. Irs gov freefilefillableforms R. Irs gov freefilefillableforms B. Irs gov freefilefillableforms 455, which is available at www. Irs gov freefilefillableforms irs. Irs gov freefilefillableforms gov/irb/2007-35_IRB/ar10. Irs gov freefilefillableforms html. Irs gov freefilefillableforms When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Irs gov freefilefillableforms After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). Irs gov freefilefillableforms However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter
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Sample Consumer Complaint Letter

This sample complaint letter will help you provide all of the necessary information to file a complaint.


How to Use the Sample Complaint Letter

Use the sample consumer complaint letter below to draft a complaint letter or e-mail. You can also copy and paste your complaint into a company's "Contact Us" form.

Download the complaint letter in Word format.

Sample Complaint Letter and E-mail

[Your Address]
[Your City, State, ZIP]
(Your e-mail address, if sending via e-mail)

Date

[Name of Contact Person] (if available)
[Title] (if available)
[Company Name]
[Consumer Complaint Division] (if you have no specific contact)
[Street Address]
[City, State, ZIP Code]

Dear [Contact Person]:

Re: (account number, if applicable)

On [date], I [bought, leased, rented, or had repaired] a [name of the product, with serial or model number, or service performed] at [location, date, and other important details of the transaction].

Unfortunately, your product [or service] has not performed well [or the service was inadequate] because [state the problem]. I am disappointed because [explain the problem: for example, the product does not work properly; the service was not performed correctly; I was billed the wrong amount; something was not disclosed clearly or was misrepresented; etc.].

To resolve the problem, I would appreciate your [state the specific action you want: money refunded, charge card credit, repair, exchange, etc.]. Enclosed are copies (do not send originals) of my records [include receipts, guarantees, warranties, canceled checks, contracts, model and serial numbers, and any other documents].

I look forward to your reply and a resolution to my problem and will wait until [set a time limit] before seeking help from a consumer protection agency or the Better Business Bureau. Please contact me at the above address or by phone at [home and/or office numbers with area code].

Sincerely,

Your name

Enclosure(s)

Keys to an Effective Complaint Letter

  • Describe your purchase.
  • Include the name of the product and serial number.
  • Include the date and place of purchase.
  • State your problem.
  • Give the history of your purchase.
  • Ask for specific action.
  • Allow time for action.
  • State how you can be reached.
  • Enclose copies of your documents and receipts (but never send originals).
  • Keep copies of all your letters, faxes, e-mails, and related documents.

Tips for Filing a Complaint

When filing a complaint, remember these tips:

  • Remain calm. The person who can help probably didn't cause the problem.
  • Don't use an angry, threatening, or sarcastic tone.
  • State exactly what you want done about the problem.
  • Document each step, and keep copies.
  • Start with the seller first. You can resolve many problems by calling a company's toll-free number. Even on the phone, you should know the details of the complaint. You can use the sample letter below to jot down a few notes before you call. If necessary, ask to speak to a manager.
  • If that doesn't work, send a letter or e-mail to the manufacturer's national headquarters or consumer affairs office. Some experts suggest that a letter is the most effective method for contacting a company, so if e-mails and phone calls don't work, try mailing a letter.

Learn more about the steps to file a consumer complaint.

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The Irs Gov Freefilefillableforms

Irs gov freefilefillableforms 2. Irs gov freefilefillableforms   American Opportunity Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible StudentException. Irs gov freefilefillableforms Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Refundable Part of Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Irs gov freefilefillableforms They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). Irs gov freefilefillableforms This chapter explains: Who can claim the American opportunity credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Irs gov freefilefillableforms What is the tax benefit of the American opportunity credit. Irs gov freefilefillableforms   For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. Irs gov freefilefillableforms   A tax credit reduces the amount of income tax you may have to pay. Irs gov freefilefillableforms Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Irs gov freefilefillableforms Forty percent of the American opportunity credit may be refundable. Irs gov freefilefillableforms This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. Irs gov freefilefillableforms   Your allowable American opportunity credit may be limited by the amount of your income. Irs gov freefilefillableforms Also, the nonrefundable part of the credit may be limited by the amount of your tax. Irs gov freefilefillableforms Overview of the American opportunity credit. Irs gov freefilefillableforms   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. Irs gov freefilefillableforms The details are discussed in this chapter. Irs gov freefilefillableforms Can you claim more than one education credit this year. Irs gov freefilefillableforms   For each student, you can elect for any year only one of the credits. Irs gov freefilefillableforms For example, if you elect to take the American opportunity credit for a child on your 2013 tax return, you cannot use that same child's qualified education expenses to figure the lifetime learning credit for 2013. Irs gov freefilefillableforms   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity credit on a per-student, per-year basis. Irs gov freefilefillableforms If you pay qualified education expenses for a student (or students) for whom you do not claim the American opportunity credit, you can use the adjusted qualified education expenses of that student (or those students) in figuring your lifetime learning credit. Irs gov freefilefillableforms This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Irs gov freefilefillableforms Differences between the American opportunity and lifetime learning credits. Irs gov freefilefillableforms   There are several differences between these two credits. Irs gov freefilefillableforms For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope Scholarship Credit for that student. Irs gov freefilefillableforms However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Irs gov freefilefillableforms The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Irs gov freefilefillableforms If you claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or the lifetime learning credit. Irs gov freefilefillableforms If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. Irs gov freefilefillableforms Table 2-1. Irs gov freefilefillableforms Overview of the American Opportunity Credit Maximum credit Up to $2,500 credit per eligible student Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) Hope Scholarship Credit was claimed) Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period that begins during the tax year Felony drug conviction As of the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return. Irs gov freefilefillableforms Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. Irs gov freefilefillableforms You pay qualified education expenses of higher education. Irs gov freefilefillableforms You pay the education expenses for an eligible student. Irs gov freefilefillableforms The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Irs gov freefilefillableforms Student qualifications. Irs gov freefilefillableforms   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. Irs gov freefilefillableforms As of the beginning of 2013, the student had not completed the first four years of postsecondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution. Irs gov freefilefillableforms For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. Irs gov freefilefillableforms Neither the American opportunity credit nor the Hope Scholarship Credit has been claimed (by you or anyone else) for this student for any four tax years before 2013. Irs gov freefilefillableforms If the American opportunity credit (and Hope Scholarship Credit) has been claimed for this student for any three or fewer tax years before 2013, this requirement is met. Irs gov freefilefillableforms For at least one academic period beginning (or treated as beginning) in 2013, the student both: Was enrolled in a program that leads to a degree, certificate, or other recognized educational credential; and Carried at least one-half the normal full-time workload for his or her course of study. Irs gov freefilefillableforms The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Irs gov freefilefillableforms However, the standard may not be lower than any of those established by the U. Irs gov freefilefillableforms S. Irs gov freefilefillableforms Department of Education under the Higher Education Act of 1965. Irs gov freefilefillableforms For purposes of whether the student satisfies this third requirement for 2013, treat an academic period beginning in the first three months of 2014 as if it began in 2013 if qualified education expenses for the student were paid in 2013 for that academic period. Irs gov freefilefillableforms See Prepaid expenses, later. Irs gov freefilefillableforms As of the end of 2013, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance. Irs gov freefilefillableforms Example 1. Irs gov freefilefillableforms Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. Irs gov freefilefillableforms Her parents claimed the Hope Scholarship Credit for Sharon on their tax returns for 2007 and 2008 and claimed the American opportunity credit for Sharon on their 2010 tax return. Irs gov freefilefillableforms Sharon claimed the American opportunity credit on her 2012 tax return. Irs gov freefilefillableforms The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. Irs gov freefilefillableforms Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. Irs gov freefilefillableforms If Sharon were to file Form 8863 for 2013, she would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit. Irs gov freefilefillableforms Example 2. Irs gov freefilefillableforms Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. Irs gov freefilefillableforms His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. Irs gov freefilefillableforms No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. Irs gov freefilefillableforms The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. Irs gov freefilefillableforms Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. Irs gov freefilefillableforms If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. Irs gov freefilefillableforms If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. Irs gov freefilefillableforms Example 3. Irs gov freefilefillableforms Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. Irs gov freefilefillableforms Glenda pays her tuition for the 2014 Spring semester in December 2013. Irs gov freefilefillableforms Because the tuition Glenda paid in 2013 relates to an academic period that begins in the first 3 months of 2014, her eligibility to claim an American opportunity credit in 2013 is determined as if the 2014 Spring semester began in 2013. Irs gov freefilefillableforms If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. Irs gov freefilefillableforms You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Irs gov freefilefillableforms Note. Irs gov freefilefillableforms Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. Irs gov freefilefillableforms “Qualified education expenses” are defined later under Qualified Education Expenses . Irs gov freefilefillableforms “Eligible students” are defined later under Who Is an Eligible Student . Irs gov freefilefillableforms A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Irs gov freefilefillableforms You may find Figure 2-1, Can You Claim the American Opportunity Credit for 2013 , later, helpful in determining if you can claim an American opportunity credit on your tax return. Irs gov freefilefillableforms This image is too large to be displayed in the current screen. Irs gov freefilefillableforms Please click the link to view the image. Irs gov freefilefillableforms Figure 2-1 Can you claim the American opportunity credit for 2012? Who Cannot Claim the Credit You cannot claim the American opportunity credit for 2013 if any of the following apply. Irs gov freefilefillableforms Your filing status is married filing separately. Irs gov freefilefillableforms You are listed as a dependent on another person's tax return (such as your parents'). Irs gov freefilefillableforms See Who Can Claim a Dependent's Expenses , later. Irs gov freefilefillableforms Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). Irs gov freefilefillableforms MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Irs gov freefilefillableforms You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Irs gov freefilefillableforms More information on nonresident aliens can be found in Publication 519, U. Irs gov freefilefillableforms S. Irs gov freefilefillableforms Tax Guide for Aliens. Irs gov freefilefillableforms What Expenses Qualify The American opportunity credit is based on adjusted qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Irs gov freefilefillableforms Generally, the credit is allowed for adjusted qualified education expenses paid in 2013 for an academic period beginning in 2013 or beginning in the first three months of 2014. Irs gov freefilefillableforms For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning January 2014, you can use that $1,500 in figuring your 2013 credit. Irs gov freefilefillableforms Academic period. Irs gov freefilefillableforms   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Irs gov freefilefillableforms In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Irs gov freefilefillableforms Paid with borrowed funds. Irs gov freefilefillableforms   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. Irs gov freefilefillableforms Use the expenses to figure the American opportunity credit for the year in which the expenses are paid, not the year in which the loan is repaid. Irs gov freefilefillableforms Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Irs gov freefilefillableforms Student withdraws from class(es). Irs gov freefilefillableforms   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. Irs gov freefilefillableforms Qualified Education Expenses For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Irs gov freefilefillableforms Eligible educational institution. Irs gov freefilefillableforms   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Irs gov freefilefillableforms S. Irs gov freefilefillableforms Department of Education. Irs gov freefilefillableforms It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Irs gov freefilefillableforms The educational institution should be able to tell you if it is an eligible educational institution. Irs gov freefilefillableforms   Certain educational institutions located outside the United States also participate in the U. Irs gov freefilefillableforms S. Irs gov freefilefillableforms Department of Education's Federal Student Aid (FSA) programs. Irs gov freefilefillableforms Related expenses. Irs gov freefilefillableforms   Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Irs gov freefilefillableforms   However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution. Irs gov freefilefillableforms Prepaid expenses. Irs gov freefilefillableforms   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Irs gov freefilefillableforms See Academic period, earlier. Irs gov freefilefillableforms For example, if you pay $2,000 in December 2013, for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Irs gov freefilefillableforms    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Irs gov freefilefillableforms   In the following examples, assume that each student is an eligible student at an eligible educational institution. Irs gov freefilefillableforms Example 1. Irs gov freefilefillableforms Jefferson is a sophomore in University V's degree program in dentistry. Irs gov freefilefillableforms This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Irs gov freefilefillableforms Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. Irs gov freefilefillableforms Example 2. Irs gov freefilefillableforms Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Irs gov freefilefillableforms The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Irs gov freefilefillableforms William bought his books from a friend; Grace bought hers at College W's bookstore. Irs gov freefilefillableforms Both are qualified education expenses for the American opportunity credit. Irs gov freefilefillableforms Example 3. Irs gov freefilefillableforms When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Irs gov freefilefillableforms This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. Irs gov freefilefillableforms No portion of the fee covers personal expenses. Irs gov freefilefillableforms Although labeled as a student activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense. Irs gov freefilefillableforms No Double Benefit Allowed You cannot do any of the following. Irs gov freefilefillableforms Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an American opportunity credit based on those same expenses. Irs gov freefilefillableforms Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. Irs gov freefilefillableforms Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. Irs gov freefilefillableforms Figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP) using the same expenses you used to figure the American opportunity credit. Irs gov freefilefillableforms See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Irs gov freefilefillableforms Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Irs gov freefilefillableforms See Adjustments to Qualified Education Expenses, next. Irs gov freefilefillableforms Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Irs gov freefilefillableforms The result is the amount of adjusted qualified education expenses for each student. Irs gov freefilefillableforms Tax-free educational assistance. Irs gov freefilefillableforms   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Irs gov freefilefillableforms See Academic period, earlier. Irs gov freefilefillableforms   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Irs gov freefilefillableforms This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Irs gov freefilefillableforms   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Irs gov freefilefillableforms If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Irs gov freefilefillableforms   Tax-free educational assistance includes: The tax-free parts of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Irs gov freefilefillableforms Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Irs gov freefilefillableforms Generally, any scholarship or fellowship is treated as tax free. Irs gov freefilefillableforms However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Irs gov freefilefillableforms The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Irs gov freefilefillableforms The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Irs gov freefilefillableforms You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Irs gov freefilefillableforms For examples, see Coordination with Pell grants and other scholarships, later. Irs gov freefilefillableforms Refunds. Irs gov freefilefillableforms   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Irs gov freefilefillableforms Some tax-free educational assistance received after 2013 may be treated as a refund. Irs gov freefilefillableforms See Tax-free educational assistance, earlier. Irs gov freefilefillableforms Refunds received in 2013. Irs gov freefilefillableforms   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Irs gov freefilefillableforms Refunds received after 2013 but before your income tax return is filed. Irs gov freefilefillableforms   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Irs gov freefilefillableforms Refunds received after 2013 and after your income tax return is filed. Irs gov freefilefillableforms   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Irs gov freefilefillableforms See Credit recapture, next. Irs gov freefilefillableforms Credit recapture. Irs gov freefilefillableforms    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Irs gov freefilefillableforms You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Irs gov freefilefillableforms You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you claimed the refigured credit(s). Irs gov freefilefillableforms Include that amount as an additional tax for the year the refund or tax-free assistance was received. Irs gov freefilefillableforms Example. Irs gov freefilefillableforms   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. Irs gov freefilefillableforms You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. Irs gov freefilefillableforms After you filed your return, you received a refund of $4,000. Irs gov freefilefillableforms You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. Irs gov freefilefillableforms The refigured credit is $2,250. Irs gov freefilefillableforms The increase to your tax liability is also $250. Irs gov freefilefillableforms Include the difference of $250 as additional tax on your 2014 tax return. Irs gov freefilefillableforms See the instructions for your 2014 income tax return to determine where to include this tax. Irs gov freefilefillableforms If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Irs gov freefilefillableforms Amounts that do not reduce qualified education expenses. Irs gov freefilefillableforms   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Irs gov freefilefillableforms   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Irs gov freefilefillableforms The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Irs gov freefilefillableforms The use of the money is not restricted. Irs gov freefilefillableforms Example 1. Irs gov freefilefillableforms Joan paid $3,000 for tuition and $5,000 for room and board at University X. Irs gov freefilefillableforms The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Irs gov freefilefillableforms To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Irs gov freefilefillableforms The terms of the scholarship state that it can be used to pay any of Joan's college expenses. Irs gov freefilefillableforms University X applies the $2,000 scholarship against Joan's $8,000 total bill, and Joan pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Irs gov freefilefillableforms Joan does not report any portion of the scholarship as income on her tax return. Irs gov freefilefillableforms In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. Irs gov freefilefillableforms The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Irs gov freefilefillableforms Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). Irs gov freefilefillableforms Example 2. Irs gov freefilefillableforms The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. Irs gov freefilefillableforms Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Irs gov freefilefillableforms Joan is treated as having paid $3,000 in qualified education expenses. Irs gov freefilefillableforms Coordination with Pell grants and other scholarships. Irs gov freefilefillableforms   In some cases, you may be able to reduce your tax liability by including scholarships in income. Irs gov freefilefillableforms If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Irs gov freefilefillableforms The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Irs gov freefilefillableforms Example 1—No scholarship. Irs gov freefilefillableforms Bill Pass, age 28 and unmarried, enrolled full-time in 2013 as a first-year student at a local college to earn a degree in law enforcement. Irs gov freefilefillableforms This was his first year of postsecondary education. Irs gov freefilefillableforms During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. Irs gov freefilefillableforms He and the college meet all the requirements for the American opportunity credit. Irs gov freefilefillableforms Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. Irs gov freefilefillableforms Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. Irs gov freefilefillableforms His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. Irs gov freefilefillableforms He figures his American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500 and tax after credits of $99. Irs gov freefilefillableforms Example 2—Scholarship excluded from income. Irs gov freefilefillableforms The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. Irs gov freefilefillableforms Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. Irs gov freefilefillableforms If Bill excludes the scholarship from income, he will be deemed (for purposes of computing his education credit) to have used the scholarship to pay for tuition, required fees, and course materials. Irs gov freefilefillableforms His adjusted qualified education expenses will be zero and he will not have an education credit. Irs gov freefilefillableforms Therefore, Bill's tax after credits would be $2,599. Irs gov freefilefillableforms Example 3—Scholarship partially included in income. Irs gov freefilefillableforms The facts are the same as in Example 2—Scholarship excluded from income. Irs gov freefilefillableforms If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have used that amount to pay for room and board. Irs gov freefilefillableforms The remaining $1,600 of the $5,600 scholarship will reduce his qualified education expenses and his adjusted qualified education expenses will be $4,000. Irs gov freefilefillableforms Bill's AGI will increase to $34,000, his taxable income will increase to $24,250, and his tax before credits will increase to $3,199. Irs gov freefilefillableforms Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity tax credit of $2,500 and his tax after credits would be $699. Irs gov freefilefillableforms Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Irs gov freefilefillableforms This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Irs gov freefilefillableforms Sports, games, hobbies, and noncredit courses. Irs gov freefilefillableforms   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Irs gov freefilefillableforms However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Irs gov freefilefillableforms Comprehensive or bundled fees. Irs gov freefilefillableforms   Some eligible educational institutions combine all of their fees for an academic period into one amount. Irs gov freefilefillableforms If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed earlier, contact the institution. Irs gov freefilefillableforms The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. Irs gov freefilefillableforms See Figuring the Credit , later, for more information about Form 1098-T. Irs gov freefilefillableforms Who Is an Eligible Student To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. Irs gov freefilefillableforms This is a student who meets all of the following requirements. Irs gov freefilefillableforms The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. Irs gov freefilefillableforms This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. Irs gov freefilefillableforms The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. Irs gov freefilefillableforms For at least one academic period beginning in 2013, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Irs gov freefilefillableforms The student has not been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2013. Irs gov freefilefillableforms These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. Irs gov freefilefillableforms Completion of first 4 years. Irs gov freefilefillableforms   A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework completed by the student before 2013. Irs gov freefilefillableforms This student generally would not be an eligible student for purposes of the American opportunity credit. Irs gov freefilefillableforms Exception. Irs gov freefilefillableforms   Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education. Irs gov freefilefillableforms Enrolled at least half-time. Irs gov freefilefillableforms   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Irs gov freefilefillableforms   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Irs gov freefilefillableforms However, the standard may not be lower than any of those established by the U. Irs gov freefilefillableforms S. Irs gov freefilefillableforms Department of Education under the Higher Education Act of 1965. Irs gov freefilefillableforms Please click here for the text description of the image. Irs gov freefilefillableforms Figure 2-2 Example 1. Irs gov freefilefillableforms Mack graduated from high school in June 2012. Irs gov freefilefillableforms In September, he enrolled in an undergraduate degree program at College U, and attended full-time for both the 2012 fall and 2013 spring semesters. Irs gov freefilefillableforms For the 2013 fall semester, Mack was enrolled less than half-time. Irs gov freefilefillableforms Because Mack was enrolled in an undergraduate degree program on at least a half-time basis for at least one academic period that began during 2012 and at least one academic period that began during 2013, he is an eligible student for tax years 2012 and 2013 (including the 2013 fall semester when he enrolled at College U on less than a half-time basis). Irs gov freefilefillableforms Example 2. Irs gov freefilefillableforms After taking classes at College V on a part-time basis for a few years, Shelly became a full-time student for the 2013 spring semester. Irs gov freefilefillableforms College V classified Shelly as a second-semester senior (fourth year) for the 2013 spring semester and as a first-semester graduate student (fifth year) for the 2013 fall semester. Irs gov freefilefillableforms Because College V did not classify Shelly as having completed the first 4 years of postsecondary education as of the beginning of 2013, Shelly is an eligible student for tax year 2013. Irs gov freefilefillableforms Therefore, the qualified education expenses paid for the 2013 spring semester and the 2013 fall semester are taken into account in calculating the American opportunity credit for 2013. Irs gov freefilefillableforms Example 3. Irs gov freefilefillableforms During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. Irs gov freefilefillableforms Larry was not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. Irs gov freefilefillableforms Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. Irs gov freefilefillableforms Example 4. Irs gov freefilefillableforms The facts are the same as in Example 3. Irs gov freefilefillableforms During the 2013 spring semester, Larry again attended College X but not as part of a degree program. Irs gov freefilefillableforms Larry graduated from high school in June 2013. Irs gov freefilefillableforms For the 2013 fall semester, Larry enrolled as a full-time student in College X as part of a degree program, and College X awarded Larry credit for his prior coursework at College X. Irs gov freefilefillableforms Because Larry was enrolled in a degree program at College X for the 2013 fall term on at least a half-time basis, Larry is an eligible student for all of tax year 2013. Irs gov freefilefillableforms Therefore, the qualified education expenses paid for classes taken at College X during both the 2013 spring semester (during which Larry was not enrolled in a degree program) and the 2013 fall semester are taken into account in computing any American opportunity credit. Irs gov freefilefillableforms Example 5. Irs gov freefilefillableforms Dee graduated from high school in June 2012. Irs gov freefilefillableforms In January 2013, Dee enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a travel agent. Irs gov freefilefillableforms Dee completed the program in December 2013, and was awarded a certificate. Irs gov freefilefillableforms In January 2014, she enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a computer programmer. Irs gov freefilefillableforms Dee is an eligible student for both tax years 2013 and 2014 because she meets the degree requirement, the work load requirement, and the year of study requirement for those years. Irs gov freefilefillableforms Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim an American opportunity credit for your dependent's expenses for that year. Irs gov freefilefillableforms For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. Irs gov freefilefillableforms You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Irs gov freefilefillableforms IF you. Irs gov freefilefillableforms . Irs gov freefilefillableforms . Irs gov freefilefillableforms THEN only. Irs gov freefilefillableforms . Irs gov freefilefillableforms . Irs gov freefilefillableforms claim an exemption on  your tax return for a  dependent who is an  eligible student you can claim the American opportunity credit based on that dependent's expenses. Irs gov freefilefillableforms The dependent cannot claim the credit. Irs gov freefilefillableforms do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the American opportunity credit. Irs gov freefilefillableforms You cannot claim the credit based on this dependent's expenses. Irs gov freefilefillableforms Expenses paid by dependent. Irs gov freefilefillableforms   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Irs gov freefilefillableforms Include these expenses when figuring the amount of your American opportunity credit. Irs gov freefilefillableforms    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Irs gov freefilefillableforms Expenses paid by you. Irs gov freefilefillableforms   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the American opportunity credit. Irs gov freefilefillableforms If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the American opportunity credit. Irs gov freefilefillableforms Expenses paid by others. Irs gov freefilefillableforms   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Irs gov freefilefillableforms In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Irs gov freefilefillableforms If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Irs gov freefilefillableforms Example. Irs gov freefilefillableforms In 2013, Ms. Irs gov freefilefillableforms Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Irs gov freefilefillableforms For purposes of claiming an American opportunity credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Irs gov freefilefillableforms Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim an American opportunity credit. Irs gov freefilefillableforms If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim an American opportunity credit. Irs gov freefilefillableforms If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. Irs gov freefilefillableforms Tuition reduction. Irs gov freefilefillableforms    When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Irs gov freefilefillableforms If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Irs gov freefilefillableforms For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Irs gov freefilefillableforms Figuring the Credit The amount of the American opportunity credit (per eligible student) is the sum of: 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and 25% of the next $2,000 of qualified education expenses you paid for that student. Irs gov freefilefillableforms The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. Irs gov freefilefillableforms You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. Irs gov freefilefillableforms However, the credit may be reduced based on your MAGI. Irs gov freefilefillableforms See Effect of the Amount of Your Income on the Amount of Your Credit , later. Irs gov freefilefillableforms Example. Irs gov freefilefillableforms Jack and Kay Ford are married and file a joint tax return. Irs gov freefilefillableforms For 2013, they claim an exemption for their dependent daughter on their tax return. Irs gov freefilefillableforms Their MAGI is $70,000. Irs gov freefilefillableforms Their daughter is in her junior (third) year of studies at the local university. Irs gov freefilefillableforms Jack and Kay paid qualified education expenses of $4,300 in 2013. Irs gov freefilefillableforms Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. Irs gov freefilefillableforms Jack and Kay can claim a $2,500 American opportunity credit in 2013. Irs gov freefilefillableforms This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. Irs gov freefilefillableforms Form 1098-T. Irs gov freefilefillableforms   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. Irs gov freefilefillableforms Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Irs gov freefilefillableforms An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Irs gov freefilefillableforms However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. Irs gov freefilefillableforms When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Irs gov freefilefillableforms   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Irs gov freefilefillableforms    The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. Irs gov freefilefillableforms Effect of the Amount of Your Income on the Amount of Your Credit The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). Irs gov freefilefillableforms You cannot claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). Irs gov freefilefillableforms Modified adjusted gross income (MAGI). Irs gov freefilefillableforms   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Irs gov freefilefillableforms MAGI when using Form 1040A. Irs gov freefilefillableforms   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Irs gov freefilefillableforms MAGI when using Form 1040. Irs gov freefilefillableforms   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Irs gov freefilefillableforms You can use Worksheet 2-1, next, to figure your MAGI. Irs gov freefilefillableforms    Worksheet 2-1. Irs gov freefilefillableforms MAGI for the American Opportunity Credit 1. Irs gov freefilefillableforms Enter your adjusted gross income  (Form 1040, line 38)   1. Irs gov freefilefillableforms   2. Irs gov freefilefillableforms Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Irs gov freefilefillableforms       3. Irs gov freefilefillableforms Enter your foreign housing deduction (Form 2555, line 50)   3. Irs gov freefilefillableforms       4. Irs gov freefilefillableforms Enter the amount of income from Puerto Rico you are excluding   4. Irs gov freefilefillableforms       5. Irs gov freefilefillableforms Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Irs gov freefilefillableforms       6. Irs gov freefilefillableforms Add the amounts on lines 2, 3, 4, and 5   6. Irs gov freefilefillableforms   7. Irs gov freefilefillableforms Add the amounts on lines 1 and 6. Irs gov freefilefillableforms  This is your modified adjusted  gross income. Irs gov freefilefillableforms Enter here and  on Form 8863, line 3   7. Irs gov freefilefillableforms   Phaseout. Irs gov freefilefillableforms   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 2-7, of Form 8863, Part I. Irs gov freefilefillableforms The same method is shown in the following example. Irs gov freefilefillableforms Example. Irs gov freefilefillableforms You are filing a joint return and your MAGI is $165,000. Irs gov freefilefillableforms In 2013, you paid $5,000 of qualified education expenses. Irs gov freefilefillableforms You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses). Irs gov freefilefillableforms Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. Irs gov freefilefillableforms The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. Irs gov freefilefillableforms The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). Irs gov freefilefillableforms The result is the amount of your phased out (reduced) American opportunity credit ($1,875). Irs gov freefilefillableforms      $2,500 × $180,000 − $165,000  $20,000 = $1,875   Refundable Part of Credit Forty percent of the American opportunity credit is refundable for most taxpayers. Irs gov freefilefillableforms However, if you were under age 24 at the end of 2013 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Irs gov freefilefillableforms Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. Irs gov freefilefillableforms You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. Irs gov freefilefillableforms You were: Under age 18 at the end of 2013, or Age 18 at the end of 2013 and your earned income (defined below) was less than one-half of your support (defined below), or Over age 18 and under age 24 at the end of 2013 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below). Irs gov freefilefillableforms At least one of your parents was alive at the end of 2013. Irs gov freefilefillableforms You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. Irs gov freefilefillableforms Earned income. Irs gov freefilefillableforms   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Irs gov freefilefillableforms Earned income includes the part of any scholarship or fellowship that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship. Irs gov freefilefillableforms Earned income does not include that part of the compensation for personal services rendered to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. Irs gov freefilefillableforms   If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). Irs gov freefilefillableforms However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. Irs gov freefilefillableforms Support. Irs gov freefilefillableforms   Your support includes food, shelter, clothing, medical and dental care, education, and the like. Irs gov freefilefillableforms Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. Irs gov freefilefillableforms If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. Irs gov freefilefillableforms However, a scholarship received by you is not considered support if you are a full-time student. Irs gov freefilefillableforms See Publication 501 for details. Irs gov freefilefillableforms Full-time student. Irs gov freefilefillableforms   You are a full-time student for 2013 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency. Irs gov freefilefillableforms Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Irs gov freefilefillableforms Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. Irs gov freefilefillableforms Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. Irs gov freefilefillableforms A filled-in Form 8863 is shown at the end of this publication. Irs gov freefilefillableforms Note. Irs gov freefilefillableforms In Appendix A. Irs gov freefilefillableforms at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Irs gov freefilefillableforms Prev  Up  Next   Home   More Online Publications