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State Income Tax Questions

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

KS-MO-2011-34, Aug. 17, 2011

ST. LOUIS — Victims of flooding beginning on June 1, 2011, in parts of Missouri may qualify for tax relief from the Internal Revenue Service.

The President has declared Andrew, Atchison, Buchanan, Holt, Lafayette and Platte counties a federal disaster area. Individuals who reside or have a business in these localities may qualify for tax relief.

As a result, the IRS has postponed until Aug. 1, 2011, certain deadlines occurring from June 1 to Aug. 1 that affect taxpayers who live or have a business in the disaster area. This includes the June 15 deadline for making estimated tax payments.

In addition, the IRS is abating the failure-to-deposit penalties for employment and excise tax deposits due on or after June 1 and on or before June 16, 2011, as long as the deposits were made by June 16, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The areas listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS has given affected taxpayers until Aug. 1, 2011, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after June 1 and on or before Aug. 1, 2011.

The IRS also gives affected taxpayers until Aug. 1 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after June 1 and on or before Aug. 1.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after June 1 and on or before June 16, provided the taxpayer made these deposits by June 16.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation, "Missouri/Flooding," at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information:

Recent IRS Disaster Relief Announcements
 

 

Page Last Reviewed or Updated: 20-Feb-2014

The State Income Tax Questions

State income tax questions Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. State income tax questions The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. State income tax questions If you are requesting relief for more than three tax years, you must file an additional Form 8857. State income tax questions The IRS will review your Form 8857 and let you know if you qualify. State income tax questions A completed Form 8857 is shown later. State income tax questions When to file Form 8857. State income tax questions   You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. State income tax questions The following are some of the ways you may become aware of such a liability. State income tax questions The IRS is examining your tax return and proposing to increase your tax liability. State income tax questions The IRS sends you a notice. State income tax questions   You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. State income tax questions (But see the exceptions below for different filing deadlines that apply. State income tax questions ) For this reason, do not delay filing because you do not have all the documentation. State income tax questions   Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. State income tax questions The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. State income tax questions This includes the filing of a proof of claim in a bankruptcy proceeding. State income tax questions The filing of a suit by the United States against you to collect the joint liability. State income tax questions The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. State income tax questions The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. State income tax questions Exception for equitable relief. State income tax questions   On July 25, 2011, the IRS issued Notice 2011-70 (available at www. State income tax questions irs. State income tax questions gov/irb/2011-32_IRB/ar11. State income tax questions html) expanding the amount of time to request equitable relief. State income tax questions The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. State income tax questions Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. State income tax questions In certain cases, the 10-year period is suspended. State income tax questions The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. State income tax questions See Pub. State income tax questions 594, The IRS Collection Process, for details. State income tax questions Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. State income tax questions But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. State income tax questions See Pub. State income tax questions 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. State income tax questions Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. State income tax questions Exception for relief based on community property laws. State income tax questions   If you are requesting relief based on community property laws, a different filing deadline applies. State income tax questions See Relief from liability arising from community property law discussed later under Community Property Laws . State income tax questions Form 8857 filed by or on behalf of a decedent. State income tax questions   An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. State income tax questions An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. State income tax questions For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. State income tax questions Situations in which you are not entitled to relief. State income tax questions   You are not entitled to innocent spouse relief for any tax year to which the following situations apply. State income tax questions In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. State income tax questions In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. State income tax questions You entered into an offer in compromise with the IRS. State income tax questions You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. State income tax questions Exception for agreements relating to TEFRA partnership proceedings. State income tax questions   You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. State income tax questions (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. State income tax questions ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). State income tax questions Transferee liability not affected by innocent spouse relief provisions. State income tax questions   The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. State income tax questions Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. State income tax questions Example. State income tax questions Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. State income tax questions Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. State income tax questions In August 2010, the IRS assessed a deficiency for the 2008 return. State income tax questions The items causing the deficiency belong to Herb. State income tax questions Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. State income tax questions However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. State income tax questions The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. State income tax questions There are no exceptions, even for victims of spousal abuse or domestic violence. State income tax questions We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. State income tax questions If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. State income tax questions However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. State income tax questions If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. State income tax questions Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. State income tax questions The IRS sends you a final determination letter regarding your request for relief. State income tax questions You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. State income tax questions If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. State income tax questions The United States Tax Court is an independent judicial body and is not part of the IRS. State income tax questions You must file a petition with the United States Tax Court in order for it to review your request for relief. State income tax questions You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. State income tax questions If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. State income tax questions You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address:    United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. State income tax questions ustaxcourt. State income tax questions gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. State income tax questions Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. State income tax questions Generally, community property laws require you to allocate community income and expenses equally between both spouses. State income tax questions However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. State income tax questions Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. State income tax questions Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. State income tax questions You did not file a joint return for the tax year. State income tax questions You did not include the item of community income in gross income. State income tax questions The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. State income tax questions Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. State income tax questions Your spouse's (or former spouse's) distributive share of partnership income. State income tax questions Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). State income tax questions Use the appropriate community property law to determine what is separate property. State income tax questions Any other income that belongs to your spouse (or former spouse) under community property law. State income tax questions You establish that you did not know of, and had no reason to know of, that community income. State income tax questions See  Actual Knowledge or Reason To Know , below. State income tax questions Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. State income tax questions See Indications of unfairness for liability arising from community property law, later. State income tax questions Actual knowledge or reason to know. State income tax questions   You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. State income tax questions Amount of community income unknown. State income tax questions   If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. State income tax questions Not knowing the specific amount is not a basis for relief. State income tax questions Reason to know. State income tax questions   The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. State income tax questions The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. State income tax questions The financial situation of you and your spouse (or former spouse). State income tax questions Your educational background and business experience. State income tax questions Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). State income tax questions Indications of unfairness for liability arising from community property law. State income tax questions   The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. State income tax questions   The following are examples of factors the IRS will consider. State income tax questions Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). State income tax questions Whether your spouse (or former spouse) deserted you. State income tax questions Whether you and your spouse have been divorced or separated. State income tax questions  For other factors see Factors for Determining Whether To Grant Equitable Relief later. State income tax questions Benefit from omitted item of community income. State income tax questions   A benefit includes normal support, but does not include de minimis (small) amounts. State income tax questions Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. State income tax questions   For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. State income tax questions Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). State income tax questions How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. State income tax questions Fill in Form 8857 according to the instructions. State income tax questions For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. State income tax questions However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. State income tax questions The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. State income tax questions Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. State income tax questions Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). State income tax questions However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. State income tax questions The IRS can collect these amounts from either you or your spouse (or former spouse). State income tax questions You must meet all of the following conditions to qualify for innocent spouse relief. State income tax questions You filed a joint return. State income tax questions There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). State income tax questions You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). State income tax questions See Actual Knowledge or Reason To Know, later. State income tax questions Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. State income tax questions See Indications of Unfairness for Innocent Spouse Relief , later. State income tax questions Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. State income tax questions A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. State income tax questions Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. State income tax questions Erroneous Items Erroneous items are either of the following. State income tax questions Unreported income. State income tax questions This is any gross income item received by your spouse (or former spouse) that is not reported. State income tax questions Incorrect deduction, credit, or basis. State income tax questions This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). State income tax questions The following are examples of erroneous items. State income tax questions The expense for which the deduction is taken was never paid or incurred. State income tax questions For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. State income tax questions The expense does not qualify as a deductible expense. State income tax questions For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. State income tax questions Fines are not deductible. State income tax questions No factual argument can be made to support the deductibility of the expense. State income tax questions For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. State income tax questions Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. State income tax questions Actual knowledge. State income tax questions   If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. State income tax questions You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. State income tax questions For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. State income tax questions Reason to know. State income tax questions   If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. State income tax questions You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. State income tax questions   The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. State income tax questions The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. State income tax questions The financial situation of you and your spouse (or former spouse). State income tax questions Your educational background and business experience. State income tax questions The extent of your participation in the activity that resulted in the erroneous item. State income tax questions Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question. State income tax questions Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). State income tax questions Partial relief when a portion of erroneous item is unknown. State income tax questions   You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. State income tax questions You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. State income tax questions Example. State income tax questions At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. State income tax questions The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. State income tax questions You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. State income tax questions The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. State income tax questions The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. State income tax questions Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. State income tax questions The following are examples of factors the IRS will consider. State income tax questions Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. State income tax questions Whether your spouse (or former spouse) deserted you. State income tax questions Whether you and your spouse have been divorced or separated. State income tax questions Whether you received a benefit on the return from the understated tax. State income tax questions For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. State income tax questions Significant benefit. State income tax questions   A significant benefit is any benefit in excess of normal support. State income tax questions Normal support depends on your particular circumstances. State income tax questions Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax. State income tax questions Example. State income tax questions You receive money from your spouse that is beyond normal support. State income tax questions The money can be traced to your spouse's lottery winnings that were not reported on your joint return. State income tax questions You will be considered to have received a significant benefit from that income. State income tax questions This is true even if your spouse gives you the money several years after he or she received it. State income tax questions Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). State income tax questions The understated tax allocated to you is generally the amount you are responsible for. State income tax questions This type of relief is available only for unpaid liabilities resulting from the understated tax. State income tax questions Refunds are not allowed. State income tax questions To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. State income tax questions You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. State income tax questions (Under this rule, you are no longer married if you are widowed. State income tax questions ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. State income tax questions Members of the same household. State income tax questions   You and your spouse are not members of the same household if you are living apart and are estranged. State income tax questions However, you and your spouse are considered members of the same household if any of the following conditions are met. State income tax questions You and your spouse reside in the same dwelling. State income tax questions You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. State income tax questions Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. State income tax questions Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. State income tax questions Burden of proof. State income tax questions   You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). State income tax questions You must also establish the basis for allocating the erroneous items. State income tax questions Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. State income tax questions The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. State income tax questions A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. State income tax questions The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). State income tax questions For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. State income tax questions Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. State income tax questions See Transfers of Property To Avoid Tax , later. State income tax questions Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. State income tax questions You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. State income tax questions If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. State income tax questions You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. State income tax questions (This rule applies whether or not there was a receipt of cash. State income tax questions ) You knew of the facts that made an incorrect deduction or credit unallowable. State income tax questions For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. State income tax questions Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. State income tax questions Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. State income tax questions Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. State income tax questions Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. State income tax questions Neither is your actual knowledge of how the erroneous item was treated on the tax return. State income tax questions For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. State income tax questions Example. State income tax questions Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. State income tax questions The IRS audited their return and found that Bill did not report $20,000 of self-employment income. State income tax questions The additional income resulted in a $6,000 understated tax, plus interest and penalties. State income tax questions After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. State income tax questions The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. State income tax questions Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. State income tax questions Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. State income tax questions The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. State income tax questions Factors supporting actual knowledge. State income tax questions   The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. State income tax questions The following are examples of factors the IRS may use. State income tax questions Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. State income tax questions Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. State income tax questions Exception for spousal abuse or domestic violence. State income tax questions   Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. State income tax questions   If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. State income tax questions However, you may be required to file a separate return for that tax year. State income tax questions For more information about duress, see the instructions for Form 8857. State income tax questions Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. State income tax questions The increase may not be more than the entire amount of the liability. State income tax questions A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. State income tax questions This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. State income tax questions If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. State income tax questions Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. State income tax questions Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. State income tax questions An underpaid tax is an amount of tax you properly reported on your return but you have not paid. State income tax questions For example, your joint 2009 return shows that you and your spouse owed $5,000. State income tax questions You paid $2,000 with the return. State income tax questions You have an underpaid tax of $3,000. State income tax questions Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. State income tax questions You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. State income tax questions You have an understated tax or an underpaid tax. State income tax questions You did not pay the tax. State income tax questions However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. State income tax questions You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. State income tax questions See Factors for Determining Whether To Grant Equitable Relief, later. State income tax questions You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. State income tax questions A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. State income tax questions Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. State income tax questions See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. State income tax questions You did not file or fail to file your return with the intent to commit fraud. State income tax questions The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. State income tax questions If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. State income tax questions If the item is titled in your name, the item is presumed to be attributable to you. State income tax questions However, you can rebut this presumption based on the facts and circumstances. State income tax questions You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. State income tax questions If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). State income tax questions You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. State income tax questions If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. State income tax questions Factors for Determining Whether To Grant Equitable Relief The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understated or underpaid tax. State income tax questions The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. State income tax questions The IRS will consider all factors and weigh them appropriately. State income tax questions Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. State income tax questions Whether you are separated (whether legally or not) or divorced from your spouse. State income tax questions A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. State income tax questions A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. State income tax questions Whether you would suffer a significant economic hardship if relief is not granted. State income tax questions (In other words, you would not be able to pay your reasonable basic living expenses. State income tax questions ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. State income tax questions This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. State income tax questions Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. State income tax questions (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. State income tax questions ) Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years. State income tax questions Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. State income tax questions Knowledge or reason to know. State income tax questions   In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. State income tax questions   In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. State income tax questions Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. State income tax questions Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. State income tax questions This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. State income tax questions Reason to know. State income tax questions   In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. State income tax questions Example. State income tax questions You and your spouse filed a joint 2009 return. State income tax questions That return showed you owed $10,000. State income tax questions You had $5,000 of your own money and you took out a loan to pay the other $5,000. State income tax questions You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. State income tax questions Without telling you, your spouse took the $5,000 loan and spent it on himself. State income tax questions You and your spouse were divorced in 2010. State income tax questions In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. State income tax questions These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. State income tax questions The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpaid tax. State income tax questions Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. State income tax questions Whether your spouse (or former spouse) abused you. State income tax questions Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. State income tax questions Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . State income tax questions Not permitted under separation of liability relief. State income tax questions Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. State income tax questions Proof Required The IRS will only refund payments you made with your own money. State income tax questions However, you must provide proof that you made the payments with your own money. State income tax questions Examples of proof are a copy of your bank statement or a canceled check. State income tax questions No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. State income tax questions Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. State income tax questions Underpaid tax. State income tax questions   If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. State income tax questions However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. State income tax questions For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. State income tax questions   The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. State income tax questions Understated tax. State income tax questions   If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. State income tax questions You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. State income tax questions Only installment payments made after the date you filed Form 8857 are eligible for a refund. State income tax questions   The amount of the refund is subject to the limit discussed next. State income tax questions Limit on Amount of Refund The amount of your refund is limited. State income tax questions Read the following chart to find out the limit. State income tax questions IF you file Form 8857. State income tax questions . State income tax questions . State income tax questions THEN the refund cannot be more than. State income tax questions . State income tax questions . State income tax questions Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. State income tax questions After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. State income tax questions Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. State income tax questions Janie and Joe Boulder filed a joint tax return for 2007. State income tax questions They claimed one dependency exemption for their son Michael. State income tax questions Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. State income tax questions Janie did not know about the award when the return was filed. State income tax questions They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). State income tax questions Janie and Joe were divorced on May 13, 2009. State income tax questions In February 2010, Janie filed her 2009 federal income tax return as head of household. State income tax questions She expected a refund of $1,203. State income tax questions In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. State income tax questions Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. State income tax questions Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. State income tax questions Janie believes she meets the third condition. State income tax questions She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. State income tax questions Janie believes she meets the fourth condition. State income tax questions She believes it would be unfair to be held liable for the tax because she did not benefit from the award. State income tax questions Joe spent it on personal items for his use only. State income tax questions Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. State income tax questions In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. State income tax questions Part I Line 1. State income tax questions   She enters “2007” on line 1 because this is the tax year for which she is requesting relief. State income tax questions Line 2. State income tax questions   She checks the box because she wants a refund. State income tax questions Note. State income tax questions Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. State income tax questions Line 3. State income tax questions   She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. State income tax questions Line 4. State income tax questions   She checks the “Yes” box because she filed a joint tax return for tax year 2007. State income tax questions Line 5. State income tax questions   She skips this line because she checked the “Yes” box on line 4. State income tax questions Part II Line 6. State income tax questions   She enters her name, address, social security number, county, and best daytime phone number. State income tax questions Part III Line 7. State income tax questions   She enters Joe's name, address, social security number, and best daytime phone number. State income tax questions Line 8. State income tax questions   She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. State income tax questions ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. State income tax questions Line 9. State income tax questions   She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. State income tax questions Line 10. State income tax questions   She checks the “No” box because she was not a victim of spousal abuse or domestic violence. State income tax questions Line 11. State income tax questions   She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. State income tax questions Line 12. State income tax questions   She checks the “Yes” box because she signed the 2007 joint tax return. State income tax questions Line 13. State income tax questions   She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. State income tax questions Part IV Line 14. State income tax questions   Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. State income tax questions ” Line 15. State income tax questions   She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. State income tax questions She explains this in the space provided. State income tax questions Line 16. State income tax questions   She checks the box, “You knew that person had income” because she knew Joe had income from wages. State income tax questions She also lists Joe's income. State income tax questions Under “Type of Income” she enters “wages. State income tax questions ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. State income tax questions ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. State income tax questions ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. State income tax questions Line 17. State income tax questions   She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. State income tax questions Line 18. State income tax questions   She checks the “No” box because, when the return was signed, she was not having financial problems. State income tax questions Line 19. State income tax questions   She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. State income tax questions She provides additional information in the space provided. State income tax questions Line 20. State income tax questions   She checks the “No” box because Joe has never transferred money or property to her. State income tax questions Part V Line 21. State income tax questions   She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. State income tax questions Line 22. State income tax questions   She enters her average monthly income for her entire household. State income tax questions Line 23. State income tax questions   She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. State income tax questions Signing and mailing Form 8857. State income tax questions    Janie signs and dates the form. State income tax questions She attaches the copy of her divorce decree (not illustrated) required by line 8. State income tax questions Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. State income tax questions This image is too large to be displayed in the current screen. State income tax questions Please click the link to view the image. State income tax questions Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. State income tax questions Please click the link to view the image. State income tax questions Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. State income tax questions Please click the link to view the image. State income tax questions Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. State income tax questions Please click the link to view the image. State income tax questions Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. State income tax questions But do not rely on these flowcharts alone. State income tax questions Also read the earlier discussions. State income tax questions Figure A. State income tax questions Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. State income tax questions "Do You Qualify for Innocent Spouse Relief?" Figure B. State income tax questions Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. State income tax questions "Do You Qualify for Separation of Liability Relief?" Figure C. State income tax questions Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. State income tax questions Please click the link to view the image. 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