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Tax Act 2012 Login

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Tax Act 2012 Login

Tax act 2012 login Publication 15 - Main Content Table of Contents 1. Tax act 2012 login Employer Identification Number (EIN) 2. Tax act 2012 login Who Are Employees?Relief provisions. Tax act 2012 login Business Owned and Operated by Spouses 3. Tax act 2012 login Family Employees 4. Tax act 2012 login Employee's Social Security Number (SSN)Registering for SSNVS. Tax act 2012 login 5. Tax act 2012 login Wages and Other CompensationAccountable plan. Tax act 2012 login Nonaccountable plan. Tax act 2012 login Per diem or other fixed allowance. Tax act 2012 login 50% test. Tax act 2012 login Health Savings Accounts and medical savings accounts. Tax act 2012 login Nontaxable fringe benefits. Tax act 2012 login When fringe benefits are treated as paid. Tax act 2012 login Valuation of fringe benefits. Tax act 2012 login Withholding on fringe benefits. Tax act 2012 login Depositing taxes on fringe benefits. Tax act 2012 login 6. Tax act 2012 login TipsOrdering rule. Tax act 2012 login 7. Tax act 2012 login Supplemental Wages 8. Tax act 2012 login Payroll Period 9. Tax act 2012 login Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Tax act 2012 login Required Notice to Employees About the Earned Income Credit (EIC) 11. Tax act 2012 login Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Tax act 2012 login Filing Form 941 or Form 944 13. Tax act 2012 login Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Tax act 2012 login Federal Unemployment (FUTA) TaxSuccessor employer. Tax act 2012 login Household employees. Tax act 2012 login When to deposit. Tax act 2012 login Household employees. Tax act 2012 login Electronic filing by reporting agents. Tax act 2012 login 16. Tax act 2012 login How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Tax act 2012 login Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Tax act 2012 login The EIN is a nine-digit number the IRS issues. Tax act 2012 login The digits are arranged as follows: 00-0000000. Tax act 2012 login It is used to identify the tax accounts of employers and certain others who have no employees. Tax act 2012 login Use your EIN on all of the items you send to the IRS and SSA. Tax act 2012 login For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Tax act 2012 login If you do not have an EIN, you may apply for one online. Tax act 2012 login Go to the IRS. Tax act 2012 login gov and click on the Apply for an EIN Online link under Tools. Tax act 2012 login You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Tax act 2012 login Do not use an SSN in place of an EIN. Tax act 2012 login You should have only one EIN. Tax act 2012 login If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Tax act 2012 login Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Tax act 2012 login The IRS will tell you which number to use. Tax act 2012 login If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Tax act 2012 login If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. Tax act 2012 login 2. Tax act 2012 login Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Tax act 2012 login See Publication 15-A for details on statutory employees and nonemployees. Tax act 2012 login Employee status under common law. Tax act 2012 login   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. Tax act 2012 login This is so even when you give the employee freedom of action. Tax act 2012 login What matters is that you have the right to control the details of how the services are performed. Tax act 2012 login See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Tax act 2012 login   Generally, people in business for themselves are not employees. Tax act 2012 login For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Tax act 2012 login However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Tax act 2012 login   If an employer-employee relationship exists, it does not matter what it is called. Tax act 2012 login The employee may be called an agent or independent contractor. Tax act 2012 login It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Tax act 2012 login Statutory employees. Tax act 2012 login   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Tax act 2012 login Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. Tax act 2012 login An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Tax act 2012 login A full-time life insurance salesperson who sells primarily for one company. Tax act 2012 login A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. Tax act 2012 login A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. Tax act 2012 login The orders must be for merchandise for resale or supplies for use in the customer's business. Tax act 2012 login The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Tax act 2012 login    Statutory nonemployees. Tax act 2012 login   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Tax act 2012 login They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Tax act 2012 login H-2A agricultural workers. Tax act 2012 login   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Tax act 2012 login Treating employees as nonemployees. Tax act 2012 login   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. Tax act 2012 login You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. Tax act 2012 login The applicable rates depend on whether you filed required Forms 1099. Tax act 2012 login You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. Tax act 2012 login You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Tax act 2012 login You continue to owe the full employer share of social security and Medicare taxes. Tax act 2012 login The employee remains liable for the employee share of social security and Medicare taxes. Tax act 2012 login See Internal Revenue Code section 3509 for details. Tax act 2012 login Also see the Instructions for Form 941-X. Tax act 2012 login   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Tax act 2012 login Section 3509 is not available for reclassifying statutory employees. Tax act 2012 login See Statutory employees , earlier in this section. Tax act 2012 login   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Tax act 2012 login 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Tax act 2012 login For Medicare taxes; employer rate of 1. Tax act 2012 login 45% plus 20% of the employee rate of 1. Tax act 2012 login 45%, for a total rate of 1. Tax act 2012 login 74% of wages. Tax act 2012 login For Additional Medicare Tax; 0. Tax act 2012 login 18% (20% of the employee rate of 0. Tax act 2012 login 9%) of wages subject to Additional Medicare Tax. Tax act 2012 login For income tax withholding, the rate is 1. Tax act 2012 login 5% of wages. Tax act 2012 login   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Tax act 2012 login 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Tax act 2012 login For Medicare taxes; employer rate of 1. Tax act 2012 login 45% plus 40% of the employee rate of 1. Tax act 2012 login 45%, for a total rate of 2. Tax act 2012 login 03% of wages. Tax act 2012 login For Additional Medicare Tax; 0. Tax act 2012 login 36% (40% of the employee rate of 0. Tax act 2012 login 9%) of wages subject to Additional Medicare Tax. Tax act 2012 login For income tax withholding, the rate is 3. Tax act 2012 login 0% of wages. Tax act 2012 login Relief provisions. Tax act 2012 login   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. Tax act 2012 login To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. Tax act 2012 login You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Tax act 2012 login See Publication 1976, Do You Qualify for Relief Under Section 530. Tax act 2012 login IRS help. Tax act 2012 login   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Tax act 2012 login Voluntary Classification Settlement Program (VCSP). Tax act 2012 login   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. Tax act 2012 login To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Tax act 2012 login For more information visit IRS. Tax act 2012 login gov and enter “VCSP” in the search box. Tax act 2012 login Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Tax act 2012 login See Publication 541, Partnerships, for more details. Tax act 2012 login The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Tax act 2012 login Exception—Qualified joint venture. Tax act 2012 login   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. Tax act 2012 login A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). Tax act 2012 login   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. Tax act 2012 login Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Tax act 2012 login   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Tax act 2012 login If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. Tax act 2012 login Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Tax act 2012 login However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. Tax act 2012 login    Note. Tax act 2012 login If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Tax act 2012 login   For more information on qualified joint ventures, visit IRS. Tax act 2012 login gov and enter “qualified joint venture” in the search box. Tax act 2012 login Exception—Community income. Tax act 2012 login   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Tax act 2012 login S. Tax act 2012 login possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Tax act 2012 login You may still make an election to be taxed as a qualified joint venture instead of a partnership. Tax act 2012 login See Exception—Qualified joint venture , earlier. Tax act 2012 login 3. Tax act 2012 login Family Employees Child employed by parents. Tax act 2012 login   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Tax act 2012 login If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. Tax act 2012 login However, see Covered services of a child or spouse , later in this section. Tax act 2012 login Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. Tax act 2012 login Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. Tax act 2012 login One spouse employed by another. Tax act 2012 login   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. Tax act 2012 login However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. Tax act 2012 login Covered services of a child or spouse. Tax act 2012 login   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. Tax act 2012 login Parent employed by son or daughter. Tax act 2012 login   When the employer is a son or daughter employing his or her parent the following rules apply. Tax act 2012 login Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. Tax act 2012 login Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. Tax act 2012 login    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. Tax act 2012 login   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Tax act 2012 login 4. Tax act 2012 login Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. Tax act 2012 login This requirement also applies to resident and nonresident alien employees. Tax act 2012 login You should ask your employee to show you his or her social security card. Tax act 2012 login The employee may show the card if it is available. Tax act 2012 login Do not accept a social security card that says “Not valid for employment. Tax act 2012 login ” A social security number issued with this legend does not permit employment. Tax act 2012 login You may, but are not required to, photocopy the social security card if the employee provides it. Tax act 2012 login If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Tax act 2012 login See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Tax act 2012 login Applying for a social security card. Tax act 2012 login   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation. Tax act 2012 login You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Tax act 2012 login socialsecurity. Tax act 2012 login gov/online/ss-5. Tax act 2012 login html. Tax act 2012 login The employee must complete and sign Form SS-5; it cannot be filed by the employer. Tax act 2012 login You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. Tax act 2012 login Applying for a social security number. Tax act 2012 login   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Tax act 2012 login If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Tax act 2012 login When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. Tax act 2012 login Furnish copies B, C, and 2 of Form W-2c to the employee. Tax act 2012 login Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. Tax act 2012 login For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Tax act 2012 login socialsecurity. Tax act 2012 login gov/employer. Tax act 2012 login Advise your employee to correct the SSN on his or her original Form W-2. Tax act 2012 login Correctly record the employee's name and SSN. Tax act 2012 login   Record the name and number of each employee as they are shown on the employee's social security card. Tax act 2012 login If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Tax act 2012 login Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. Tax act 2012 login If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported for the most recently filed Form W-2. Tax act 2012 login It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. Tax act 2012 login IRS individual taxpayer identification numbers (ITINs) for aliens. Tax act 2012 login   Do not accept an ITIN in place of an SSN for employee identification or for work. Tax act 2012 login An ITIN is only available to resident and nonresident aliens who are not eligible for U. Tax act 2012 login S. Tax act 2012 login employment and need identification for other tax purposes. Tax act 2012 login You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). Tax act 2012 login    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Tax act 2012 login If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier. Tax act 2012 login Do not use an ITIN in place of an SSN on Form W-2. Tax act 2012 login Verification of social security numbers. Tax act 2012 login   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Tax act 2012 login Visit www. Tax act 2012 login socialsecurity. Tax act 2012 login gov/employer/ssnv. Tax act 2012 login htm for more information. Tax act 2012 login Registering for SSNVS. Tax act 2012 login   You must register online and receive authorization from your employer to use SSNVS. Tax act 2012 login To register, visit SSA's website at www. Tax act 2012 login ssa. Tax act 2012 login gov/employer and click on the Business Services Online link. Tax act 2012 login Follow the registration instructions to obtain a user identification (ID) and password. Tax act 2012 login You will need to provide the following information about yourself and your company. Tax act 2012 login Name. Tax act 2012 login SSN. Tax act 2012 login Date of birth. Tax act 2012 login Type of employer. Tax act 2012 login EIN. Tax act 2012 login Company name, address, and telephone number. Tax act 2012 login Email address. Tax act 2012 login   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Tax act 2012 login You must enter the activation code online to use SSNVS. Tax act 2012 login 5. Tax act 2012 login Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Tax act 2012 login The pay may be in cash or in other forms. Tax act 2012 login It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Tax act 2012 login It does not matter how you measure or make the payments. Tax act 2012 login Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. Tax act 2012 login Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Tax act 2012 login More information. Tax act 2012 login   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Tax act 2012 login Also, see section 15 for exceptions to the general rules for wages. Tax act 2012 login Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Tax act 2012 login Publication 15-B provides information on other forms of compensation, including: Accident and health benefits, Achievement awards, Adoption assistance, Athletic facilities, De minimis (minimal) benefits, Dependent care assistance, Educational assistance, Employee discounts, Employee stock options, Employer-provided cell phones, Group-term life insurance coverage, Health Savings Accounts, Lodging on your business premises, Meals, Moving expense reimbursements, No-additional-cost services, Retirement planning services, Transportation (commuting) benefits, Tuition reduction, and Working condition benefits. Tax act 2012 login Employee business expense reimbursements. Tax act 2012 login   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Tax act 2012 login How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Tax act 2012 login If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Tax act 2012 login   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Tax act 2012 login Accountable plan. Tax act 2012 login   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Tax act 2012 login They must have paid or incurred deductible expenses while performing services as your employees. Tax act 2012 login The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. Tax act 2012 login They must substantiate these expenses to you within a reasonable period of time. Tax act 2012 login They must return any amounts in excess of substantiated expenses within a reasonable period of time. Tax act 2012 login   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Tax act 2012 login   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. Tax act 2012 login This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. Tax act 2012 login   A reasonable period of time depends on the facts and circumstances. Tax act 2012 login Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Tax act 2012 login Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. Tax act 2012 login Nonaccountable plan. Tax act 2012 login   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Tax act 2012 login Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. Tax act 2012 login   See section 7 for more information on supplemental wages. Tax act 2012 login Per diem or other fixed allowance. Tax act 2012 login   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Tax act 2012 login In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Tax act 2012 login The 2013 standard mileage rate for auto expenses was 56. Tax act 2012 login 5 cents per mile. Tax act 2012 login The rate for 2014 is 56 cents per mile. Tax act 2012 login   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Tax act 2012 login Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). Tax act 2012 login   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Tax act 2012 login This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Tax act 2012 login Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Tax act 2012 login ” Wages not paid in money. Tax act 2012 login   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. Tax act 2012 login ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Tax act 2012 login Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Tax act 2012 login   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. Tax act 2012 login Withhold income tax on these payments only if you and the employee agree to do so. Tax act 2012 login Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. Tax act 2012 login Moving expenses. Tax act 2012 login   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. Tax act 2012 login Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Tax act 2012 login For more information on moving expenses, see Publication 521, Moving Expenses. Tax act 2012 login Meals and lodging. Tax act 2012 login   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. Tax act 2012 login The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. Tax act 2012 login    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. Tax act 2012 login For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. Tax act 2012 login   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Tax act 2012 login A written statement that the meals or lodging are for your convenience is not sufficient. Tax act 2012 login 50% test. Tax act 2012 login   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. Tax act 2012 login If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. Tax act 2012 login For more information, see Publication 15-B. Tax act 2012 login Health insurance plans. Tax act 2012 login   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Tax act 2012 login Generally, this exclusion also applies to qualified long-term care insurance contracts. Tax act 2012 login However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). Tax act 2012 login For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. Tax act 2012 login See Announcement 92-16 for more information. Tax act 2012 login You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Tax act 2012 login Health Savings Accounts and medical savings accounts. Tax act 2012 login   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. Tax act 2012 login To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Tax act 2012 login Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. Tax act 2012 login However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. Tax act 2012 login For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Tax act 2012 login Medical care reimbursements. Tax act 2012 login   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. Tax act 2012 login See Publication 15-B for an exception for highly compensated employees. Tax act 2012 login Differential wage payments. Tax act 2012 login   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. Tax act 2012 login   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Tax act 2012 login Employers should report differential wage payments in box 1 of Form W-2. Tax act 2012 login For more information about the tax treatment of differential wage payments, visit IRS. Tax act 2012 login gov and enter “employees in a combat zone” in the search box. Tax act 2012 login Fringe benefits. Tax act 2012 login   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Tax act 2012 login The benefits are subject to income tax withholding and employment taxes. Tax act 2012 login Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Tax act 2012 login In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. Tax act 2012 login There are other special rules you and your employees may use to value certain fringe benefits. Tax act 2012 login See Publication 15-B for more information. Tax act 2012 login Nontaxable fringe benefits. Tax act 2012 login   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Tax act 2012 login See Publication 15-B for details. Tax act 2012 login The following are some examples of nontaxable fringe benefits. Tax act 2012 login Services provided to your employees at no additional cost to you. Tax act 2012 login Qualified employee discounts. Tax act 2012 login Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Tax act 2012 login Examples include a company car for business use and subscriptions to business magazines. Tax act 2012 login Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). Tax act 2012 login Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Tax act 2012 login Qualified moving expense reimbursement. Tax act 2012 login See Moving expenses , earlier in this section, for details. Tax act 2012 login The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Tax act 2012 login Qualified tuition reduction an educational organization provides to its employees for education. Tax act 2012 login For more information, see Publication 970, Tax Benefits for Education. Tax act 2012 login Employer-provided cell phones provided primarily for a noncompensatory business reason. Tax act 2012 login   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. Tax act 2012 login No-additional-cost services. Tax act 2012 login Qualified employee discounts. Tax act 2012 login Meals provided at an employer operated eating facility. Tax act 2012 login Reduced tuition for education. Tax act 2012 login  For more information, including the definition of a highly compensated employee, see Publication 15-B. Tax act 2012 login When fringe benefits are treated as paid. Tax act 2012 login   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. Tax act 2012 login You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Tax act 2012 login You do not have to make this choice for all employees. Tax act 2012 login You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. Tax act 2012 login See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Tax act 2012 login Valuation of fringe benefits. Tax act 2012 login   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Tax act 2012 login Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Tax act 2012 login Withholding on fringe benefits. Tax act 2012 login   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. Tax act 2012 login However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Tax act 2012 login   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Tax act 2012 login You must, however, withhold social security and Medicare taxes on the use of the vehicle. Tax act 2012 login See Publication 15-B for more information on this election. Tax act 2012 login Depositing taxes on fringe benefits. Tax act 2012 login   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Tax act 2012 login To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Tax act 2012 login   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. Tax act 2012 login See Valuation of fringe benefits , earlier. Tax act 2012 login If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Tax act 2012 login See section 11 for information on deposit penalties. Tax act 2012 login   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. Tax act 2012 login However, you must recover the income taxes before April 1 of the following year. Tax act 2012 login Sick pay. Tax act 2012 login   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. Tax act 2012 login These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Tax act 2012 login In either case, these payments are subject to social security, Medicare, and FUTA taxes. Tax act 2012 login Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Tax act 2012 login The payments are always subject to federal income tax. Tax act 2012 login See Publication 15-A for more information. Tax act 2012 login 6. Tax act 2012 login Tips Tips your employee receives from customers are generally subject to withholding. Tax act 2012 login Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Tax act 2012 login The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Tax act 2012 login Both directly and indirectly tipped employees must report tips to you. Tax act 2012 login No report is required for months when tips are less than $20. Tax act 2012 login Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Tax act 2012 login The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period the report covers, and The total of tips received during the month or period. Tax act 2012 login Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. Tax act 2012 login You are permitted to establish a system for electronic tip reporting by employees. Tax act 2012 login See Regulations section 31. Tax act 2012 login 6053-1(d). Tax act 2012 login Collecting taxes on tips. Tax act 2012 login   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Tax act 2012 login The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. Tax act 2012 login If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Tax act 2012 login   You can collect these taxes from the employee's wages or from other funds he or she makes available. Tax act 2012 login See Tips treated as supplemental wages in section 7 for more information. Tax act 2012 login Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. Tax act 2012 login You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Tax act 2012 login You are responsible for the employer Medicare tax for the whole year on all wages and tips. Tax act 2012 login File Form 941 or Form 944 to report withholding and employment taxes on tips. Tax act 2012 login Ordering rule. Tax act 2012 login   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. Tax act 2012 login If there are not enough funds available, withhold taxes in the following order. Tax act 2012 login Withhold on regular wages and other compensation. Tax act 2012 login Withhold social security and Medicare taxes on tips. Tax act 2012 login Withhold income tax on tips. Tax act 2012 login Reporting tips. Tax act 2012 login   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Tax act 2012 login Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Tax act 2012 login Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Tax act 2012 login ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Tax act 2012 login See section 13 and the General Instructions for Forms W-2 and W-3. Tax act 2012 login   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. Tax act 2012 login See Revenue Ruling 2012-18, 2012-26 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 1032, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2012-26_IRB/ar07. Tax act 2012 login html. Tax act 2012 login Allocated tips. Tax act 2012 login   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Tax act 2012 login However, do not withhold income, social security, or Medicare taxes on allocated tips. Tax act 2012 login   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. Tax act 2012 login   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Tax act 2012 login For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. Tax act 2012 login For information on filing Form 8027 electronically with the IRS, see Publication 1239. Tax act 2012 login Tip Rate Determination and Education Program. Tax act 2012 login   Employers may participate in the Tip Rate Determination and Education Program. Tax act 2012 login The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. Tax act 2012 login The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Tax act 2012 login A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Tax act 2012 login To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Tax act 2012 login Additionally, visit IRS. Tax act 2012 login gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Tax act 2012 login 7. Tax act 2012 login Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Tax act 2012 login They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Tax act 2012 login Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Tax act 2012 login How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Tax act 2012 login See Regulations section 31. Tax act 2012 login 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Tax act 2012 login Also see Revenue Ruling 2008-29, 2008-24 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 1149, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2008-24_IRB/ar08. Tax act 2012 login html. Tax act 2012 login Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Tax act 2012 login   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Tax act 2012 login If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. Tax act 2012 login 6% (or the highest rate of income tax for the year). Tax act 2012 login Withhold using the 39. Tax act 2012 login 6% rate without regard to the employee's Form W-4. Tax act 2012 login In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Tax act 2012 login For more information, see Treasury Decision 9276, 2006-37 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 423, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2006-37_IRB/ar09. Tax act 2012 login html. Tax act 2012 login Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Tax act 2012 login   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. Tax act 2012 login Supplemental wages combined with regular wages. Tax act 2012 login   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. Tax act 2012 login Supplemental wages identified separately from regular wages. Tax act 2012 login   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages. Tax act 2012 login If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Tax act 2012 login Withhold a flat 25% (no other percentage allowed). Tax act 2012 login If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Tax act 2012 login If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Tax act 2012 login Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Tax act 2012 login Subtract the tax withheld from the regular wages. Tax act 2012 login Withhold the remaining tax from the supplemental wages. Tax act 2012 login If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax. Tax act 2012 login If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. Tax act 2012 login This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Tax act 2012 login Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Tax act 2012 login Example 1. Tax act 2012 login You pay John Peters a base salary on the 1st of each month. Tax act 2012 login He is single and claims one withholding allowance. Tax act 2012 login In January he is paid $1,000. Tax act 2012 login Using the wage bracket tables, you withhold $50 from this amount. Tax act 2012 login In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. Tax act 2012 login You figure the withholding based on the total of $3,000. Tax act 2012 login The correct withholding from the tables is $338. Tax act 2012 login Example 2. Tax act 2012 login You pay Sharon Warren a base salary on the 1st of each month. Tax act 2012 login She is single and claims one allowance. Tax act 2012 login Her May 1 pay is $2,000. Tax act 2012 login Using the wage bracket tables, you withhold $188. Tax act 2012 login On May 14 she receives a bonus of $1,000. Tax act 2012 login Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). Tax act 2012 login Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Tax act 2012 login Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Tax act 2012 login Withhold $150 from the bonus payment. Tax act 2012 login Example 3. Tax act 2012 login The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Tax act 2012 login You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Tax act 2012 login Example 4. Tax act 2012 login The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Tax act 2012 login Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). Tax act 2012 login Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Tax act 2012 login Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). Tax act 2012 login Withhold $443 from the second bonus payment. Tax act 2012 login Tips treated as supplemental wages. Tax act 2012 login   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Tax act 2012 login If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Tax act 2012 login If you have not withheld income tax from the regular wages, add the tips to the regular wages. Tax act 2012 login Then withhold income tax on the total. Tax act 2012 login If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. Tax act 2012 login Vacation pay. Tax act 2012 login   Vacation pay is subject to withholding as if it were a regular wage payment. Tax act 2012 login When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Tax act 2012 login If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. Tax act 2012 login 8. Tax act 2012 login Payroll Period Your payroll period is a period of service for which you usually pay wages. Tax act 2012 login When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Tax act 2012 login No regular payroll period. Tax act 2012 login   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Tax act 2012 login Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Tax act 2012 login If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. Tax act 2012 login Employee paid for period less than 1 week. Tax act 2012 login   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. Tax act 2012 login If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Tax act 2012 login You then figure withholding based on the daily or miscellaneous period. Tax act 2012 login 9. Tax act 2012 login Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Tax act 2012 login   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Tax act 2012 login Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. Tax act 2012 login Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Tax act 2012 login irs. Tax act 2012 login gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Tax act 2012 login   Ask all new employees to give you a signed Form W-4 when they start work. Tax act 2012 login Make the form effective with the first wage payment. Tax act 2012 login If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. Tax act 2012 login Form in Spanish. Tax act 2012 login   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. Tax act 2012 login For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Tax act 2012 login The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Tax act 2012 login Electronic system to receive Form W-4. Tax act 2012 login   You may establish a system to electronically receive Forms W-4 from your employees. Tax act 2012 login See Regulations section 31. Tax act 2012 login 3402(f)(5)-1(c) for more information. Tax act 2012 login Effective date of Form W-4. Tax act 2012 login   A Form W-4 remains in effect until the employee gives you a new one. Tax act 2012 login When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. Tax act 2012 login If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. Tax act 2012 login For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. Tax act 2012 login A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Tax act 2012 login Successor employer. Tax act 2012 login   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. Tax act 2012 login See Revenue Procedure 2004-53, 2004-34 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 320, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2004-34_IRB/ar13. Tax act 2012 login html. Tax act 2012 login Completing Form W-4. Tax act 2012 login   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Tax act 2012 login Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Tax act 2012 login However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. Tax act 2012 login Employees may claim fewer withholding allowances than they are entitled to claim. Tax act 2012 login They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. Tax act 2012 login See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Tax act 2012 login Along with Form W-4, you may wish to order Publication 505 for use by your employees. Tax act 2012 login Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Tax act 2012 login If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. Tax act 2012 login Exemption from federal income tax withholding. Tax act 2012 login   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. Tax act 2012 login See the Form W-4 instructions for more information. Tax act 2012 login However, the wages are still subject to social security and Medicare taxes. Tax act 2012 login See also Invalid Forms W-4 , later in this section. Tax act 2012 login   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Tax act 2012 login To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. Tax act 2012 login If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. Tax act 2012 login If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. Tax act 2012 login Withholding income taxes on the wages of nonresident alien employees. Tax act 2012 login   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Tax act 2012 login However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Tax act 2012 login Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Tax act 2012 login Withholding adjustment for nonresident alien employees. Tax act 2012 login   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. Tax act 2012 login Nonresident alien students from India and business apprentices from India are not subject to this procedure. Tax act 2012 login Instructions. Tax act 2012 login   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. Tax act 2012 login Step 1. Tax act 2012 login   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. Tax act 2012 login    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Tax act 2012 login 30     Biweekly 86. Tax act 2012 login 50     Semimonthly 93. Tax act 2012 login 80     Monthly 187. Tax act 2012 login 50     Quarterly 562. Tax act 2012 login 50     Semiannually 1,125. Tax act 2012 login 00     Annually 2,250. Tax act 2012 login 00     Daily or Miscellaneous (each day of the payroll period) 8. Tax act 2012 login 70   Step 2. Tax act 2012 login   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Tax act 2012 login Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Tax act 2012 login Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Tax act 2012 login If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. Tax act 2012 login If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. Tax act 2012 login The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Tax act 2012 login The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Tax act 2012 login Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Tax act 2012 login This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Tax act 2012 login Example. Tax act 2012 login An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Tax act 2012 login The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). Tax act 2012 login The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. Tax act 2012 login 50 from the chart under Step 1 ($586. Tax act 2012 login 50 total). Tax act 2012 login The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Tax act 2012 login Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. Tax act 2012 login The $86. Tax act 2012 login 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. Tax act 2012 login Also, the $86. Tax act 2012 login 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Tax act 2012 login Supplemental wage payment. Tax act 2012 login   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Tax act 2012 login 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. Tax act 2012 login Nonresident alien employee's Form W-4. Tax act 2012 login   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding, Request withholding as if they are single, regardless of their actual marital status, Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. Tax act 2012 login   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Tax act 2012 login A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. Tax act 2012 login Form 8233. Tax act 2012 login   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. Tax act 2012 login See Publication 515 for details. Tax act 2012 login IRS review of requested Forms W-4. Tax act 2012 login   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Tax act 2012 login You may also be directed to send certain Forms W-4 to the IRS. Tax act 2012 login You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. Tax act 2012 login Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. Tax act 2012 login The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 455, which is available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2007-35_IRB/ar10. Tax act 2012 login html. Tax act 2012 login When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Tax act 2012 login After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). Tax act 2012 login However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter
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Tax act 2012 login 4. Tax act 2012 login   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. Tax act 2012 login Loan secured by benefits. Tax act 2012 login Waiver of survivor benefits. Tax act 2012 login Waiver of 30-day waiting period before annuity starting date. Tax act 2012 login Involuntary cash-out of benefits not more than dollar limit. Tax act 2012 login Exception for certain loans. Tax act 2012 login Exception for QDRO. Tax act 2012 login SIMPLE and safe harbor 401(k) plan exception. Tax act 2012 login Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. Tax act 2012 login Installment percentage. Tax act 2012 login Extended period for making contributions. Tax act 2012 login ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. Tax act 2012 login Caution: Form 5500-EZ not required. Tax act 2012 login Form 5500. Tax act 2012 login Electronic filing of Forms 5500 and 5500-SF. Tax act 2012 login Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. Tax act 2012 login dol. Tax act 2012 login gov/ebsa/pdf/2013-5500. Tax act 2012 login pdf www. Tax act 2012 login dol. Tax act 2012 login gov/ebsa/pdf/2013-5500-SF. Tax act 2012 login pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Tax act 2012 login 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Tax act 2012 login 1040 U. Tax act 2012 login S. Tax act 2012 login Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. Tax act 2012 login For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. Tax act 2012 login For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. Tax act 2012 login R. Tax act 2012 login 10 plans. Tax act 2012 login A sole proprietor or a partnership can set up one of these plans. Tax act 2012 login A common-law employee or a partner cannot set up one of these plans. Tax act 2012 login The plans described here can also be set up and maintained by employers that are corporations. Tax act 2012 login All the rules discussed here apply to corporations except where specifically limited to the self-employed. Tax act 2012 login The plan must be for the exclusive benefit of employees or their beneficiaries. Tax act 2012 login These qualified plans can include coverage for a self-employed individual. Tax act 2012 login As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Tax act 2012 login The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Tax act 2012 login Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. Tax act 2012 login You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. Tax act 2012 login Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. Tax act 2012 login It provides benefits to a participant largely based on the amount contributed to that participant's account. Tax act 2012 login Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. Tax act 2012 login A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. Tax act 2012 login Profit-sharing plan. Tax act 2012 login   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). Tax act 2012 login A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. Tax act 2012 login An employer may even make no contribution to the plan for a given year. Tax act 2012 login   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. Tax act 2012 login   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). Tax act 2012 login Money purchase pension plan. Tax act 2012 login   Contributions to a money purchase pension plan are fixed and are not based on your business profits. Tax act 2012 login For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. Tax act 2012 login This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. Tax act 2012 login Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. Tax act 2012 login Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Tax act 2012 login Actuarial assumptions and computations are required to figure these contributions. Tax act 2012 login Generally, you will need continuing professional help to have a defined benefit plan. Tax act 2012 login Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. Tax act 2012 login Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. Tax act 2012 login The following is a brief overview of important qualification rules that generally have not yet been discussed. Tax act 2012 login It is not intended to be all-inclusive. Tax act 2012 login See Setting Up a Qualified Plan , later. Tax act 2012 login Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. Tax act 2012 login A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. Tax act 2012 login Plan assets must not be diverted. Tax act 2012 login   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. Tax act 2012 login As a general rule, the assets cannot be diverted to the employer. Tax act 2012 login Minimum coverage requirement must be met. Tax act 2012 login   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. Tax act 2012 login 50 employees, or The greater of: 40% of all employees, or Two employees. Tax act 2012 login If there is only one employee, the plan must benefit that employee. Tax act 2012 login Contributions or benefits must not discriminate. Tax act 2012 login   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. Tax act 2012 login Contributions and benefits must not be more than certain limits. Tax act 2012 login   Your plan must not provide for contributions or benefits that are more than certain limits. Tax act 2012 login The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. Tax act 2012 login These limits are discussed later in this chapter under Contributions. Tax act 2012 login Minimum vesting standard must be met. Tax act 2012 login   Your plan must satisfy certain requirements regarding when benefits vest. Tax act 2012 login A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. Tax act 2012 login A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. Tax act 2012 login Special rules apply to forfeited benefit amounts. Tax act 2012 login In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. Tax act 2012 login   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. Tax act 2012 login Forfeitures must be used instead to reduce employer contributions. Tax act 2012 login Participation. Tax act 2012 login   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. Tax act 2012 login Has reached age 21. Tax act 2012 login Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). Tax act 2012 login A plan cannot exclude an employee because he or she has reached a specified age. Tax act 2012 login Leased employee. Tax act 2012 login   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. Tax act 2012 login These rules include those in all the following areas. Tax act 2012 login Nondiscrimination in coverage, contributions, and benefits. Tax act 2012 login Minimum age and service requirements. Tax act 2012 login Vesting. Tax act 2012 login Limits on contributions and benefits. Tax act 2012 login Top-heavy plan requirements. Tax act 2012 login Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. Tax act 2012 login Benefit payment must begin when required. Tax act 2012 login   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. Tax act 2012 login The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. Tax act 2012 login The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. Tax act 2012 login The plan year in which the participant separates from service. Tax act 2012 login Early retirement. Tax act 2012 login   Your plan can provide for payment of retirement benefits before the normal retirement age. Tax act 2012 login If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. Tax act 2012 login Satisfies the service requirement for the early retirement benefit. Tax act 2012 login Separates from service with a nonforfeitable right to an accrued benefit. Tax act 2012 login The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. Tax act 2012 login Required minimum distributions. Tax act 2012 login   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. Tax act 2012 login See Required Distributions , under Distributions, later. Tax act 2012 login Survivor benefits. Tax act 2012 login   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. Tax act 2012 login A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. Tax act 2012 login A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. Tax act 2012 login   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. Tax act 2012 login The participant does not choose benefits in the form of a life annuity. Tax act 2012 login The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. Tax act 2012 login The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. Tax act 2012 login Loan secured by benefits. Tax act 2012 login   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. Tax act 2012 login Waiver of survivor benefits. Tax act 2012 login   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. Tax act 2012 login The plan also must allow the participant to withdraw the waiver. Tax act 2012 login The spouse's consent must be witnessed by a plan representative or notary public. Tax act 2012 login Waiver of 30-day waiting period before annuity starting date. Tax act 2012 login    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. Tax act 2012 login   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. Tax act 2012 login Involuntary cash-out of benefits not more than dollar limit. Tax act 2012 login   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. Tax act 2012 login   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. Tax act 2012 login If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. Tax act 2012 login   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. Tax act 2012 login   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. Tax act 2012 login A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. Tax act 2012 login See Section 402(f) Notice under Distributions, later, for more details. Tax act 2012 login Consolidation, merger, or transfer of assets or liabilities. Tax act 2012 login   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. Tax act 2012 login (if the plan had then terminated). Tax act 2012 login Benefits must not be assigned or alienated. Tax act 2012 login   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. Tax act 2012 login Exception for certain loans. Tax act 2012 login   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. Tax act 2012 login A disqualified person is defined later in this chapter under Prohibited Transactions. Tax act 2012 login Exception for QDRO. Tax act 2012 login   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. Tax act 2012 login   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. Tax act 2012 login Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. Tax act 2012 login No benefit reduction for social security increases. Tax act 2012 login   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. Tax act 2012 login This rule also applies to plans supplementing the benefits provided by other federal or state laws. Tax act 2012 login Elective deferrals must be limited. Tax act 2012 login   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. Tax act 2012 login See Limit on Elective Deferrals later in this chapter. Tax act 2012 login Top-heavy plan requirements. Tax act 2012 login   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. Tax act 2012 login   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. Tax act 2012 login Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. Tax act 2012 login   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. Tax act 2012 login These qualification requirements for top-heavy plans are explained in section 416 and its regulations. Tax act 2012 login SIMPLE and safe harbor 401(k) plan exception. Tax act 2012 login   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. Tax act 2012 login QACAs (discussed later) also are not subject to top-heavy requirements. Tax act 2012 login Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. Tax act 2012 login First you adopt a written plan. Tax act 2012 login Then you invest the plan assets. Tax act 2012 login You, the employer, are responsible for setting up and maintaining the plan. Tax act 2012 login If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. Tax act 2012 login If you have employees, see Participation, under Qualification Rules, earlier. Tax act 2012 login Set-up deadline. Tax act 2012 login   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). Tax act 2012 login Credit for startup costs. Tax act 2012 login   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. Tax act 2012 login For more information, see Credit for startup costs under Reminders, earlier. Tax act 2012 login Adopting a Written Plan You must adopt a written plan. Tax act 2012 login The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. Tax act 2012 login Or it can be an individually designed plan. Tax act 2012 login Written plan requirement. Tax act 2012 login   To qualify, the plan you set up must be in writing and must be communicated to your employees. Tax act 2012 login The plan's provisions must be stated in the plan. Tax act 2012 login It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. Tax act 2012 login Master or prototype plans. Tax act 2012 login   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. Tax act 2012 login Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). Tax act 2012 login Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. Tax act 2012 login Under a prototype plan, a separate trust or custodial account is established for each employer. Tax act 2012 login Plan providers. Tax act 2012 login   The following organizations generally can provide IRS-approved master or prototype plans. Tax act 2012 login Banks (including some savings and loan associations and federally insured credit unions). Tax act 2012 login Trade or professional organizations. Tax act 2012 login Insurance companies. Tax act 2012 login Mutual funds. Tax act 2012 login Individually designed plan. Tax act 2012 login   If you prefer, you can set up an individually designed plan to meet specific needs. Tax act 2012 login Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. Tax act 2012 login You may need professional help for this. Tax act 2012 login See Rev. Tax act 2012 login Proc. Tax act 2012 login 2014-6, 2014-1 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 198, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2014-1_IRB/ar10. Tax act 2012 login html, as annually updated, that may help you decide whether to apply for approval. Tax act 2012 login Internal Revenue Bulletins are available on the IRS website at IRS. Tax act 2012 login gov They are also available at most IRS offices and at certain libraries. Tax act 2012 login User fee. Tax act 2012 login   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. Tax act 2012 login At least one of them must be a non-highly compensated employee participating in the plan. Tax act 2012 login The fee does not apply to requests made by the later of the following dates. Tax act 2012 login The end of the 5th plan year the plan is in effect. Tax act 2012 login The end of any remedial amendment period for the plan that begins within the first 5 plan years. Tax act 2012 login The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. Tax act 2012 login   For more information about whether the user fee applies, see Rev. Tax act 2012 login Proc. Tax act 2012 login 2014-8, 2014-1 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 242, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2014-1_IRB/ar12. Tax act 2012 login html, as may be annually updated; Notice 2003-49, 2003-32 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 294, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2003-32_IRB/ar13. Tax act 2012 login html; and Notice 2011-86, 2011-45 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 698, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2011-45_IRB/ar11. Tax act 2012 login html. Tax act 2012 login Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. Tax act 2012 login You can establish a trust or custodial account to invest the funds. Tax act 2012 login You, the trust, or the custodial account can buy an annuity contract from an insurance company. Tax act 2012 login Life insurance can be included only if it is incidental to the retirement benefits. Tax act 2012 login You set up a trust by a legal instrument (written document). Tax act 2012 login You may need professional help to do this. Tax act 2012 login You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. Tax act 2012 login You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. Tax act 2012 login If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. Tax act 2012 login Other plan requirements. Tax act 2012 login   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. Tax act 2012 login Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. Tax act 2012 login Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. Tax act 2012 login For information on this funding requirement, see section 412 and its regulations. Tax act 2012 login Quarterly installments of required contributions. Tax act 2012 login   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. Tax act 2012 login If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. Tax act 2012 login Due dates. Tax act 2012 login   The due dates for the installments are 15 days after the end of each quarter. Tax act 2012 login For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). Tax act 2012 login Installment percentage. Tax act 2012 login   Each quarterly installment must be 25% of the required annual payment. Tax act 2012 login Extended period for making contributions. Tax act 2012 login   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. Tax act 2012 login Contributions A qualified plan is generally funded by your contributions. Tax act 2012 login However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. Tax act 2012 login See Employee Contributions and Elective Deferrals later. Tax act 2012 login Contributions deadline. Tax act 2012 login   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. Tax act 2012 login Self-employed individual. Tax act 2012 login   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. Tax act 2012 login Your net earnings must be from your personal services, not from your investments. Tax act 2012 login If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. Tax act 2012 login Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. Tax act 2012 login There are also limits on the amount you can deduct. Tax act 2012 login See Deduction Limits , later. Tax act 2012 login Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. Tax act 2012 login The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. Tax act 2012 login Defined benefit plan. Tax act 2012 login   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. Tax act 2012 login 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. Tax act 2012 login $205,000 ($210,000 for 2014). Tax act 2012 login Defined contribution plan. Tax act 2012 login   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. Tax act 2012 login 100% of the participant's compensation. Tax act 2012 login $51,000 ($52,000 for 2014). Tax act 2012 login   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. Tax act 2012 login Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. Tax act 2012 login Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. Tax act 2012 login Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. Tax act 2012 login See Regulations sections 1. Tax act 2012 login 401(k)-2 and 1. Tax act 2012 login 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Tax act 2012 login When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. Tax act 2012 login But you can apply them to the previous year if all the following requirements are met. Tax act 2012 login You make them by the due date of your tax return for the previous year (plus extensions). Tax act 2012 login The plan was established by the end of the previous year. Tax act 2012 login The plan treats the contributions as though it had received them on the last day of the previous year. Tax act 2012 login You do either of the following. Tax act 2012 login You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. Tax act 2012 login You deduct the contributions on your tax return for the previous year. Tax act 2012 login A partnership shows contributions for partners on Form 1065. Tax act 2012 login Employer's promissory note. Tax act 2012 login   Your promissory note made out to the plan is not a payment that qualifies for the deduction. Tax act 2012 login Also, issuing this note is a prohibited transaction subject to tax. Tax act 2012 login See Prohibited Transactions , later. Tax act 2012 login Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. Tax act 2012 login The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. Tax act 2012 login Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. Tax act 2012 login Defined contribution plans. Tax act 2012 login   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. Tax act 2012 login If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. Tax act 2012 login See Deduction Limit for Self-Employed Individuals , later. Tax act 2012 login   When figuring the deduction limit, the following rules apply. Tax act 2012 login Elective deferrals (discussed later) are not subject to the limit. Tax act 2012 login Compensation includes elective deferrals. Tax act 2012 login The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). Tax act 2012 login Defined benefit plans. Tax act 2012 login   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. Tax act 2012 login Consequently, an actuary must figure your deduction limit. Tax act 2012 login    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. Tax act 2012 login Table 4–1. Tax act 2012 login Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. Tax act 2012 login Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. Tax act 2012 login Compensation is your net earnings from self-employment, defined in chapter 1. Tax act 2012 login This definition takes into account both the following items. Tax act 2012 login The deduction for the deductible part of your self-employment tax. Tax act 2012 login The deduction for contributions on your behalf to the plan. Tax act 2012 login The deduction for your own contributions and your net earnings depend on each other. Tax act 2012 login For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. Tax act 2012 login To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. Tax act 2012 login Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Tax act 2012 login Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Tax act 2012 login For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. Tax act 2012 login Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Tax act 2012 login (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. Tax act 2012 login ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. Tax act 2012 login Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. Tax act 2012 login For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. Tax act 2012 login However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. Tax act 2012 login See Deduction Limit for Self-Employed Individuals, earlier. Tax act 2012 login The amount you carry over and deduct may be subject to the excise tax discussed next. Tax act 2012 login Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. Tax act 2012 login Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. Tax act 2012 login In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. Tax act 2012 login Special rule for self-employed individuals. Tax act 2012 login   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. Tax act 2012 login Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. Tax act 2012 login See Minimum Funding Requirement , earlier. Tax act 2012 login Reporting the tax. Tax act 2012 login   You must report the tax on your nondeductible contributions on Form 5330. Tax act 2012 login Form 5330 includes a computation of the tax. Tax act 2012 login See the separate instructions for completing the form. Tax act 2012 login Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. Tax act 2012 login A plan with this type of arrangement is popularly known as a “401(k) plan. Tax act 2012 login ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. Tax act 2012 login ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. Tax act 2012 login In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. Tax act 2012 login A profit-sharing plan. Tax act 2012 login A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. Tax act 2012 login Partnership. Tax act 2012 login   A partnership can have a 401(k) plan. Tax act 2012 login Restriction on conditions of participation. Tax act 2012 login   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. Tax act 2012 login Matching contributions. Tax act 2012 login   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. Tax act 2012 login For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. Tax act 2012 login Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. Tax act 2012 login Nonelective contributions. Tax act 2012 login   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. Tax act 2012 login These are called nonelective contributions. Tax act 2012 login Employee compensation limit. Tax act 2012 login   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. Tax act 2012 login This limit is $260,000 in 2014. Tax act 2012 login SIMPLE 401(k) plan. Tax act 2012 login   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. Tax act 2012 login A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. Tax act 2012 login For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. Tax act 2012 login Distributions. Tax act 2012 login   Certain rules apply to distributions from 401(k) plans. Tax act 2012 login See Distributions From 401(k) Plans , later. Tax act 2012 login Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. Tax act 2012 login This limit applies without regard to community property laws. Tax act 2012 login Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. Tax act 2012 login For 2013 and 2014, the basic limit on elective deferrals is $17,500. Tax act 2012 login This limit applies to all salary reduction contributions and elective deferrals. Tax act 2012 login If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. Tax act 2012 login Catch-up contributions. Tax act 2012 login   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Tax act 2012 login The catch-up contribution limit for 2013 and 2014 is $5,500. Tax act 2012 login Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). Tax act 2012 login However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Tax act 2012 login The catch-up contribution limit. Tax act 2012 login The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Tax act 2012 login Treatment of contributions. Tax act 2012 login   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. Tax act 2012 login Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. Tax act 2012 login Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. Tax act 2012 login Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Tax act 2012 login Forfeiture. Tax act 2012 login   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. Tax act 2012 login Reporting on Form W-2. Tax act 2012 login   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Tax act 2012 login You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Tax act 2012 login You must also include them in box 12. Tax act 2012 login Mark the “Retirement plan” checkbox in box 13. Tax act 2012 login For more information, see the Form W-2 instructions. Tax act 2012 login Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. Tax act 2012 login Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. Tax act 2012 login These contributions are elective deferrals. Tax act 2012 login An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). Tax act 2012 login For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. Tax act 2012 login Eligible automatic contribution arrangement. Tax act 2012 login   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. Tax act 2012 login This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). Tax act 2012 login There is no required deferral percentage. Tax act 2012 login Withdrawals. Tax act 2012 login   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. Tax act 2012 login The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. Tax act 2012 login The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. Tax act 2012 login   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. Tax act 2012 login The additional 10% tax on early distributions will not apply to the distribution. Tax act 2012 login Notice requirement. Tax act 2012 login   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. Tax act 2012 login The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. Tax act 2012 login The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. Tax act 2012 login The notice also must explain how contributions will be invested in the absence of an investment election by the employee. Tax act 2012 login Qualified automatic contribution arrangement. Tax act 2012 login    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. Tax act 2012 login It contains an automatic enrollment feature, and mandatory employer contributions are required. Tax act 2012 login If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). Tax act 2012 login Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. Tax act 2012 login Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. Tax act 2012 login In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). Tax act 2012 login If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. Tax act 2012 login It must be applied uniformly. Tax act 2012 login It must not exceed 10%. Tax act 2012 login It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. Tax act 2012 login It must increase to at least 4% in the following plan year. Tax act 2012 login It must increase to at least 5% in the following plan year. Tax act 2012 login It must increase to at least 6% in subsequent plan years. Tax act 2012 login Matching or nonelective contributions. Tax act 2012 login   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. Tax act 2012 login Matching contributions. Tax act 2012 login You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. Tax act 2012 login An amount equal to 100% of elective deferrals, up to 1% of compensation. Tax act 2012 login An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. Tax act 2012 login Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. Tax act 2012 login The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Tax act 2012 login Nonelective contributions. Tax act 2012 login You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. Tax act 2012 login Vesting requirements. Tax act 2012 login   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. Tax act 2012 login These contributions are subject to special withdrawal restrictions, discussed later. Tax act 2012 login Notice requirements. Tax act 2012 login   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. Tax act 2012 login The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. Tax act 2012 login The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. Tax act 2012 login Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. Tax act 2012 login The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. Tax act 2012 login Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. Tax act 2012 login He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. Tax act 2012 login The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. Tax act 2012 login Excess withdrawn by April 15. Tax act 2012 login   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. Tax act 2012 login However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. Tax act 2012 login The distribution is not subject to the additional 10% tax on early distributions. Tax act 2012 login   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. Tax act 2012 login   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. Tax act 2012 login Excess not withdrawn by April 15. Tax act 2012 login   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. Tax act 2012 login In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Tax act 2012 login Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. Tax act 2012 login Reporting corrective distributions on Form 1099-R. Tax act 2012 login   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. Tax act 2012 login For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. Tax act 2012 login Tax on excess contributions of highly compensated employees. Tax act 2012 login   The law provides tests to detect discrimination in a plan. Tax act 2012 login If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. Tax act 2012 login Report the tax on Form 5330. Tax act 2012 login The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. Tax act 2012 login Also, the ACP test does not apply to these plans if certain additional requirements are met. Tax act 2012 login   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. Tax act 2012 login Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. Tax act 2012 login   See Regulations sections 1. Tax act 2012 login 401(k)-2 and 1. Tax act 2012 login 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). Tax act 2012 login    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. Tax act 2012 login Safe harbor 401(k) plan. Tax act 2012 login If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. Tax act 2012 login For your plan to be a safe harbor plan, you must meet the following conditions. Tax act 2012 login Matching or nonelective contributions. Tax act 2012 login You must make matching or nonelective contributions according to one of the following formulas. Tax act 2012 login Matching contributions. Tax act 2012 login You must make matching contributions according to the following rules. Tax act 2012 login You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. Tax act 2012 login You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. Tax act 2012 login The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. Tax act 2012 login Nonelective contributions. Tax act 2012 login You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. Tax act 2012 login These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. Tax act 2012 login Notice requirement. Tax act 2012 login You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. Tax act 2012 login The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. Tax act 2012 login Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. Tax act 2012 login Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. Tax act 2012 login However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. Tax act 2012 login Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. Tax act 2012 login Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. Tax act 2012 login Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. Tax act 2012 login An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. Tax act 2012 login The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. Tax act 2012 login Rollover. Tax act 2012 login   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. Tax act 2012 login For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 872, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2010-51_IRB/ar11. Tax act 2012 login html, and Notice 2013-74. Tax act 2012 login A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. Tax act 2012 login Rollover amounts do not apply toward the annual deferral limit. Tax act 2012 login Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. Tax act 2012 login See the Form W-2 and 1099-R instructions for detailed information. Tax act 2012 login Distributions Amounts paid to plan participants from a qualified plan are called distributions. Tax act 2012 login Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. Tax act 2012 login Also, certain loans may be treated as distributions. Tax act 2012 login See Loans Treated as Distributions in Publication 575. Tax act 2012 login Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). Tax act 2012 login These distribution rules apply individually to each qualified plan. Tax act 2012 login You cannot satisfy the requirement for one plan by taking a distribution from another. Tax act 2012 login The plan must provide that these rules override any inconsistent distribution options previously offered. Tax act 2012 login Minimum distribution. Tax act 2012 login   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. Tax act 2012 login This minimum is figured by dividing the account balance by the applicable life expectancy. Tax act 2012 login The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. Tax act 2012 login For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. Tax act 2012 login Required beginning date. Tax act 2012 login   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. Tax act 2012 login   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. Tax act 2012 login Calendar year in which he or she reaches age 70½. Tax act 2012 login Calendar year in which he or she retires from employment with the employer maintaining the plan. Tax act 2012 login However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. Tax act 2012 login   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. Tax act 2012 login For more information, see Tax on Excess Accumulation in Publication 575. Tax act 2012 login Distributions after the starting year. Tax act 2012 login   The distribution required to be made by April 1 is treated as a distribution for the starting year. Tax act 2012 login (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. Tax act 2012 login ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. Tax act 2012 login If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). Tax act 2012 login Distributions after participant's death. Tax act 2012 login   See Publication 575 for the special rules covering distributions made after the death of a participant. Tax act 2012 login Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. Tax act 2012 login The employee retires, dies, becomes disabled, or otherwise severs employment. Tax act 2012 login The plan ends and no other defined contribution plan is established or continued. Tax act 2012 login In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. Tax act 2012 login For the rules on hardship distributions, including the limits on them, see Regulations section 1. Tax act 2012 login 401(k)-1(d). Tax act 2012 login The employee becomes eligible for a qualified reservist distribution (defined next). Tax act 2012 login Certain distributions listed above may be subject to the tax on early distributions discussed later. Tax act 2012 login Qualified reservist distributions. Tax act 2012 login   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. Tax act 2012 login All or part of a qualified reservist distribution can be recontributed to an IRA. Tax act 2012 login The additional 10% tax on early distributions does not apply to a qualified reservist distribution. Tax act 2012 login Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. Tax act 2012 login Since most recipients have no cost basis, a distribution is generally fully taxable. Tax act 2012 login An exception is a distribution that is properly rolled over as discussed under Rollover, next. Tax act 2012 login The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. Tax act 2012 login See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. Tax act 2012 login Note. Tax act 2012 login A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. Tax act 2012 login Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. Tax act 2012 login See Qualified distributions under Qualified Roth Contribution Program, earlier. Tax act 2012 login Rollover. Tax act 2012 login   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. Tax act 2012 login However, it may be subject to withholding as discussed under Withholding requirement, later. Tax act 2012 login A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. Tax act 2012 login Eligible rollover distribution. Tax act 2012 login   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. Tax act 2012 login A required minimum distribution. Tax act 2012 login See Required Distributions , earlier. Tax act 2012 login Any of a series of substantially equal payments made at least once a year over any of the following periods. Tax act 2012 login The employee's life or life expectancy. Tax act 2012 login The joint lives or life expectancies of the employee and beneficiary. Tax act 2012 login A period of 10 years or longer. Tax act 2012 login A hardship distribution. Tax act 2012 login The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. Tax act 2012 login See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. Tax act 2012 login Loans treated as distributions. Tax act 2012 login Dividends on employer securities. Tax act 2012 login The cost of any life insurance coverage provided under a qualified retirement plan. Tax act 2012 login Similar items designated by the IRS in published guidance. Tax act 2012 login See, for example, the Instructions for Forms 1099-R and 5498. Tax act 2012 login Rollover of nontaxable amounts. Tax act 2012 login   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. Tax act 2012 login If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. Tax act 2012 login If the rollover is to an IRA, the transfer can be made by any rollover method. Tax act 2012 login Note. Tax act 2012 login A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. Tax act 2012 login If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). Tax act 2012 login More information. Tax act 2012 login   For more information about rollovers, see Rollovers in Pubs. Tax act 2012 login 575 and 590. Tax act 2012 login Withholding requirement. Tax act 2012 login   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. Tax act 2012 login Exceptions. Tax act 2012 login   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. Tax act 2012 login   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. Tax act 2012 login Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). Tax act 2012 login However, the participant can choose not to have tax withheld from these distributions. Tax act 2012 login If the participant does not make this choice, the following withholding rules apply. Tax act 2012 login For periodic distributions, withholding is based on their treatment as wages. Tax act 2012 login For nonperiodic distributions, 10% of the taxable part is withheld. Tax act 2012 login Estimated tax payments. Tax act 2012 login   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. Tax act 2012 login For more information, see Withholding Tax and Estimated Tax in Publication 575. Tax act 2012 login Section 402(f) Notice. Tax act 2012 login   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. Tax act 2012 login That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. Tax act 2012 login That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. Tax act 2012 login That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. Tax act 2012 login Certain other rules that may be applicable. Tax act 2012 login   Notice 2009-68, 2009-39 I. Tax act 2012 login R. Tax act 2012 login B. Tax act 2012 login 423, available at www. Tax act 2012 login irs. Tax act 2012 login gov/irb/2009-39_IRB/ar14. Tax act 2012 login html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. Tax act 2012 login If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. Tax act 2012 login Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. Tax act 2012 login Timing of notice. Tax act 2012 login   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. Tax act 2012 login Method of notice. Tax act 2012 login   The written notice must be provided individually to each distributee of an eligible rollover distribution. Tax act 2012 login Posting of the notice is not sufficient. Tax act 2012 login However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. Tax act 2012 login See Regulations section 1. Tax act 2012 login 401(a)-21. Tax act 2012 login Tax on failure to give notice. Tax act 2012 login   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. Tax act 2012 login The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. Tax act 2012 login Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. Tax act 2012 login This tax applies to the amount received that the employee must include in income. Tax act 2012 login Exceptions. Tax act 2012 login   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. Tax act 2012 login Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. Tax act 2012 login Made due to the employee having a qualifying disability. Tax act 2012 login Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. Tax act 2012 login (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. Tax act 2012 login ) Made to an employee after separation from service if the separation occurred during o