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Taxes On Unemployment

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Taxes On Unemployment

Taxes on unemployment Publication 15 - Main Content Table of Contents 1. Taxes on unemployment Employer Identification Number (EIN) 2. Taxes on unemployment Who Are Employees?Relief provisions. Taxes on unemployment Business Owned and Operated by Spouses 3. Taxes on unemployment Family Employees 4. Taxes on unemployment Employee's Social Security Number (SSN)Registering for SSNVS. Taxes on unemployment 5. Taxes on unemployment Wages and Other CompensationAccountable plan. Taxes on unemployment Nonaccountable plan. Taxes on unemployment Per diem or other fixed allowance. Taxes on unemployment 50% test. Taxes on unemployment Health Savings Accounts and medical savings accounts. Taxes on unemployment Nontaxable fringe benefits. Taxes on unemployment When fringe benefits are treated as paid. Taxes on unemployment Valuation of fringe benefits. Taxes on unemployment Withholding on fringe benefits. Taxes on unemployment Depositing taxes on fringe benefits. Taxes on unemployment 6. Taxes on unemployment TipsOrdering rule. Taxes on unemployment 7. Taxes on unemployment Supplemental Wages 8. Taxes on unemployment Payroll Period 9. Taxes on unemployment Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Taxes on unemployment Required Notice to Employees About the Earned Income Credit (EIC) 11. Taxes on unemployment Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Taxes on unemployment Filing Form 941 or Form 944 13. Taxes on unemployment Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Taxes on unemployment Federal Unemployment (FUTA) TaxSuccessor employer. Taxes on unemployment Household employees. Taxes on unemployment When to deposit. Taxes on unemployment Household employees. Taxes on unemployment Electronic filing by reporting agents. Taxes on unemployment 16. Taxes on unemployment How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Taxes on unemployment Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Taxes on unemployment The EIN is a nine-digit number the IRS issues. Taxes on unemployment The digits are arranged as follows: 00-0000000. Taxes on unemployment It is used to identify the tax accounts of employers and certain others who have no employees. Taxes on unemployment Use your EIN on all of the items you send to the IRS and SSA. Taxes on unemployment For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Taxes on unemployment If you do not have an EIN, you may apply for one online. Taxes on unemployment Go to the IRS. Taxes on unemployment gov and click on the Apply for an EIN Online link under Tools. Taxes on unemployment 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. Taxes on unemployment Do not use an SSN in place of an EIN. Taxes on unemployment You should have only one EIN. Taxes on unemployment 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). Taxes on unemployment Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Taxes on unemployment The IRS will tell you which number to use. Taxes on unemployment If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Taxes on unemployment 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. Taxes on unemployment 2. Taxes on unemployment Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Taxes on unemployment See Publication 15-A for details on statutory employees and nonemployees. Taxes on unemployment Employee status under common law. Taxes on unemployment   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. Taxes on unemployment This is so even when you give the employee freedom of action. Taxes on unemployment What matters is that you have the right to control the details of how the services are performed. Taxes on unemployment See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Taxes on unemployment   Generally, people in business for themselves are not employees. Taxes on unemployment For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Taxes on unemployment However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Taxes on unemployment   If an employer-employee relationship exists, it does not matter what it is called. Taxes on unemployment The employee may be called an agent or independent contractor. Taxes on unemployment It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Taxes on unemployment Statutory employees. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Taxes on unemployment A full-time life insurance salesperson who sells primarily for one company. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment The orders must be for merchandise for resale or supplies for use in the customer's business. Taxes on unemployment The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Taxes on unemployment    Statutory nonemployees. Taxes on unemployment   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Taxes on unemployment They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Taxes on unemployment H-2A agricultural workers. Taxes on unemployment   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Taxes on unemployment Treating employees as nonemployees. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment The applicable rates depend on whether you filed required Forms 1099. Taxes on unemployment 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. Taxes on unemployment You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Taxes on unemployment You continue to owe the full employer share of social security and Medicare taxes. Taxes on unemployment The employee remains liable for the employee share of social security and Medicare taxes. Taxes on unemployment See Internal Revenue Code section 3509 for details. Taxes on unemployment Also see the Instructions for Form 941-X. Taxes on unemployment   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. Taxes on unemployment Section 3509 is not available for reclassifying statutory employees. Taxes on unemployment See Statutory employees , earlier in this section. Taxes on unemployment   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Taxes on unemployment 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Taxes on unemployment For Medicare taxes; employer rate of 1. Taxes on unemployment 45% plus 20% of the employee rate of 1. Taxes on unemployment 45%, for a total rate of 1. Taxes on unemployment 74% of wages. Taxes on unemployment For Additional Medicare Tax; 0. Taxes on unemployment 18% (20% of the employee rate of 0. Taxes on unemployment 9%) of wages subject to Additional Medicare Tax. Taxes on unemployment For income tax withholding, the rate is 1. Taxes on unemployment 5% of wages. Taxes on unemployment   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Taxes on unemployment 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Taxes on unemployment For Medicare taxes; employer rate of 1. Taxes on unemployment 45% plus 40% of the employee rate of 1. Taxes on unemployment 45%, for a total rate of 2. Taxes on unemployment 03% of wages. Taxes on unemployment For Additional Medicare Tax; 0. Taxes on unemployment 36% (40% of the employee rate of 0. Taxes on unemployment 9%) of wages subject to Additional Medicare Tax. Taxes on unemployment For income tax withholding, the rate is 3. Taxes on unemployment 0% of wages. Taxes on unemployment Relief provisions. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Taxes on unemployment See Publication 1976, Do You Qualify for Relief Under Section 530. Taxes on unemployment IRS help. Taxes on unemployment   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. Taxes on unemployment Voluntary Classification Settlement Program (VCSP). Taxes on unemployment   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. Taxes on unemployment To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Taxes on unemployment For more information visit IRS. Taxes on unemployment gov and enter “VCSP” in the search box. Taxes on unemployment 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. Taxes on unemployment See Publication 541, Partnerships, for more details. Taxes on unemployment The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Taxes on unemployment Exception—Qualified joint venture. Taxes on unemployment   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. Taxes on unemployment 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). Taxes on unemployment   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. Taxes on unemployment Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Taxes on unemployment   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Taxes on unemployment 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. Taxes on unemployment Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Taxes on unemployment 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. Taxes on unemployment    Note. Taxes on unemployment If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Taxes on unemployment   For more information on qualified joint ventures, visit IRS. Taxes on unemployment gov and enter “qualified joint venture” in the search box. Taxes on unemployment Exception—Community income. Taxes on unemployment   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. Taxes on unemployment S. Taxes on unemployment possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Taxes on unemployment You may still make an election to be taxed as a qualified joint venture instead of a partnership. Taxes on unemployment See Exception—Qualified joint venture , earlier. Taxes on unemployment 3. Taxes on unemployment Family Employees Child employed by parents. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment However, see Covered services of a child or spouse , later in this section. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment One spouse employed by another. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment Covered services of a child or spouse. Taxes on unemployment   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. Taxes on unemployment Parent employed by son or daughter. Taxes on unemployment   When the employer is a son or daughter employing his or her parent the following rules apply. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment    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. Taxes on unemployment   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Taxes on unemployment 4. Taxes on unemployment 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. Taxes on unemployment This requirement also applies to resident and nonresident alien employees. Taxes on unemployment You should ask your employee to show you his or her social security card. Taxes on unemployment The employee may show the card if it is available. Taxes on unemployment Do not accept a social security card that says “Not valid for employment. Taxes on unemployment ” A social security number issued with this legend does not permit employment. Taxes on unemployment You may, but are not required to, photocopy the social security card if the employee provides it. Taxes on unemployment 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. Taxes on unemployment See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Taxes on unemployment Applying for a social security card. Taxes on unemployment   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. Taxes on unemployment You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Taxes on unemployment socialsecurity. Taxes on unemployment gov/online/ss-5. Taxes on unemployment html. Taxes on unemployment The employee must complete and sign Form SS-5; it cannot be filed by the employer. Taxes on unemployment 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. Taxes on unemployment Applying for a social security number. Taxes on unemployment   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. Taxes on unemployment If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Taxes on unemployment 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. Taxes on unemployment Furnish copies B, C, and 2 of Form W-2c to the employee. Taxes on unemployment 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. Taxes on unemployment For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Taxes on unemployment socialsecurity. Taxes on unemployment gov/employer. Taxes on unemployment Advise your employee to correct the SSN on his or her original Form W-2. Taxes on unemployment Correctly record the employee's name and SSN. Taxes on unemployment   Record the name and number of each employee as they are shown on the employee's social security card. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment IRS individual taxpayer identification numbers (ITINs) for aliens. Taxes on unemployment   Do not accept an ITIN in place of an SSN for employee identification or for work. Taxes on unemployment An ITIN is only available to resident and nonresident aliens who are not eligible for U. Taxes on unemployment S. Taxes on unemployment employment and need identification for other tax purposes. Taxes on unemployment 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). Taxes on unemployment    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Taxes on unemployment 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. Taxes on unemployment Do not use an ITIN in place of an SSN on Form W-2. Taxes on unemployment Verification of social security numbers. Taxes on unemployment   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. Taxes on unemployment Visit www. Taxes on unemployment socialsecurity. Taxes on unemployment gov/employer/ssnv. Taxes on unemployment htm for more information. Taxes on unemployment Registering for SSNVS. Taxes on unemployment   You must register online and receive authorization from your employer to use SSNVS. Taxes on unemployment To register, visit SSA's website at www. Taxes on unemployment ssa. Taxes on unemployment gov/employer and click on the Business Services Online link. Taxes on unemployment Follow the registration instructions to obtain a user identification (ID) and password. Taxes on unemployment You will need to provide the following information about yourself and your company. Taxes on unemployment Name. Taxes on unemployment SSN. Taxes on unemployment Date of birth. Taxes on unemployment Type of employer. Taxes on unemployment EIN. Taxes on unemployment Company name, address, and telephone number. Taxes on unemployment Email address. Taxes on unemployment   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Taxes on unemployment You must enter the activation code online to use SSNVS. Taxes on unemployment 5. Taxes on unemployment Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Taxes on unemployment The pay may be in cash or in other forms. Taxes on unemployment It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Taxes on unemployment It does not matter how you measure or make the payments. Taxes on unemployment 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. Taxes on unemployment Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Taxes on unemployment More information. Taxes on unemployment   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Taxes on unemployment Also, see section 15 for exceptions to the general rules for wages. Taxes on unemployment Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Taxes on unemployment 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. Taxes on unemployment Employee business expense reimbursements. Taxes on unemployment   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Taxes on unemployment How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Taxes on unemployment If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Taxes on unemployment   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Taxes on unemployment Accountable plan. Taxes on unemployment   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Taxes on unemployment They must have paid or incurred deductible expenses while performing services as your employees. Taxes on unemployment 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. Taxes on unemployment They must substantiate these expenses to you within a reasonable period of time. Taxes on unemployment They must return any amounts in excess of substantiated expenses within a reasonable period of time. Taxes on unemployment   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment   A reasonable period of time depends on the facts and circumstances. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment Nonaccountable plan. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment   See section 7 for more information on supplemental wages. Taxes on unemployment Per diem or other fixed allowance. Taxes on unemployment   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Taxes on unemployment In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Taxes on unemployment The 2013 standard mileage rate for auto expenses was 56. Taxes on unemployment 5 cents per mile. Taxes on unemployment The rate for 2014 is 56 cents per mile. Taxes on unemployment   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Taxes on unemployment 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). Taxes on unemployment   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Taxes on unemployment This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Taxes on unemployment Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Taxes on unemployment ” Wages not paid in money. Taxes on unemployment   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. Taxes on unemployment ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Taxes on unemployment 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. Taxes on unemployment   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. Taxes on unemployment Withhold income tax on these payments only if you and the employee agree to do so. Taxes on unemployment 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. Taxes on unemployment Moving expenses. Taxes on unemployment   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. Taxes on unemployment Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Taxes on unemployment For more information on moving expenses, see Publication 521, Moving Expenses. Taxes on unemployment Meals and lodging. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment    “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. Taxes on unemployment 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. Taxes on unemployment   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Taxes on unemployment A written statement that the meals or lodging are for your convenience is not sufficient. Taxes on unemployment 50% test. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment For more information, see Publication 15-B. Taxes on unemployment Health insurance plans. Taxes on unemployment   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. Taxes on unemployment Generally, this exclusion also applies to qualified long-term care insurance contracts. Taxes on unemployment 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). Taxes on unemployment 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. Taxes on unemployment See Announcement 92-16 for more information. Taxes on unemployment You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Taxes on unemployment Health Savings Accounts and medical savings accounts. Taxes on unemployment   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. Taxes on unemployment To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Taxes on unemployment Medical care reimbursements. Taxes on unemployment   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. Taxes on unemployment See Publication 15-B for an exception for highly compensated employees. Taxes on unemployment Differential wage payments. Taxes on unemployment   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. Taxes on unemployment   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Taxes on unemployment Employers should report differential wage payments in box 1 of Form W-2. Taxes on unemployment For more information about the tax treatment of differential wage payments, visit IRS. Taxes on unemployment gov and enter “employees in a combat zone” in the search box. Taxes on unemployment Fringe benefits. Taxes on unemployment   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Taxes on unemployment The benefits are subject to income tax withholding and employment taxes. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment There are other special rules you and your employees may use to value certain fringe benefits. Taxes on unemployment See Publication 15-B for more information. Taxes on unemployment Nontaxable fringe benefits. Taxes on unemployment   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Taxes on unemployment See Publication 15-B for details. Taxes on unemployment The following are some examples of nontaxable fringe benefits. Taxes on unemployment Services provided to your employees at no additional cost to you. Taxes on unemployment Qualified employee discounts. Taxes on unemployment Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Taxes on unemployment Examples include a company car for business use and subscriptions to business magazines. Taxes on unemployment 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). Taxes on unemployment Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Taxes on unemployment Qualified moving expense reimbursement. Taxes on unemployment See Moving expenses , earlier in this section, for details. Taxes on unemployment The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Taxes on unemployment Qualified tuition reduction an educational organization provides to its employees for education. Taxes on unemployment For more information, see Publication 970, Tax Benefits for Education. Taxes on unemployment Employer-provided cell phones provided primarily for a noncompensatory business reason. Taxes on unemployment   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. Taxes on unemployment No-additional-cost services. Taxes on unemployment Qualified employee discounts. Taxes on unemployment Meals provided at an employer operated eating facility. Taxes on unemployment Reduced tuition for education. Taxes on unemployment  For more information, including the definition of a highly compensated employee, see Publication 15-B. Taxes on unemployment When fringe benefits are treated as paid. Taxes on unemployment   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. Taxes on unemployment You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Taxes on unemployment You do not have to make this choice for all employees. Taxes on unemployment 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. Taxes on unemployment See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Taxes on unemployment Valuation of fringe benefits. Taxes on unemployment   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Taxes on unemployment Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Taxes on unemployment Withholding on fringe benefits. Taxes on unemployment   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. Taxes on unemployment However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Taxes on unemployment   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Taxes on unemployment You must, however, withhold social security and Medicare taxes on the use of the vehicle. Taxes on unemployment See Publication 15-B for more information on this election. Taxes on unemployment Depositing taxes on fringe benefits. Taxes on unemployment   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Taxes on unemployment To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Taxes on unemployment   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. Taxes on unemployment See Valuation of fringe benefits , earlier. Taxes on unemployment If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Taxes on unemployment See section 11 for information on deposit penalties. Taxes on unemployment   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. Taxes on unemployment However, you must recover the income taxes before April 1 of the following year. Taxes on unemployment Sick pay. Taxes on unemployment   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. Taxes on unemployment These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Taxes on unemployment In either case, these payments are subject to social security, Medicare, and FUTA taxes. Taxes on unemployment 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. Taxes on unemployment The payments are always subject to federal income tax. Taxes on unemployment See Publication 15-A for more information. Taxes on unemployment 6. Taxes on unemployment Tips Tips your employee receives from customers are generally subject to withholding. Taxes on unemployment Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Taxes on unemployment 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. Taxes on unemployment Both directly and indirectly tipped employees must report tips to you. Taxes on unemployment No report is required for months when tips are less than $20. Taxes on unemployment Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment You are permitted to establish a system for electronic tip reporting by employees. Taxes on unemployment See Regulations section 31. Taxes on unemployment 6053-1(d). Taxes on unemployment Collecting taxes on tips. Taxes on unemployment   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Taxes on unemployment 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. Taxes on unemployment If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Taxes on unemployment   You can collect these taxes from the employee's wages or from other funds he or she makes available. Taxes on unemployment See Tips treated as supplemental wages in section 7 for more information. Taxes on unemployment 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. Taxes on unemployment You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Taxes on unemployment You are responsible for the employer Medicare tax for the whole year on all wages and tips. Taxes on unemployment File Form 941 or Form 944 to report withholding and employment taxes on tips. Taxes on unemployment Ordering rule. Taxes on unemployment   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. Taxes on unemployment If there are not enough funds available, withhold taxes in the following order. Taxes on unemployment Withhold on regular wages and other compensation. Taxes on unemployment Withhold social security and Medicare taxes on tips. Taxes on unemployment Withhold income tax on tips. Taxes on unemployment Reporting tips. Taxes on unemployment   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). Taxes on unemployment Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Taxes on unemployment Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Taxes on unemployment ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Taxes on unemployment See section 13 and the General Instructions for Forms W-2 and W-3. Taxes on unemployment   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. Taxes on unemployment See Revenue Ruling 2012-18, 2012-26 I. Taxes on unemployment R. Taxes on unemployment B. Taxes on unemployment 1032, available at www. Taxes on unemployment irs. Taxes on unemployment gov/irb/2012-26_IRB/ar07. Taxes on unemployment html. Taxes on unemployment Allocated tips. Taxes on unemployment   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Taxes on unemployment However, do not withhold income, social security, or Medicare taxes on allocated tips. Taxes on unemployment   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. Taxes on unemployment   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Taxes on unemployment 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. Taxes on unemployment For information on filing Form 8027 electronically with the IRS, see Publication 1239. Taxes on unemployment Tip Rate Determination and Education Program. Taxes on unemployment   Employers may participate in the Tip Rate Determination and Education Program. Taxes on unemployment 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. Taxes on unemployment The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Taxes on unemployment A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Taxes on unemployment To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Taxes on unemployment Additionally, visit IRS. Taxes on unemployment gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Taxes on unemployment 7. Taxes on unemployment Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Taxes on unemployment 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. Taxes on unemployment Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Taxes on unemployment How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Taxes on unemployment See Regulations section 31. Taxes on unemployment 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Taxes on unemployment Also see Revenue Ruling 2008-29, 2008-24 I. Taxes on unemployment R. Taxes on unemployment B. Taxes on unemployment 1149, available at www. Taxes on unemployment irs. Taxes on unemployment gov/irb/2008-24_IRB/ar08. Taxes on unemployment html. Taxes on unemployment Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Taxes on unemployment   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Taxes on unemployment 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. Taxes on unemployment 6% (or the highest rate of income tax for the year). Taxes on unemployment Withhold using the 39. Taxes on unemployment 6% rate without regard to the employee's Form W-4. Taxes on unemployment In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Taxes on unemployment For more information, see Treasury Decision 9276, 2006-37 I. Taxes on unemployment R. Taxes on unemployment B. Taxes on unemployment 423, available at www. Taxes on unemployment irs. Taxes on unemployment gov/irb/2006-37_IRB/ar09. Taxes on unemployment html. Taxes on unemployment Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Taxes on unemployment   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. Taxes on unemployment Supplemental wages combined with regular wages. Taxes on unemployment   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. Taxes on unemployment Supplemental wages identified separately from regular wages. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment Withhold a flat 25% (no other percentage allowed). Taxes on unemployment If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Taxes on unemployment 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. Taxes on unemployment Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Taxes on unemployment Subtract the tax withheld from the regular wages. Taxes on unemployment Withhold the remaining tax from the supplemental wages. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Taxes on unemployment Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Taxes on unemployment Example 1. Taxes on unemployment You pay John Peters a base salary on the 1st of each month. Taxes on unemployment He is single and claims one withholding allowance. Taxes on unemployment In January he is paid $1,000. Taxes on unemployment Using the wage bracket tables, you withhold $50 from this amount. Taxes on unemployment 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. Taxes on unemployment You figure the withholding based on the total of $3,000. Taxes on unemployment The correct withholding from the tables is $338. Taxes on unemployment Example 2. Taxes on unemployment You pay Sharon Warren a base salary on the 1st of each month. Taxes on unemployment She is single and claims one allowance. Taxes on unemployment Her May 1 pay is $2,000. Taxes on unemployment Using the wage bracket tables, you withhold $188. Taxes on unemployment On May 14 she receives a bonus of $1,000. Taxes on unemployment 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). Taxes on unemployment Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Taxes on unemployment Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Taxes on unemployment Withhold $150 from the bonus payment. Taxes on unemployment Example 3. Taxes on unemployment The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Taxes on unemployment You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Taxes on unemployment Example 4. Taxes on unemployment The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Taxes on unemployment 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). Taxes on unemployment Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Taxes on unemployment 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). Taxes on unemployment Withhold $443 from the second bonus payment. Taxes on unemployment Tips treated as supplemental wages. Taxes on unemployment   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Taxes on unemployment If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Taxes on unemployment If you have not withheld income tax from the regular wages, add the tips to the regular wages. Taxes on unemployment Then withhold income tax on the total. Taxes on unemployment 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. Taxes on unemployment Vacation pay. Taxes on unemployment   Vacation pay is subject to withholding as if it were a regular wage payment. Taxes on unemployment When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Taxes on unemployment 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. Taxes on unemployment 8. Taxes on unemployment Payroll Period Your payroll period is a period of service for which you usually pay wages. Taxes on unemployment When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Taxes on unemployment No regular payroll period. Taxes on unemployment   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Taxes on unemployment Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Taxes on unemployment 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. Taxes on unemployment Employee paid for period less than 1 week. Taxes on unemployment   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. Taxes on unemployment If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Taxes on unemployment You then figure withholding based on the daily or miscellaneous period. Taxes on unemployment 9. Taxes on unemployment Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Taxes on unemployment   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Taxes on unemployment 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. Taxes on unemployment Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Taxes on unemployment irs. Taxes on unemployment gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Taxes on unemployment   Ask all new employees to give you a signed Form W-4 when they start work. Taxes on unemployment Make the form effective with the first wage payment. Taxes on unemployment 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. Taxes on unemployment Form in Spanish. Taxes on unemployment   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. Taxes on unemployment For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Taxes on unemployment The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Taxes on unemployment Electronic system to receive Form W-4. Taxes on unemployment   You may establish a system to electronically receive Forms W-4 from your employees. Taxes on unemployment See Regulations section 31. Taxes on unemployment 3402(f)(5)-1(c) for more information. Taxes on unemployment Effective date of Form W-4. Taxes on unemployment   A Form W-4 remains in effect until the employee gives you a new one. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Taxes on unemployment Successor employer. Taxes on unemployment   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. Taxes on unemployment See Revenue Procedure 2004-53, 2004-34 I. Taxes on unemployment R. Taxes on unemployment B. Taxes on unemployment 320, available at www. Taxes on unemployment irs. Taxes on unemployment gov/irb/2004-34_IRB/ar13. Taxes on unemployment html. Taxes on unemployment Completing Form W-4. Taxes on unemployment   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Taxes on unemployment Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Taxes on unemployment 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. Taxes on unemployment Employees may claim fewer withholding allowances than they are entitled to claim. Taxes on unemployment 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. Taxes on unemployment See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Taxes on unemployment Along with Form W-4, you may wish to order Publication 505 for use by your employees. Taxes on unemployment Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Taxes on unemployment 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. Taxes on unemployment Exemption from federal income tax withholding. Taxes on unemployment   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. Taxes on unemployment See the Form W-4 instructions for more information. Taxes on unemployment However, the wages are still subject to social security and Medicare taxes. Taxes on unemployment See also Invalid Forms W-4 , later in this section. Taxes on unemployment   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment Withholding income taxes on the wages of nonresident alien employees. Taxes on unemployment   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Taxes on unemployment However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Taxes on unemployment Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Taxes on unemployment Withholding adjustment for nonresident alien employees. Taxes on unemployment   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. Taxes on unemployment Nonresident alien students from India and business apprentices from India are not subject to this procedure. Taxes on unemployment Instructions. Taxes on unemployment   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. Taxes on unemployment Step 1. Taxes on unemployment   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. Taxes on unemployment    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Taxes on unemployment 30     Biweekly 86. Taxes on unemployment 50     Semimonthly 93. Taxes on unemployment 80     Monthly 187. Taxes on unemployment 50     Quarterly 562. Taxes on unemployment 50     Semiannually 1,125. Taxes on unemployment 00     Annually 2,250. Taxes on unemployment 00     Daily or Miscellaneous (each day of the payroll period) 8. Taxes on unemployment 70   Step 2. Taxes on unemployment   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Taxes on unemployment Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Taxes on unemployment Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Taxes on unemployment Example. Taxes on unemployment An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Taxes on unemployment 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). Taxes on unemployment 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. Taxes on unemployment 50 from the chart under Step 1 ($586. Taxes on unemployment 50 total). Taxes on unemployment The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Taxes on unemployment 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. Taxes on unemployment The $86. Taxes on unemployment 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. Taxes on unemployment Also, the $86. Taxes on unemployment 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. Taxes on unemployment Supplemental wage payment. Taxes on unemployment   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Taxes on unemployment 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. Taxes on unemployment Nonresident alien employee's Form W-4. Taxes on unemployment   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. Taxes on unemployment   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. Taxes on unemployment 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. Taxes on unemployment Form 8233. Taxes on unemployment   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. Taxes on unemployment See Publication 515 for details. Taxes on unemployment IRS review of requested Forms W-4. Taxes on unemployment   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Taxes on unemployment You may also be directed to send certain Forms W-4 to the IRS. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment 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. Taxes on unemployment R. Taxes on unemployment B. Taxes on unemployment 455, which is available at www. Taxes on unemployment irs. Taxes on unemployment gov/irb/2007-35_IRB/ar10. Taxes on unemployment html. Taxes on unemployment When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Taxes on unemployment 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). Taxes on unemployment 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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The Taxes On Unemployment

Taxes on unemployment Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. Taxes on unemployment S. Taxes on unemployment Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. Taxes on unemployment S. Taxes on unemployment Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. Taxes on unemployment S. Taxes on unemployment Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. Taxes on unemployment Employee business expenses. Taxes on unemployment Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Taxes on unemployment You can change your choice for each year's taxes. Taxes on unemployment To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. Taxes on unemployment S. Taxes on unemployment tax return. Taxes on unemployment However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. Taxes on unemployment See How To Figure the Credit , later. Taxes on unemployment To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. Taxes on unemployment Figure your tax both ways—claiming the credit and claiming the deduction. Taxes on unemployment Then fill out your return the way that benefits you more. Taxes on unemployment See Why Choose the Credit, later. Taxes on unemployment Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. Taxes on unemployment If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. Taxes on unemployment You cannot deduct any of them. Taxes on unemployment Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. Taxes on unemployment You cannot take a credit for any of them. Taxes on unemployment See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. Taxes on unemployment There are exceptions to this general rule, which are described next. Taxes on unemployment Exceptions for foreign taxes not allowed as a credit. Taxes on unemployment   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Taxes on unemployment Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. Taxes on unemployment S. Taxes on unemployment tax purposes. Taxes on unemployment For more information, see Internal Revenue Code section 901(m). Taxes on unemployment The IRS intends to issue guidance that will explain this provision in greater detail. Taxes on unemployment   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. Taxes on unemployment Foreign taxes that are not income taxes. Taxes on unemployment   In most cases, only foreign income taxes qualify for the foreign tax credit. Taxes on unemployment Other taxes, such as foreign real and personal property taxes, do not qualify. Taxes on unemployment But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. Taxes on unemployment   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. Taxes on unemployment However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). Taxes on unemployment Carrybacks and carryovers. Taxes on unemployment   There is a limit on the credit you can claim in a tax year. Taxes on unemployment If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. Taxes on unemployment If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. Taxes on unemployment That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. Taxes on unemployment   For more information on the limit, see How To Figure the Credit , later. Taxes on unemployment For more information on carrybacks and carryovers, see Carryback and Carryover , later. Taxes on unemployment Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. Taxes on unemployment You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. Taxes on unemployment Example. Taxes on unemployment You paid foreign taxes for the last 13 years and chose to deduct them on your U. Taxes on unemployment S. Taxes on unemployment income tax returns. Taxes on unemployment You were timely in both filing your returns and paying your U. Taxes on unemployment S. Taxes on unemployment tax liability. Taxes on unemployment In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. Taxes on unemployment Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). Taxes on unemployment Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. Taxes on unemployment Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. Taxes on unemployment If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. Taxes on unemployment Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. Taxes on unemployment Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. Taxes on unemployment However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. Taxes on unemployment You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. Taxes on unemployment See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. Taxes on unemployment Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. Taxes on unemployment In most cases, if the foreign tax rate is higher than the U. Taxes on unemployment S. Taxes on unemployment rate, there will be no U. Taxes on unemployment S. Taxes on unemployment tax on the foreign income. Taxes on unemployment If the foreign tax rate is lower than the U. Taxes on unemployment S. Taxes on unemployment rate, U. Taxes on unemployment S. Taxes on unemployment tax on the foreign income will be limited to the difference between the rates. Taxes on unemployment The foreign tax credit can only reduce U. Taxes on unemployment S. Taxes on unemployment taxes on foreign source income; it cannot reduce U. Taxes on unemployment S. Taxes on unemployment taxes on U. Taxes on unemployment S. Taxes on unemployment source income. Taxes on unemployment Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. Taxes on unemployment This is because: A credit reduces your actual U. Taxes on unemployment S. Taxes on unemployment income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. Taxes on unemployment You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. Taxes on unemployment (See Limit on credit under How To Figure the Credit, later. Taxes on unemployment ) Example 1. Taxes on unemployment For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. Taxes on unemployment None of the dividends are qualified dividends. Taxes on unemployment You file a joint return and can claim two $3,900 exemptions. Taxes on unemployment You had to pay $2,000 in foreign income taxes on the dividend income. Taxes on unemployment If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. Taxes on unemployment Your taxable income then is $57,500 and your tax is $7,736. Taxes on unemployment If you take the credit instead, your itemized deductions are only $13,000. Taxes on unemployment Your taxable income then is $59,500 and your tax before the credit is $8,036. Taxes on unemployment After the credit, however, your tax is only $6,036. Taxes on unemployment Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. Taxes on unemployment Example 2. Taxes on unemployment In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. Taxes on unemployment You report on your U. Taxes on unemployment S. Taxes on unemployment return this income as well as $56,000 of U. Taxes on unemployment S. Taxes on unemployment source wages and an allowable $49,000 partnership loss from a U. Taxes on unemployment S. Taxes on unemployment partnership. Taxes on unemployment Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. Taxes on unemployment You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. Taxes on unemployment If you deduct the foreign tax on your U. Taxes on unemployment S. Taxes on unemployment return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. Taxes on unemployment If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. Taxes on unemployment You can take a credit of only $113 because of limits discussed later. Taxes on unemployment Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. Taxes on unemployment If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). Taxes on unemployment When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. Taxes on unemployment Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. Taxes on unemployment “Tax year” refers to the tax year for which your U. Taxes on unemployment S. Taxes on unemployment return is filed, not the tax year for which your foreign return is filed. Taxes on unemployment Accrual method of accounting. Taxes on unemployment   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. Taxes on unemployment You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. Taxes on unemployment   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. Taxes on unemployment Generally, this occurs on the last day of the tax year for which your foreign return is filed. Taxes on unemployment Contesting your foreign tax liability. Taxes on unemployment   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. Taxes on unemployment However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. Taxes on unemployment Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. Taxes on unemployment If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . Taxes on unemployment You may have to post a bond. Taxes on unemployment   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. Taxes on unemployment   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. Taxes on unemployment Cash method of accounting. Taxes on unemployment   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. Taxes on unemployment You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. Taxes on unemployment Choosing to take credit in the year taxes accrue. Taxes on unemployment   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. Taxes on unemployment You make the choice by checking the box in Part II of Form 1116. Taxes on unemployment Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. Taxes on unemployment   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. Taxes on unemployment You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Taxes on unemployment   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. Taxes on unemployment Credit based on taxes paid in earlier year. Taxes on unemployment   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. Taxes on unemployment Example. Taxes on unemployment Last year you took the credit based on taxes paid. Taxes on unemployment This year you chose to take the credit based on taxes accrued. Taxes on unemployment During the year you paid foreign income taxes owed for last year. Taxes on unemployment You also accrued foreign income taxes for this year that you did not pay by the end of the year. Taxes on unemployment You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. Taxes on unemployment Foreign Currency and Exchange Rates U. Taxes on unemployment S. Taxes on unemployment income tax is imposed on income expressed in U. Taxes on unemployment S. Taxes on unemployment dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. Taxes on unemployment Therefore, fluctuations in the value of the foreign currency relative to the U. Taxes on unemployment S. Taxes on unemployment dollar may affect the foreign tax credit. Taxes on unemployment Translating foreign currency into U. Taxes on unemployment S. Taxes on unemployment dollars. Taxes on unemployment   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. Taxes on unemployment S. Taxes on unemployment dollars. Taxes on unemployment How and when you do this depends on your functional currency. Taxes on unemployment In most cases, your functional currency is the U. Taxes on unemployment S. Taxes on unemployment dollar unless you are required to use the currency of a foreign country. Taxes on unemployment   You must make all federal income tax determinations in your functional currency. Taxes on unemployment The U. Taxes on unemployment S. Taxes on unemployment dollar is the functional currency for all taxpayers except some qualified business units. Taxes on unemployment A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Taxes on unemployment Unless you are self-employed, your functional currency is the U. Taxes on unemployment S. Taxes on unemployment dollar. Taxes on unemployment   Even if you are self-employed and have a qualified business unit, your functional currency is the U. Taxes on unemployment S. Taxes on unemployment dollar if any of the following apply. Taxes on unemployment You conduct the business primarily in dollars. Taxes on unemployment The principal place of business is located in the United States. Taxes on unemployment You choose to or are required to use the dollar as your functional currency. Taxes on unemployment The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. Taxes on unemployment   If your functional currency is the U. Taxes on unemployment S. Taxes on unemployment dollar, you must immediately translate into dollars all items of income, expense, etc. Taxes on unemployment , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Taxes on unemployment If there is more than one exchange rate, use the one that most properly reflects your income. Taxes on unemployment In most cases, you can get exchange rates from banks and U. Taxes on unemployment S. Taxes on unemployment Embassies. Taxes on unemployment   If your functional currency is not the U. Taxes on unemployment S. Taxes on unemployment dollar, make all income tax determinations in your functional currency. Taxes on unemployment At the end of the year, translate the results, such as income or loss, into U. Taxes on unemployment S. Taxes on unemployment dollars to report on your income tax return. Taxes on unemployment    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. Taxes on unemployment   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. Taxes on unemployment If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. Taxes on unemployment If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. Taxes on unemployment   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). Taxes on unemployment Exception. Taxes on unemployment   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. Taxes on unemployment This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. Taxes on unemployment The foreign taxes are paid on or after the first day of the tax year to which they relate. Taxes on unemployment The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. Taxes on unemployment The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). Taxes on unemployment (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. Taxes on unemployment )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. Taxes on unemployment Election to use exchange rate on date paid. Taxes on unemployment   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. Taxes on unemployment If any of the accrued taxes are unpaid, you must translate them into U. Taxes on unemployment S. Taxes on unemployment dollars using the exchange rate on the last day of the U. Taxes on unemployment S. Taxes on unemployment tax year to which those taxes relate. Taxes on unemployment You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. Taxes on unemployment S. Taxes on unemployment dollar functional currency. Taxes on unemployment Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. Taxes on unemployment The election is available for tax years beginning after 2004. Taxes on unemployment It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. Taxes on unemployment Make the election by attaching a statement to the applicable tax return. Taxes on unemployment The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. Taxes on unemployment S. Taxes on unemployment dollar functional currency. Taxes on unemployment Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. Taxes on unemployment S. Taxes on unemployment foreign tax credit claimed. Taxes on unemployment The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. Taxes on unemployment If a foreign tax redetermination occurs, a redetermination of your U. Taxes on unemployment S. Taxes on unemployment tax liability is required if any of the following conditions apply. Taxes on unemployment The accrued taxes when paid differ from the amounts claimed as a credit. Taxes on unemployment The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. Taxes on unemployment If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. Taxes on unemployment You will not be allowed a credit for the unpaid taxes until you pay them. Taxes on unemployment When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. Taxes on unemployment S. Taxes on unemployment dollars using the exchange rate as of the date they were paid. Taxes on unemployment The foreign tax credit is allowed for the year to which the foreign tax relates. Taxes on unemployment See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. Taxes on unemployment The foreign taxes you paid are refunded in whole or in part. Taxes on unemployment For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. Taxes on unemployment However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. Taxes on unemployment S. Taxes on unemployment tax year. Taxes on unemployment In this case, you must adjust your U. Taxes on unemployment S. Taxes on unemployment tax in the tax year in which the accrued foreign taxes are paid. Taxes on unemployment Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. Taxes on unemployment S. Taxes on unemployment tax liability for each tax year affected by the redetermination. Taxes on unemployment In most cases, you must file Form 1040X, Amended U. Taxes on unemployment S. Taxes on unemployment Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. Taxes on unemployment S. Taxes on unemployment tax liability for the year or years affected. Taxes on unemployment See Contents of statement , later. Taxes on unemployment You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. Taxes on unemployment There are other exceptions to this requirement. Taxes on unemployment They are discussed later under Due date of notification to IRS . Taxes on unemployment Contents of statement. Taxes on unemployment   The statement must include all of the following. Taxes on unemployment Your name, address, and taxpayer identification number. Taxes on unemployment The tax year or years that are affected by the foreign tax redetermination. Taxes on unemployment The date or dates the foreign taxes were accrued, if applicable. Taxes on unemployment The date or dates the foreign taxes were paid. Taxes on unemployment The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. Taxes on unemployment Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. Taxes on unemployment   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. Taxes on unemployment   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). Taxes on unemployment Due date of notification to IRS. Taxes on unemployment   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. Taxes on unemployment There is no limit on the time the IRS has to redetermine and assess the correct U. Taxes on unemployment S. Taxes on unemployment tax due. Taxes on unemployment If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. Taxes on unemployment S. Taxes on unemployment taxes. Taxes on unemployment See Time Limit on Refund Claims , later. Taxes on unemployment   Exceptions to this due date are explained in the next two paragraphs. Taxes on unemployment Multiple redeterminations of U. Taxes on unemployment S. Taxes on unemployment tax liability for same tax year. Taxes on unemployment   Where more than one foreign tax redetermination requires a redetermination of U. Taxes on unemployment S. Taxes on unemployment tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. Taxes on unemployment If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. Taxes on unemployment However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. Taxes on unemployment S. Taxes on unemployment tax liability is required may occur after the due date for providing that notification. Taxes on unemployment In this situation, you may have to file more than one Form 1040X for that tax year. Taxes on unemployment Additional U. Taxes on unemployment S. Taxes on unemployment tax due eliminated by foreign tax credit carryback or carryover. Taxes on unemployment   If a foreign tax redetermination requires a redetermination of U. Taxes on unemployment S. Taxes on unemployment tax liability that would otherwise result in an additional amount of U. Taxes on unemployment S. Taxes on unemployment tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. Taxes on unemployment Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. Taxes on unemployment You must file the statement by the due date (with extensions) of that return. Taxes on unemployment The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. Taxes on unemployment S. Taxes on unemployment tax liability is required). Taxes on unemployment Failure-to-notify penalty. Taxes on unemployment   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. Taxes on unemployment   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. Taxes on unemployment S. Taxes on unemployment tax. Taxes on unemployment This penalty cannot be more than 25% of the tax due. Taxes on unemployment Foreign tax refund. Taxes on unemployment   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. Taxes on unemployment S. Taxes on unemployment tax for the time before the date of the refund. Taxes on unemployment   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. Taxes on unemployment The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. Taxes on unemployment Interest also is owed from the time you receive a refund until you pay the additional tax due. Taxes on unemployment Foreign tax imposed on foreign refund. Taxes on unemployment   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. Taxes on unemployment However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. Taxes on unemployment Example. Taxes on unemployment You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. Taxes on unemployment When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. Taxes on unemployment Time Limit on Refund Claims You have 10 years to file a claim for refund of U. Taxes on unemployment S. Taxes on unemployment tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. Taxes on unemployment The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. Taxes on unemployment You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. Taxes on unemployment The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). Taxes on unemployment The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. Taxes on unemployment See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. Taxes on unemployment Who Can Take the Credit? U. Taxes on unemployment S. Taxes on unemployment citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. Taxes on unemployment S. Taxes on unemployment tax on foreign source income may be able to take a foreign tax credit. Taxes on unemployment U. Taxes on unemployment S. Taxes on unemployment Citizens If you are a U. Taxes on unemployment S. Taxes on unemployment citizen, you are taxed by the United States on your worldwide income wherever you live. Taxes on unemployment You are normally entitled to take a credit for foreign taxes you pay or accrue. Taxes on unemployment Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. Taxes on unemployment S. Taxes on unemployment citizens. Taxes on unemployment If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. Taxes on unemployment Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. Taxes on unemployment For information on alien status, see Publication 519. Taxes on unemployment Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. Taxes on unemployment However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. Taxes on unemployment S. Taxes on unemployment possession on income from foreign sources that is effectively connected with a trade or business in the United States. Taxes on unemployment But if you must pay tax to a foreign country or U. Taxes on unemployment S. Taxes on unemployment possession on income from U. Taxes on unemployment S. Taxes on unemployment sources only because you are a citizen or a resident of that country or U. Taxes on unemployment S. Taxes on unemployment possession, do not use that tax in figuring the amount of your credit. Taxes on unemployment For information on alien status and effectively connected income, see Publication 519. Taxes on unemployment What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. Taxes on unemployment The tax must be imposed on you. Taxes on unemployment You must have paid or accrued the tax. Taxes on unemployment The tax must be the legal and actual foreign tax liability. Taxes on unemployment The tax must be an income tax (or a tax in lieu of an income tax). Taxes on unemployment Certain foreign taxes do not qualify for the credit even if the four tests are met. Taxes on unemployment See Foreign Taxes for Which You Cannot Take a Credit, later. Taxes on unemployment Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. Taxes on unemployment S. Taxes on unemployment possession. Taxes on unemployment For example, a tax that is deducted from your wages is considered to be imposed on you. Taxes on unemployment You cannot shift the right to claim the credit by contract or other means. Taxes on unemployment Foreign country. Taxes on unemployment   A foreign country includes any foreign state and its political subdivisions. Taxes on unemployment Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. Taxes on unemployment U. Taxes on unemployment S. Taxes on unemployment possessions. Taxes on unemployment   For foreign tax credit purposes, all qualified taxes paid to U. Taxes on unemployment S. Taxes on unemployment possessions are considered foreign taxes. Taxes on unemployment For this purpose, U. Taxes on unemployment S. Taxes on unemployment possessions include Puerto Rico and American Samoa. Taxes on unemployment   When the term “foreign country” is used in this publication, it includes U. Taxes on unemployment S. Taxes on unemployment possessions unless otherwise stated. Taxes on unemployment You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. Taxes on unemployment S. Taxes on unemployment possession. Taxes on unemployment However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. Taxes on unemployment Joint return. Taxes on unemployment   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. Taxes on unemployment Combined income. Taxes on unemployment   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. Taxes on unemployment 901-2(f)(3)(iii). Taxes on unemployment Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. Taxes on unemployment   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. Taxes on unemployment However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. Taxes on unemployment For more details, see paragraphs (f) and (h) of Regulations section 1. Taxes on unemployment 901-2. Taxes on unemployment For similar rules applicable to prior tax years, see Regulations section 1. Taxes on unemployment 901-2 (revised as of April 1, 2011). Taxes on unemployment Example. Taxes on unemployment You and your spouse reside in Country X, which imposes income tax on your combined incomes. Taxes on unemployment Both of you use the “u” as your functional currency. Taxes on unemployment Country X apportions tax based on income. Taxes on unemployment You had income of 30,000u and your spouse had income of 20,000u. Taxes on unemployment Your filing status on your U. Taxes on unemployment S. Taxes on unemployment income tax return is married filing separately. Taxes on unemployment You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. Taxes on unemployment S income tax return. Taxes on unemployment Your spouse can claim only 40% (20,000u/50,000u). Taxes on unemployment Partner or S corporation shareholder. Taxes on unemployment   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. Taxes on unemployment These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. Taxes on unemployment However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. Taxes on unemployment Beneficiary. Taxes on unemployment   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. Taxes on unemployment This amount will be shown on the Schedule K-1 you receive from the estate or trust. Taxes on unemployment However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. Taxes on unemployment Mutual fund shareholder. Taxes on unemployment   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. Taxes on unemployment You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. Taxes on unemployment If you do not receive this information, you will need to contact the fund. Taxes on unemployment Controlled foreign corporation shareholder. Taxes on unemployment   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. Taxes on unemployment If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. Taxes on unemployment Controlled foreign corporation. Taxes on unemployment   A controlled foreign corporation is a foreign corporation in which U. Taxes on unemployment S. Taxes on unemployment shareholders own more than 50% of the voting power or value of the stock. Taxes on unemployment You are considered a U. Taxes on unemployment S. Taxes on unemployment shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. Taxes on unemployment See Internal Revenue Code sections 951(b) and 958(b) for more information. Taxes on unemployment Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. Taxes on unemployment Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. Taxes on unemployment Foreign tax refund. Taxes on unemployment   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. Taxes on unemployment   For example, the United States has tax treaties with many countries allowing U. Taxes on unemployment S. Taxes on unemployment citizens and residents reductions in the rates of tax of those foreign countries. Taxes on unemployment However, some treaty countries require U. Taxes on unemployment S. Taxes on unemployment citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. Taxes on unemployment The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. Taxes on unemployment Subsidy received. Taxes on unemployment   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. Taxes on unemployment This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. Taxes on unemployment A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. Taxes on unemployment   The term “subsidy” includes any type of benefit. Taxes on unemployment Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Taxes on unemployment Shareholder receiving refund for corporate tax in integrated system. Taxes on unemployment   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. Taxes on unemployment You may be able to claim a refund of these taxes from the foreign government. Taxes on unemployment You must include the refund (including any amount withheld) in your income in the year received. Taxes on unemployment Any tax withheld from the refund is a qualified foreign tax. Taxes on unemployment Example. Taxes on unemployment You are a shareholder of a French corporation. Taxes on unemployment You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. Taxes on unemployment The French government imposes a 15% withholding tax ($15) on the refund you received. Taxes on unemployment You receive a check for $85. Taxes on unemployment You include $100 in your income. Taxes on unemployment The $15 of tax withheld is a qualified foreign tax. Taxes on unemployment Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. Taxes on unemployment Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. Taxes on unemployment Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. Taxes on unemployment See Taxes in Lieu of Income Taxes , later. Taxes on unemployment Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. Taxes on unemployment A foreign levy is an income tax only if it meets both of the following requirements. Taxes on unemployment It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. Taxes on unemployment The predominant character of the tax is that of an income tax in the U. Taxes on unemployment S. Taxes on unemployment sense. Taxes on unemployment A foreign levy may meet these requirements even if the foreign tax law differs from U. Taxes on unemployment S. Taxes on unemployment tax law. Taxes on unemployment The foreign law may include in income items that U. Taxes on unemployment S. Taxes on unemployment law does not include, or it may allow certain exclusions or deductions that U. Taxes on unemployment S. Taxes on unemployment law does not allow. Taxes on unemployment Specific economic benefit. Taxes on unemployment   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. Taxes on unemployment   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. Taxes on unemployment   However, see the exception discussed later under Pension, unemployment, and disability fund payments . Taxes on unemployment Economic benefits. Taxes on unemployment   Economic benefits include the following. Taxes on unemployment Goods. Taxes on unemployment Services. Taxes on unemployment Fees or other payments. Taxes on unemployment Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. Taxes on unemployment Discharges of contractual obligations. Taxes on unemployment   In most cases, the right or privilege merely to engage in business is not an economic benefit. Taxes on unemployment Dual-capacity taxpayers. Taxes on unemployment   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. Taxes on unemployment ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. Taxes on unemployment    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. Taxes on unemployment   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. Taxes on unemployment    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. Taxes on unemployment For more information about these agreements, see Publication 54. Taxes on unemployment Soak-up taxes. Taxes on unemployment   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. Taxes on unemployment A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. Taxes on unemployment This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. Taxes on unemployment Penalties and interest. Taxes on unemployment   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. Taxes on unemployment Taxes not based on income. Taxes on unemployment   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. Taxes on unemployment Taxes based on assets, such as property taxes, do not qualify for the credit. Taxes on unemployment Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. Taxes on unemployment A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. Taxes on unemployment A tax in lieu of an income tax does not have to be based on realized net income. Taxes on unemployment A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. Taxes on unemployment In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. Taxes on unemployment However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. Taxes on unemployment The soak-up tax. Taxes on unemployment The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. Taxes on unemployment Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. Taxes on unemployment These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. Taxes on unemployment S. Taxes on unemployment persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. Taxes on unemployment Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. Taxes on unemployment S. Taxes on unemployment gross income. Taxes on unemployment Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. Taxes on unemployment S. Taxes on unemployment income under the foreign earned income exclusion or the foreign housing exclusion. Taxes on unemployment See Publication 54 for more information on the foreign earned income and housing exclusions. Taxes on unemployment Wages completely excluded. Taxes on unemployment   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. Taxes on unemployment Wages partly excluded. Taxes on unemployment   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. Taxes on unemployment You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. Taxes on unemployment   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. Taxes on unemployment Deductible expenses do not include the foreign housing deduction. Taxes on unemployment   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Taxes on unemployment If the foreign law taxes foreign earned income and some other income (for example, earned income from U. Taxes on unemployment S. Taxes on unemployment sources or a type of income not subject to U. Taxes on unemployment S. Taxes on unemployment tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. Taxes on unemployment Example. Taxes on unemployment You are a U. Taxes on unemployment S. Taxes on unemployment citizen and a cash basis taxpayer, employed by Company X and living in Country A. Taxes on unemployment Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. Taxes on unemployment To find that part, do the following. Taxes on unemployment First, find the amount of business expenses allocable to excluded wages and therefore not deductible. Taxes on unemployment To do this, multiply the otherwise deductible expenses by a fraction. Taxes on unemployment That fraction is the excluded wages over your foreign earned income. Taxes on unemployment   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. Taxes on unemployment To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). Taxes on unemployment The result is $81,984. Taxes on unemployment Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). Taxes on unemployment Finally, multiply the foreign tax you paid by the resulting fraction. Taxes on unemployment   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. Taxes on unemployment Taxes on Income From Puerto Rico Exempt From U. Taxes on unemployment S. Taxes on unemployment Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. Taxes on unemployment For information on figuring the reduction, see Publication 570. Taxes on unemployment Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. Taxes on unemployment For more information on this exclusion, see Publication 570. Taxes on unemployment Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. Taxes on unemployment However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. Taxes on unemployment Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. Taxes on unemployment However, you can claim an itemized deduction for these taxes. Taxes on unemployment See Choosing To Take Credit or Deduction , earlier. Taxes on unemployment Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. Taxes on unemployment The following countries meet this description for 2013. Taxes on unemployment Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. Taxes on unemployment Cuba. Taxes on unemployment Iran. Taxes on unemployment Libya (but see Note later). Taxes on unemployment North Korea. Taxes on unemployment Sudan. Taxes on unemployment Syria. Taxes on unemployment Waiver of denial of the credit. Taxes on unemployment   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. Taxes on unemployment S. Taxes on unemployment companies in the sanctioned country. Taxes on unemployment The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. Taxes on unemployment Note. Taxes on unemployment Effective December 10, 2004, the President granted a waiver to Libya. Taxes on unemployment Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. Taxes on unemployment Limit on credit. Taxes on unemployment   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. Taxes on unemployment You must fill out a separate Form 1116 for this income. Taxes on unemployment This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. Taxes on unemployment Example. Taxes on unemployment You lived and worked in Iran until August, when you were transferred to Italy. Taxes on unemployment You paid taxes to each country on the income earned in that country. Taxes on unemployment You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. Taxes on unemployment Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. Taxes on unemployment You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. Taxes on unemployment Figuring the credit when a sanction ends. Taxes on unemployment    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. Taxes on unemployment For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. Taxes on unemployment Example. Taxes on unemployment The sanctions against Country X ended on July 31. Taxes on unemployment On August 19, you receive a distribution from a mutual fund of Country X income. Taxes on unemployment The fund paid Country X income tax for you on the distribution. Taxes on unemployment Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. Taxes on unemployment Amounts for the nonsanctioned period. Taxes on unemployment   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. Taxes on unemployment Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. Taxes on unemployment   Number of nonsanctioned days in year  Number of days in year Example. Taxes on unemployment You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. Taxes on unemployment Sanctions against Country X ended on July 11, 2013. Taxes on unemployment You are unable to determine how much of the income or tax is for the nonsanctioned period. Taxes on unemployment Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. Taxes on unemployment You would compute the income for the nonsanctioned period as follows. Taxes on unemployment 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. Taxes on unemployment 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. Taxes on unemployment Further information. Taxes on unemployment   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. Taxes on unemployment This Cumulative Bulletin can be found in many libraries and IRS offices. Taxes on unemployment Table 1. Taxes on unemployment Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. Taxes on unemployment Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. Taxes on unemployment The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). Taxes on unemployment The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. Taxes on unemployment If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. Taxes on unemployment When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Taxes on unemployment Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. Taxes on unemployment Withholding tax. Taxes on unemployment   For this purpose, withholding tax includes any tax determined on a gross basis. Taxes on unemployment It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Taxes on unemployment Ex-dividend date. Taxes on unemployment   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. Taxes on unemployment Example 1. Taxes on unemployment You bought common stock from a foreign corporation on November 3. Taxes on unemployment You sold the stock on November 19. Taxes on unemployment You received a dividend on this stock because you owned it on the ex-dividend date of November 5. Taxes on unemployment To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). Taxes on unemployment Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. Taxes on unemployment Example 2. Taxes on unemployment The facts are the same as in Example 1 except that you sold the stock on November 14. Taxes on unemployment You held the stock for only 11 days. Taxes on unemployment You are not entitled to the credit. Taxes on unemployment Exception. Taxes on unemployment   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. Taxes on unemployment See section 901(k)(4) of the Internal Revenue Code for more information. Taxes on unemployment Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. Taxes on unemployment When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Taxes on unemployment Withholding tax. Taxes on unemployment   For this purpose, withholding tax includes any tax determined on a gross basis. Taxes on unemployment It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Taxes on unemployment Exception for dealers. Taxes on unemployment   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. Taxes on unemployment See section 901(I)(2) of the Internal Revenue Code for more information. Taxes on unemployment Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. Taxes on unemployment A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. Taxes on unemployment S. Taxes on unemployment tax purposes but not for foreign tax purposes. Taxes on unemployment For more information, see Internal Revenue Code section 901(m). Taxes on unemployment The IRS intends to issue guidance that will explain this provision in greater detail. Taxes on unemployment Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. Taxes on unemployment Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. Taxes on unemployment For details, see Regulations section 1. Taxes on unemployment 901-3. Taxes on unemployment Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. Taxes on unemployment See the instructions for line 12 in the Form 1116 instructions to figure this reduction. Taxes on unemployment In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. Taxes on unemployment List of boycotting countries. Taxes on unemployment   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. Taxes on unemployment As of November 2013, the following countries are listed. Taxes on unemployment Iraq. Taxes on unemployment Kuwait. Taxes on unemployment Lebanon. Taxes on unemployment Libya. Taxes on unemployment Qatar. Taxes on unemployment Saudi Arabia. Taxes on unemployment Syria. Taxes on unemployment United Arab Emirates. Taxes on unemployment Yemen. Taxes on unemployment    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. Taxes on unemployment   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. Taxes on unemployment The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. Taxes on unemployment Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. Taxes on unemployment Public inspection. Taxes on unemployment   A determination and any related background file is open to public inspection. Taxes on unemployment However, your identity and certain other information will remain confidential. Taxes on unemployment Reporting requirements. Taxes on unemployment   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. Taxes on unemployment A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. Taxes on unemployment A partnership in which you are a partner. Taxes on unemployment A trust you are treated as owning. Taxes on unemployment Form 5713 required. Taxes on unemployment   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. Taxes on unemployment See the Instructions for Form 5713 for information on when and where to file the form. Taxes on unemployment Penalty for failure to file. Taxes on unemployment   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. Taxes on unemployment Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. Taxes on unemployment The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. Taxes on unemployment S. Taxes on unemployment tax liability (Form 1040, line 44) divided by your worldwide taxable income. Taxes on unemployment You may be entitled to carry over to other years taxes reduced under this rule. Taxes on unemployment See Internal Revenue Code section 907(f). Taxes on unemployment Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. Taxes on unemployment Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. Taxes on unemployment Taxes of U. Taxes on unemployment S. Taxes on unemployment Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. Taxes on unemployment If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. Taxes on unemployment See Penalty for not filing Form 5471 or Form 8865 , later. Taxes on unemployment U. Taxes on unemployment S. Taxes on unemployment persons controlling foreign corporations. Taxes on unemployment   If you are a U. Taxes on unemployment S. Taxes on unemployment citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. Taxes on unemployment S. Taxes on unemployment Persons With Respect To Certain Foreign Corporations. Taxes on unemployment Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. Taxes on unemployment U. Taxes on unemployment S. Taxes on unemployment persons controlling foreign partnerships. Taxes on unemployment   If you are a U. Taxes on unemployment S. Taxes on unemployment citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file