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Turbotax Freedom Edition

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Turbotax Freedom Edition

Turbotax freedom edition Publication 957 - Main Content Table of Contents 1. Turbotax freedom edition What is Back Pay?Reporting Back Pay Back Pay Under a Statute Nonstatutory Back Pay Format for Report to the SSA Questions 2. Turbotax freedom edition Special Wage PaymentsReporting Special Wage Payments Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments Nonqualified Deferred Compensation and Section 457 Plans Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) PlansSpecial rule for box 11 of Form W-2 (distributions and deferral in the same year). Turbotax freedom edition 1. Turbotax freedom edition What is Back Pay? Back pay is pay received in a tax year(s) for actual or deemed employment in an earlier tax year(s). Turbotax freedom edition For social security coverage and benefit purposes, all back pay, whether or not under a statute, is wages if it is payment for covered employment. Turbotax freedom edition Damages for personal injury, interest, penalties, and legal fees included with back pay awards are not wages. Turbotax freedom edition Report all back pay. Turbotax freedom edition However, the tax year(s) for which back pay is credited as wages for social security purposes is different if it is awarded under a statute. Turbotax freedom edition See Back Pay Under a Statute , later, for more information. Turbotax freedom edition Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. Turbotax freedom edition However, for income tax purposes, the IRS treats all back pay as wages in the year paid. Turbotax freedom edition Employers should use Form W-2, Wage and Tax Statement, or electronic wage reports to report back pay as wages in the year they actually pay the employee. Turbotax freedom edition The SSA no longer accepts reports on tapes, cartridges, and diskettes. Turbotax freedom edition Example. Turbotax freedom edition In 2012, Terry Morris earned wages of $50,000. Turbotax freedom edition In the same year, she received $100,000 in settlement of a back pay case against her employer that covered the periods January 2007 through December 2011. Turbotax freedom edition Her employer properly reflected social security wages of $110,100 and Medicare wages of $150,000 on her 2012 Form W-2. Turbotax freedom edition However, if an employer did not include back pay wages on a previously filed Form W-2, magnetic media, or electronically filed wage report, the employer should prepare a wage correction report, Form W-2c, Corrected Wage and Tax Statement, or electronically filed report, to add the back pay award to the wages previously reported. Turbotax freedom edition Example. Turbotax freedom edition If, in the above example, Terry Morris' employer had prepared her 2012 Form W-2 reporting social security and Medicare wages of only $50,000 each, the employer would have to correct that report. Turbotax freedom edition A Form W-2c correcting the 2012 Form W-2 would show previously reported social security and Medicare wages of $50,000 and the correct amount of $110,100 for social security wages and $150,000 for Medicare wages. Turbotax freedom edition SSA treatment of back pay under a statute. Turbotax freedom edition   Under the law, the SSA credits back pay awarded under a statute to an individual's earnings record in the period(s) the wages should have been paid. Turbotax freedom edition This is important because wages not credited to the proper year may result in lower social security benefits or failure to meet the requirements for benefits. Turbotax freedom edition   However, back pay under statute payments will remain posted to the employee's social security earnings record in the year reported on Form W-2 (or Form W-2c) unless the employer or employee notifies the SSA (in a separate, special report) of the back pay under a statute payment. Turbotax freedom edition Then, the SSA can allocate the statutory back pay to the appropriate periods. Turbotax freedom edition   If a back pay award is not made under a statute, the SSA credits back pay as wages in the year paid. Turbotax freedom edition    If employers do notify the SSA of this payment, they should prepare a special report (with the information noted below) and send it to: Social Security Administration Attn: CPS Back Pay Staff 7-B-15 SWT 1500 Woodlawn Drive Baltimore, MD 21241-0001 Be sure to send this special report to the above address because the SSA handles it separately from other reports. Turbotax freedom edition    If you paid the back pay award in the same tax year to which it applies, report the wages on that year's Form W-2. Turbotax freedom edition No further action is necessary. Turbotax freedom edition Example. Turbotax freedom edition In 2012, Judy Wilson received a salary of $30,000 and a back pay under statute award of $2,000 for the period January through June 2012. Turbotax freedom edition Her employer properly reported wages of $32,000 for social security and Medicare on her 2012 Form W-2. Turbotax freedom edition No further action is necessary. Turbotax freedom edition Information the SSA needs to properly credit back pay under a statute (special report). Turbotax freedom edition   After you complete the special report, you or the employee should send it to the SSA when or after you submit the Form W-2 (on paper or electronically) to the SSA for the year you pay the statutory back pay to the employee. Turbotax freedom edition There is no statute of limitations on the filing of the special report to enable the SSA to allocate the wages. Turbotax freedom edition The special report must include the following information. Turbotax freedom edition The employer's name, address, and employer identification number (EIN). Turbotax freedom edition A signed statement citing the federal or state statute under which the payment was made. Turbotax freedom edition If the statute is not identified, the SSA will assume the payment was not under a statute and will not allocate to earlier period(s). Turbotax freedom edition The name and telephone number of a person to contact. Turbotax freedom edition The SSA may have additional questions concerning the back pay case or the individual employee's information. Turbotax freedom edition A list of employees receiving the payment and the following information for each employee: The tax year you paid and reported the back pay. Turbotax freedom edition The employee's social security number (SSN). Turbotax freedom edition The employee's name (as shown on his or her social security card). Turbotax freedom edition The amount of the back pay award excluding any amounts specifically designated otherwise, for example, damages for personal injury, interest, penalties, and legal fees. Turbotax freedom edition The period(s) the back pay award covers (beginning and ending dates—month and year). Turbotax freedom edition The other wages paid subject to social security and/or Medicare taxes and reported in the same year as the back pay award (if none, show zero)*. Turbotax freedom edition Do not include the back pay award shown in that wage report. Turbotax freedom edition If you originally submitted the report under an establishment number, show that number and the amount of money that is to remain under that establishment number. Turbotax freedom edition The amount to allocate to each reporting period*. Turbotax freedom edition This includes any amount you want allocated (if applicable) to the tax year of the award payment. Turbotax freedom edition If you do not give the SSA specific amounts to allocate, the SSA does the allocation by dividing the back pay award by the number of months or years covered by the award. Turbotax freedom edition *Note. Turbotax freedom edition   For periods before January 1, 1978 (before January 1, 1981, for state and local government employers covered by a Section 218 agreement), show the wage amounts for each calendar quarter ending March 31, June 30, September 30, and December 31. Turbotax freedom edition For all tax years, show and identify the social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) separately. Turbotax freedom edition MQGE is applicable to federal employees beginning in 1983, and for certain state and local government employees beginning in 1986. Turbotax freedom edition For tax years 1991 and later, list the social security and Medicare wages separately. Turbotax freedom edition If you originally reported the individual's wages under an establishment or payroll record unit number, show the amount of wages to remain in the award year for that number and furnish that number to the SSA along with the EIN. Turbotax freedom edition Back Pay Under a Statute Back pay awarded under a statute is a payment by an employer following an award, determination, or agreement approved or sanctioned by a court or government agency responsible for enforcing a federal or state statute that protects an employee's right to employment or wages. Turbotax freedom edition Examples of pertinent statutes include: Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay Act, Fair Labor Standards Act, National Labor Relations Act, State minimum wage laws, and State statutes that protect rights to employment and wages. Turbotax freedom edition Payments based on laws that have a similar effect to those listed above also may qualify as payments made under a statute. Turbotax freedom edition Back pay awards, under some of the statutes listed above, may be compensation for personal injury and not pay for employment. Turbotax freedom edition Such awards are not wages for social security coverage purposes. Turbotax freedom edition If a court-approved or sanctioned settlement agreement states that the agreement is not an admission of discrimination, liability, or act of wrongdoing, the statement does not change the nature of a back pay award. Turbotax freedom edition The payments made in such a settlement may still be back pay and wages under the rules discussed here. Turbotax freedom edition Nonstatutory Back Pay A payment for back wages negotiated between an employer and employee without an award, determination, or agreement approved or sanctioned by a court or government agency, the payment is not made under a statute. Turbotax freedom edition Delayed wage payments and retroactive pay increases resulting from union negotiation or payments under local ordinances or regulations are back pay and are wages. Turbotax freedom edition However, they are not payments made under a statute. Turbotax freedom edition If you are uncertain whether the back pay award was under a qualified statute, you may need to contact your personnel department or legal counsel or the attorney who filed the suit. Turbotax freedom edition Format for Report to the SSA Use the format shown in Table 1, later, to send the SSA the information needed to properly credit back pay under a statute. Turbotax freedom edition In a cover letter, include: Name and address of the employer, Statute under which you paid the back pay, Name and telephone number of the employer contact, and Signature of the reporting official. Turbotax freedom edition Under certain circumstances, back pay may be a special wage payment and excluded from wages counted under the social security earnings test. Turbotax freedom edition If you pay back pay to an employee age 61 or older, report it to the SSA in accordance with this section. Turbotax freedom edition Read Special Wage Payments, later, for additional reporting instructions. Turbotax freedom edition Questions If you have questions concerning back pay under a statute, call the SSA at 1-800-772-6270. Turbotax freedom edition Exception. Turbotax freedom edition   If you are a state or local government employer who was covered by an agreement under Section 218 of the Social Security Act before January 1, 1987, and you paid a back pay award before January 1, 1987, which you did not report to the SSA, contact your state Social Security Administrator's office. Turbotax freedom edition Table 1. Turbotax freedom edition Format for Report (Under Covering Letter) to Request SSA to Allocate Back Pay Under Statute Wages Employer's EIN: xx-xxxxxxx Tax Year in Which Award Payment Was Paid: 2012 (1) SSN and Employee Name (2)1 Award Amount and Period(s) (3)2,3 Other Soc. Turbotax freedom edition Sec. Turbotax freedom edition /Med. Turbotax freedom edition Wages Paid In Award Year (4)3 Allocation     Soc. Turbotax freedom edition Sec. Turbotax freedom edition Med. Turbotax freedom edition /MQGE Year Soc. Turbotax freedom edition Sec. Turbotax freedom edition Med. Turbotax freedom edition /MQGE xxx-xx-xxxx HELEN T. Turbotax freedom edition SMITH $100,000 1/2009 - 12/2012 $40,000 $40,000 2009 2010 2011 2012 $20,000 25,000 27,000 28,000 $20,000 25,000 27,000 28,000 xxx-xx-xxxx SAM W. Turbotax freedom edition EVANS 30,000 7/89-12/91 -0- -0- 1989 1990 1991   6,000 12,000 12,000 xxx-xx-xxxx ROLAND S. Turbotax freedom edition ADAMS 15,000 7/80-12/81 -0- -0- 9/80 12/80 1981 3,500 3,500 8,000   1Exclude amounts specifically designated as damages, penalties, etc. Turbotax freedom edition  2Exclude the amount of back pay, if any, included in that amount. Turbotax freedom edition  3For periods before January 1, 1978 (and for state and local government (Section 218) employers before January 1, 1981), show the wage amounts by calendar quarters. Turbotax freedom edition The social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) must be shown separately FOR ALL YEARS. Turbotax freedom edition (Wages subject ONLY to MQGE would be shown in the Medicare/MQGE column; no wages would be shown in the Soc. Turbotax freedom edition Sec. Turbotax freedom edition column. Turbotax freedom edition ) For tax years 1991 and later, the social security and Medicare wages must be listed separately. Turbotax freedom edition Explanation of examples. Turbotax freedom edition Helen T. Turbotax freedom edition Smith–The back pay award, excluding interest, was $100,000 for the periods 1/2009-12/2012. Turbotax freedom edition In 2012, this employee was also paid $40,000 in other wages. Turbotax freedom edition (Her Form W-2 for 2012 reported $110,100 for social security and $140,000 for Medicare. Turbotax freedom edition The SSA allocation will result in adjusted posted wages of $68,000 for social security and $68,000 for Medicare for 2012. Turbotax freedom edition ) Sam W. Turbotax freedom edition Evans–The back pay award was $30,000 for the periods 7/89-12/91. Turbotax freedom edition This employee was hired in 1989 and was subject to MQGE only. Turbotax freedom edition He was no longer employed by this governmental employer in 2012. Turbotax freedom edition (His Form W-2 for 2012 reported $30,000 for social security and $30,000 for Medicare. Turbotax freedom edition After the SSA allocation, he will not have any net posted wages for 2012. Turbotax freedom edition ) Roland S. Turbotax freedom edition Adams–The back pay award was $15,000 for the periods 7/80-12/81. Turbotax freedom edition He was no longer employed by this state and local government (Section 218) employer in 2012. Turbotax freedom edition (His Form W-2 for 2012 reported $15,000 for social security and $15,000 for Medicare; after the SSA allocation, he will not have any net posted wages for 2012. Turbotax freedom edition ) If the state Social Security Administrator's office needs more information, they can contact the SSA at the following address:   Social Security Administration Office of Income Security Programs Office of Earnings and Program Integrity Policy 6401 Security Boulevard 2506 OPS Baltimore, MD 21235 2. Turbotax freedom edition Special Wage Payments A special wage payment (SWP) is an amount paid by an employer to an employee (or former employee) for services performed in a prior year. Turbotax freedom edition Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. Turbotax freedom edition Special wage payments made to a retired employee receiving social security or to an employee who continues to work while receiving social security benefits may reduce the benefits the individual receives if not reported to the SSA. Turbotax freedom edition Special wage payments may include (but are not limited to): Accumulated sick and vacation pay, Back pay, Bonuses, Deferred compensation, Payments because of retirement, Sales commissions, Severance pay, and Stock options. Turbotax freedom edition Note. Turbotax freedom edition Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments. Turbotax freedom edition Earnings Test. Turbotax freedom edition   Benefits paid to a social security beneficiary under full retirement age may be reduced if the beneficiary continues to work. Turbotax freedom edition The SSA uses the information in boxes 1, 3, and 5 of Form W-2 to determine the beneficiary's current year earnings. Turbotax freedom edition Special wage payments, which are for services performed in a prior year, will increase the current year earnings on Form W-2, which also may result in a reduction in the beneficiary's benefits. Turbotax freedom edition If a benefit is reduced because of a special wage payment, the beneficiary must get documentation from the employer before the SSA can restore the deducted portion. Turbotax freedom edition Therefore, employer reports of special wage payments help prevent incorrect benefit reductions. Turbotax freedom edition Reporting Special Wage Payments Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. Turbotax freedom edition Report income, social security, and/or Medicare taxes for special wage payments on Form W-2. Turbotax freedom edition See Nonqualified Deferred Compensation and Section 457 Plans, later, for reporting nonqualified deferred compensation plan deferrals and payments on Form W-2. Turbotax freedom edition In addition, report to the SSA special wage payments made during the reporting year to retired employees and employees who continue to work while receiving social security benefits. Turbotax freedom edition Submit reports after the close of the tax year. Turbotax freedom edition To avoid delays in processing, submit reports in time to reach the SSA by April 1. Turbotax freedom edition Use one of the following reporting methods. Turbotax freedom edition Electronic reporting. Turbotax freedom edition   Special wage payment files can be sent electronically by logging onto Business Services Online (BSO) via the socialsecurity. Turbotax freedom edition gov website. Turbotax freedom edition BSO enables organizations and authorized individuals to conduct business with and submit confidential information to the Social Security Administration. Turbotax freedom edition You must register to use this website. Turbotax freedom edition The web address is www. Turbotax freedom edition socialsecurity. Turbotax freedom edition gov/bso/bsowelcome. Turbotax freedom edition htm. Turbotax freedom edition   Use the specifications and record layout shown in  Table 2, later. Turbotax freedom edition Only one file at a time may be submitted. Turbotax freedom edition If your file is large (>10MB), or you have a slow internet connection, the transmission will be faster if the file is zipped. Turbotax freedom edition A zipped file contains a file that has been compressed to reduce its file size. Turbotax freedom edition WinZip and PKZIP are examples of acceptable compression packages. Turbotax freedom edition   Electronic submissions not meeting the specifications in Table 2 will be rejected. Turbotax freedom edition Paper listing. Turbotax freedom edition   A paper listing can be used to report special wage payments to several employees. Turbotax freedom edition Use the format shown in Table 3, later. Turbotax freedom edition Submit paper listings to the local SSA office nearest your place of business. Turbotax freedom edition Visit www. Turbotax freedom edition socialsecurity. Turbotax freedom edition gov/locator to find a Social Security office near you. Turbotax freedom edition Form SSA-131. Turbotax freedom edition   Use Form SSA-131 to report special wage payments made to an employee. Turbotax freedom edition Also use this form to report nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in box 11 of Form W-2. Turbotax freedom edition    This image is too large to be displayed in the current screen. Turbotax freedom edition Please click the link to view the image. Turbotax freedom edition Publication 957 Reporting Back Pay to the Social Security Administration Instructions for Form SSA–131   EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM 1. Turbotax freedom edition Provide the EIN that was used or will be used to report the employee's wages on the Form W-2. Turbotax freedom edition 2. Turbotax freedom edition Enter the date the employee retired. Turbotax freedom edition Enter “Not Retired” if the employee has not retired. Turbotax freedom edition 3. Turbotax freedom edition Enter the date that the employee last performed services; was not expected to return to work; and was not subject to recall to render additional services. Turbotax freedom edition This date should be the same as or earlier than the date in item “2”. Turbotax freedom edition Enter “Not Retired” if the employee has not retired. Turbotax freedom edition 4. Turbotax freedom edition Enter the wages that were paid to the employee in the tax year that were for services that were performed in years prior to the tax year or that were paid on account of retirement. Turbotax freedom edition  Examples (not all inclusive) of payments to be included: Payments in lieu of vacation that were earned in a year prior to the tax year. Turbotax freedom edition Accumulated sick payments which were paid in a lump sum based on “retirement” as the sole condition of payment. Turbotax freedom edition Accumulated sick payments paid at or after the date in item 3, which were earned in a year prior to the tax year. Turbotax freedom edition Payments “on account of retirement”–dismissal, severance or termination pay paid because of retirement. Turbotax freedom edition Bonuses which are paid pursuant to a prior contract, agreement or promise causing the employee to expect such payments regularly; or announced to induce the employee to work more steadily, rapidly or efficiently or to remain with the employer. Turbotax freedom edition Stock Options. Turbotax freedom edition   Do not include in item “4” payments: For annual, sick, holiday, or vacation pay if used (absence from work) prior to the date of retirement (earlier of items “2” or “3”). Turbotax freedom edition That were reported or will be reported under “Nonqualified Plans” on the Form W-2. Turbotax freedom edition That were deducted from the employee's wages and paid to a deferred compensation plan (e. Turbotax freedom edition g. Turbotax freedom edition , 401k). Turbotax freedom edition Employees health and dental plan benefits (non-covered/non-taxable for Social Security Wages). Turbotax freedom edition Bonuses earned and paid in the tax year. Turbotax freedom edition 5. Turbotax freedom edition Check whether payments listed in item 4 will be made for years after the tax year. Turbotax freedom edition If yes, please show the amounts and years in which these will be paid, if known. Turbotax freedom edition 6. Turbotax freedom edition Nonqualified deferred compensation and section 457 plans only. Turbotax freedom edition If you were unable to report nonqualified deferred compensation or section 457 plan payments and deferrals (contributions) on Form W-2 because both payments and deferrals occurred during the year, show the amount of wages earned by the employee during the tax year. Turbotax freedom edition Generally, the wages earned will be the compensation reported in block 1 of Form W-2 less payments from a nonqualified deferred compensation (or 457) plan, but including any amounts deferred under the plan during the tax year (See IRS Publication 957). Turbotax freedom edition Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404. Turbotax freedom edition 702. Turbotax freedom edition The information that you provide will be used in making a determination regarding the amount of Social Security benefits payable to the above named individual. Turbotax freedom edition While your response is voluntary, if you do not respond we may not be able to make a correct determination regarding the amount of Social Security benefits payable to the above named individual for the year in question. Turbotax freedom edition We may also use the information you give us when we match records by computer. Turbotax freedom edition Matching programs compare our records with those of other Federal, State, or local government agencies. Turbotax freedom edition Many agencies may use matching programs to find or prove that a person qualifies for benefits paid by the Federal Government. Turbotax freedom edition The law allows us to do this even if you do not agree to it. Turbotax freedom edition Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. Turbotax freedom edition If you want to learn more about this, contact any Social Security Office. Turbotax freedom edition The Paperwork Reduction Act: This information collection meets the clearance requirements of 44 U. Turbotax freedom edition S. Turbotax freedom edition C. Turbotax freedom edition §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. Turbotax freedom edition You are not required to answer these questions unless we display a valid Office of Management and Budget control number. Turbotax freedom edition We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions. Turbotax freedom edition Form SSA-131 (8-2001) EF (06-2002)   Submit Form SSA-131 to the SSA office nearest your place of business. Turbotax freedom edition Or, the employee can submit it to the SSA office handling the claim. Turbotax freedom edition You or the employee must submit this form before the SSA can exclude the special wage payments for purposes of the earnings test. Turbotax freedom edition If reporting on more than one employee, complete a separate Form SSA-131 for each employee or use the paper listing format (except for reporting nonqualified and section 457 plan deferrals and payments) in Table 3. Turbotax freedom edition Do not report payments from nonqualified deferred compensation or section 457 plans that were reported in box 11 of Form W-2. Turbotax freedom edition Use Form SSA-131 if deferrals to and payments from nonqualified or section 457 plans occurred during the tax year. Turbotax freedom edition Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments A nonstatutory (nonqualified) option to purchase stock which is exercised in a year after the year in which the option was earned is a special wage payment. Turbotax freedom edition It should not count for the social security earnings test. Turbotax freedom edition Nonstatutory (nonqualified) options exercised as special wage payments by retired employees or employees who continue to work while receiving social security benefits should be reported by employers using the above reporting methods. Turbotax freedom edition Nonqualified Deferred Compensation and Section 457 Plans A nonqualified deferred compensation plan is a plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan. Turbotax freedom edition For social security and Medicare purposes, deferred compensation plans for employees of state and local governments (section 457 plans) are treated the same as nonqualified plans. Turbotax freedom edition Nonqualified and section 457 plans are reported differently than other special wage payments. Turbotax freedom edition See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions. Turbotax freedom edition Reporting Amounts Deferred to Nonqualified and Section 457 Plans Generally, when the related services are performed, nonqualified deferred compensation is subject to social security and Medicare tax when deferred. Turbotax freedom edition However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. Turbotax freedom edition The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends. Turbotax freedom edition No risk of forfeiture. Turbotax freedom edition   If there is no risk of forfeiture, report wage amounts deferred to a nonqualified deferred compensation or section 457 plan in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. Turbotax freedom edition Example. Turbotax freedom edition Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. Turbotax freedom edition The plan has no risk of forfeiture. Turbotax freedom edition In 2012, Employee A defers $20,000 to the plan from a total salary of $200,000. Turbotax freedom edition Form W-2 Completion Amount Box 1 $200,000 Box 3* 110,100 Box 5 200,000 *Wage base maximum for tax year 2012 Risk of forfeiture lapses before retirement. Turbotax freedom edition   If the substantial risk of forfeiture lapses before the employee retires, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. Turbotax freedom edition The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year. Turbotax freedom edition   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. Turbotax freedom edition If the employee continues working, future deferrals are social security and Medicare wages when they are earned. Turbotax freedom edition    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. Turbotax freedom edition Risk of forfeiture lapses at retirement. Turbotax freedom edition   When an employee's right to a payment is contingent upon working until retirement, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, as social security and/or Medicare wages in the year of retirement. Turbotax freedom edition Add the amount to other wages paid in that year, and enter in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. Turbotax freedom edition   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. Turbotax freedom edition    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. Turbotax freedom edition Example—risk of forfeiture. Turbotax freedom edition At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, Employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. Turbotax freedom edition B's wages, including this year's deferred amount, are $80,000. Turbotax freedom edition Form W-2 Completion Amount Box 1 $60,000 Box 3* 110,100 Box 5 200,000 Box 11 120,000 *Wage base maximum for tax year 2012 Reporting Payments From Nonqualified and Nongovernmental Section 457 Plans When an employee or former employee retires and begins receiving payments (distributions) from a nonqualified or nongovernmental section 457 plan, report the payments in boxes 1 and 11 of Form W-2. Turbotax freedom edition Report payments (distributions) from a governmental section 457 plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Turbotax freedom edition Example. Turbotax freedom edition Employee D retired from the XYZ company and began receiving social security benefits. Turbotax freedom edition XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. Turbotax freedom edition In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. Turbotax freedom edition D made no deferrals to the nonqualified plan this year. Turbotax freedom edition Form W-2 Completion Amount Box 1 $52,000 Box 3 27,000 Box 5 27,000 Box 11 25,000 Report the $12,000 bonus to the SSA using electronic reporting, a paper listing, or Form SSA-131. Turbotax freedom edition For more information, see Reporting Special Wage Payments , earlier. Turbotax freedom edition Reporting Payments and Deferrals in the Same Year Do not complete box 11 when payments (distributions) are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). Turbotax freedom edition Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. Turbotax freedom edition Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified or section 457 plan, but including any amounts deferred under the plan during the tax year. Turbotax freedom edition See Form SSA-131 and its instructions, earlier. Turbotax freedom edition Example. Turbotax freedom edition Employee K retired this year from Company XYZ and began receiving social security benefits. Turbotax freedom edition During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. Turbotax freedom edition K also received $75,000 in payments from the company's nonqualified plan. Turbotax freedom edition Form W-2 Completion Amount Special Wage Payment $75,000 Wages 50,000 Minus: deferral 35,000 Total reported in Box 1 $90,000     Wages including deferral reported in  Boxes 3 and 5 $50,000     Leave Box 11 blank. Turbotax freedom edition File Form SSA-131 -0-     Form SSA-131 Completion Amount from Box 1 of Form W-2 $90,000 Minus: payments from a nonqualified plan 75,000 Plus: amounts deferred into the plan during the year 35,000 Total wages earned for purposes of Form SSA-131 (item 6) $50,000 Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) Plans It is not necessary to show amounts deferred during the year under an NQDC plan subject to section 409A. Turbotax freedom edition If you report section 409A deferrals, show the amount in box 12 of Form W-2 using code Y. Turbotax freedom edition For more information, see Notice 2008-115, 2008-52 I. Turbotax freedom edition R. Turbotax freedom edition B. Turbotax freedom edition 1367, available at www. Turbotax freedom edition irs. Turbotax freedom edition gov/irb/2008-52_IRB/ar10. Turbotax freedom edition html. Turbotax freedom edition Special reporting rules apply when an NQDC plan is not compliant with section 409A (when there has been a “plan failure”). Turbotax freedom edition Income included under section 409A from an NQDC plan is reported in box 1 and box 12 of Form W-2 using code Z. Turbotax freedom edition See Notice 2008-115. Turbotax freedom edition The following examples use small dollar amounts for illustrative purposes. Turbotax freedom edition However, the amount reported in box 3 of Form W-2 is always limited by the social security earnings wage base (for example, $110,100 for 2012). Turbotax freedom edition The term “vested” in the following examples means that the amount deferred is not subject to a substantial risk of forfeiture. Turbotax freedom edition Conversely, the term “not vested” means that the amount deferred is subject to a substantial risk of forfeiture. Turbotax freedom edition The examples assume that the NQDC plan is in compliance with section 409A, and that amounts deferred under the plan are not includible in gross income as they are deferred. Turbotax freedom edition For purposes of the examples, it is assumed that the regular pay of the employee is remuneration for employment and wages for employment tax purposes except to the extent the deferral of a portion of the regular pay results in a reduction in wages. Turbotax freedom edition Example 1: Deferral that is immediately vested (no substantial risk of forfeiture) with no distributions and no vesting of prior-year deferrals. Turbotax freedom edition For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into her employer’s NQDC plan. Turbotax freedom edition The deferral of $20 was vested upon deferral and there was an employer match of $10 under the plan, which was also vested. Turbotax freedom edition Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10. Turbotax freedom edition Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 vested deferral) $180 Box 3 ($200 Regular pay plus $10 Employer match, vested) 210 Box 5 ($200 Regular pay plus $10 Employer match, vested) 210 Box 11 -0- Example 2: Deferral with delayed vesting (substantial risk of forfeiture) of employee and employer portions (no distributions and no vesting of prior-year deferrals). Turbotax freedom edition For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. Turbotax freedom edition The deferral of $20 was not vested upon deferral, and there was an employer match of $10 under the plan, which was also not vested. Turbotax freedom edition Regular pay = $200; Deferral, not vested = $20; Employer match, not vested = $10. Turbotax freedom edition Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, not vested) $180 Box 3 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 5 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 11 -0- Example 3: Deferral that is immediately vested with prior-year deferrals and investment earnings on the prior-year deferrals that are now vesting (no distributions). Turbotax freedom edition For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. Turbotax freedom edition The deferral of $20 was vested upon deferral. Turbotax freedom edition During the year, $100 of prior-year deferrals and $15 of investment earnings on the $100 of prior-year deferrals became vested. Turbotax freedom edition Regular pay = $200; Deferral, vested = $20; Vesting of prior-year deferrals = $100; Vesting of investment earnings on $100 of prior-year deferral = $15. Turbotax freedom edition Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, vested) $180 Box 3 ($200 Regular pay plus $100 vested prior-year deferral plus $15 earnings on deferral) 315 Box 5 ($200 Regular pay plus $100 vested prior-year deferral plus $15 vested investment earnings on prior year deferral) 315 Box 11 ($100 vested prior-year deferral plus $15 earnings) 115 Example 4: No deferrals but there are distributions (no vesting of prior-year deferrals). Turbotax freedom edition For the year, the employee’s regular pay was $100, and the employee deferred no pay into the employer’s NQDC plan. Turbotax freedom edition There was no vesting of prior-year deferrals under the plan. Turbotax freedom edition During the year, there were total distributions of $50 from the plan to the employee. Turbotax freedom edition Regular pay = $100; Distribution = $50. Turbotax freedom edition Form W-2 Completion Amount Box 1 ($100 Regular pay plus $50 Distribution) $150 Box 3 ($100 Regular pay ) 100 Box 5 ($100 Regular pay) 100 Box 11 ($50 Distribution) 50 Special rule for box 11 of Form W-2 (distributions and deferral in the same year). Turbotax freedom edition   If, in the same year, there are NQDC distributions and there are deferrals that are reportable in boxes 3 and/or 5 (current or prior-year deferrals) of Form W-2, do not complete box 11. Turbotax freedom edition Instead, report on Form SSA-131 the total amount the employee earned during the year. Turbotax freedom edition * Submit the SSA-131 to the nearest SSA office or give it to the employee. Turbotax freedom edition   *Generally, the amount earned by the employee during the tax year for purposes of item 6 of Form SSA-131 is the amount reported in box 1 of Form W-2 plus current-year deferrals that are vested (employee and employer portions) less distributions. Turbotax freedom edition Do not consider prior-year deferrals that are vesting in the current year. Turbotax freedom edition If there was a plan failure, the box 1 amount in this calculation should be as if there were no plan failure. Turbotax freedom edition Example 5: Deferral that is immediately vested and there are distributions (no vesting of prior-year deferrals). Turbotax freedom edition For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Turbotax freedom edition There was also an employer match of $10. Turbotax freedom edition The deferral and employer match were vested upon deferral. Turbotax freedom edition There was no vesting of prior-year deferrals under the plan. Turbotax freedom edition During the year, there were total distributions of $50 from the plan to the employee. Turbotax freedom edition Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10; Distribution = $50. Turbotax freedom edition Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, vested) $230 Boxes 3 and 5 ($200 Regular pay plus $10 vested employer match) 210 Leave Box 11 blank. Turbotax freedom edition File Form SSA-131 -0-     Form SSA-131 Completion Item 6 - amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $30 vested current year employee deferral and employer match) $210 Example 6: Deferral with delayed vesting and there are distributions (no vesting of prior-year deferrals). Turbotax freedom edition For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Turbotax freedom edition The deferral was not vested upon deferral. Turbotax freedom edition There was no vesting of prior-year deferrals under the plan. Turbotax freedom edition During the year, there were total distributions of $50 from the plan to the employee. Turbotax freedom edition Regular pay = $200; Deferral, not vested = $20; Distribution = $50. Turbotax freedom edition Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay minus $20 deferral that is not vested) 180 Box 11 ($50 Distribution). Turbotax freedom edition 50 Example 7: Deferral that is immediately vested and there are distributions (also vesting of prior-year deferrals and earnings on those prior-year deferrals). Turbotax freedom edition For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Turbotax freedom edition The deferral was vested upon deferral. Turbotax freedom edition There was vesting of $100 of prior-year deferrals and $15 of earnings on the $100 prior-year deferral under the plan. Turbotax freedom edition During the year, there were total distributions of $50 from the plan to the employee. Turbotax freedom edition Regular pay = $200; Deferral, vested = $20; Distribution = $50; Vesting of prior-year deferrals ($100) and earnings on those prior-year deferrals ($15) = $115. Turbotax freedom edition Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 vested deferral $230 Boxes 3 and 5 ($200 Regular pay Plus $115 vested prior deferral (with vested earnings on the deferral)) 315 Leave Box 11 blank. Turbotax freedom edition File Form SSA-131 -0-     Form SSA-131 Completion Item 6, amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $20 vested current year deferral) $200 Example 8: Deferral with delayed vesting and there are distributions (vesting of prior-year deferrals, including employer matches, and earnings on those deferrals). Turbotax freedom edition For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Turbotax freedom edition The deferral was not vested upon deferral. Turbotax freedom edition There was also vesting of prior-year deferrals and employer matches and earnings on these amounts under the plan ($115). Turbotax freedom edition During the year, there were total distributions of $50 from the plan to the employee. Turbotax freedom edition Regular pay = $200; Deferral, not vested = $20; Distribution = $50; Vesting of prior-year deferrals and employer match = $100 plus earnings on that $100 of $15. Turbotax freedom edition Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay plus $115 vested prior-year deferral and prior year employer match and earning on the prior year amounts minus $20 deferral that is not vested) 295 Leave Box 11 blank. Turbotax freedom edition File Form SSA-131 -0-     Form SSA-131 Completion Item 6 ($230 Amount from Box 1 of Form W-2 minus $50 Distribution) $180 Table 2. Turbotax freedom edition Specifications for Electronic Reporting of Special Wage Payments Record Position  Field Size   Description Start End 1 3 3 Record Type—must include only the capital letters “SWP” 4 12 9 SSN—must be numeric and may not be all zeros 13 27 15 Last Name—all capitals and no punctuation; may have blanks on right only 28 38 11 First Name—all capitals and no punctuation; may have blanks on right only 39 39 1 Middle Initial—must be either a capital letter or blank 40 48 9 EIN—must be numeric and may not be all zeros 49 59 11 Payment—must be numeric; may not be all zeros; last two digits on right are assumed to be cents; no period or dollar sign 60 63 4 Payment Year—must be only a four-digit year 64 66 3 SSA Office Code—must be numeric and may be all zeros 67 67 1 Payment Type Code—must be the capital letter “T” 68 117 50 Filler  The record format is a fixed length of 117. Turbotax freedom edition  The file format is ASCII. Turbotax freedom edition  Submit only one file at a time. Turbotax freedom edition   Table 3. Turbotax freedom edition Sample—Paper Listing for Reporting Special Wage Payments to Several Employees Report of Special Wage PaymentsTax Year: Page of A. Turbotax freedom edition Employer Name: EIN:   Address: Contact Name:     Phone: ( )   . Turbotax freedom edition 1) B. Turbotax freedom edition Employee Name: (Last) (First) (MI)   C. Turbotax freedom edition SSN: D. Turbotax freedom edition SWP:$ E. Turbotax freedom edition Type: Other: 2) B. Turbotax freedom edition Employee Name: (Last) (First) (MI)   C. Turbotax freedom edition SSN: D. Turbotax freedom edition SWP:$ E. Turbotax freedom edition Type: Other: 3) B. Turbotax freedom edition Employee Name: (Last) (First) (MI)   C. Turbotax freedom edition SSN: D. Turbotax freedom edition SWP:$ E. Turbotax freedom edition Type: Other: 4) B. Turbotax freedom edition Employee Name: (Last) (First) (MI)   C. Turbotax freedom edition SSN: D. Turbotax freedom edition SWP:$ E. Turbotax freedom edition Type: Other: 5) B. Turbotax freedom edition Employee Name: (Last) (First) (MI)   C. Turbotax freedom edition SSN: D. Turbotax freedom edition SWP:$ E. Turbotax freedom edition Type: Other:     INSTRUCTIONS:   Enter tax year and page number. Turbotax freedom edition   A. Turbotax freedom edition Employer name, employer identification number (EIN), address, the name of a contact person, and a phone number where the contact person can be reached during normal business hours. Turbotax freedom edition   B. Turbotax freedom edition Employee's name. Turbotax freedom edition   C. Turbotax freedom edition Employee's social security number (SSN). Turbotax freedom edition   D. Turbotax freedom edition Total amount of special wage payments made to the employee. Turbotax freedom edition   E. Turbotax freedom edition Type of special wage payment from the following list: (1) Vacation Pay, (2) Sick Pay, (3) Severance Pay,  (4) Bonus, (5) Deferred Compensation, (6) Stock Options, and (7) Other—Please explain. Turbotax freedom edition   Do not use a paper listing for nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in block 11 of Form W-2. Turbotax freedom edition (Get Form SSA-131. Turbotax freedom edition )                 Prev  Up  Next   Home   More Online Publications
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The Turbotax Freedom Edition

Turbotax freedom edition 3. Turbotax freedom edition   Self-Employment Tax Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Who Must Pay Self-Employment Tax?Employed by a U. Turbotax freedom edition S. Turbotax freedom edition Church Effect of Exclusion Members of the Clergy Income From U. Turbotax freedom edition S. Turbotax freedom edition Possessions Exemption From Social Security and Medicare Taxes Topics - This chapter discusses: Who must pay self-employment tax, and Who is exempt from self-employment tax. Turbotax freedom edition Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 517 Social Security and Other Information for Members of the Clergy and Religious Workers Form (and Instructions) Form 1040-PR Planilla para la Declaración de la Contribución Federal sobre el Trabajo por Cuenta Propia Form 1040-SS U. Turbotax freedom edition S. Turbotax freedom edition Self-Employment Tax Return Form 4361 Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners Schedule SE (Form 1040) Self-Employment Tax See chapter 7 for information about getting these publications and forms. Turbotax freedom edition Who Must Pay Self-Employment Tax? If you are a self-employed U. Turbotax freedom edition S. Turbotax freedom edition citizen or resident, the rules for paying self-employment tax are generally the same whether you are living in the United States or abroad. Turbotax freedom edition The self-employment tax is a social security and Medicare tax on net earnings from self- employment. Turbotax freedom edition You must pay self-employment tax if your net earnings from self-employment are at least $400. Turbotax freedom edition For 2013, the maximum amount of net earnings from self-employment that is subject to the social security portion of the tax is $113,700. Turbotax freedom edition All net earnings are subject to the Medicare portion of the tax. Turbotax freedom edition Employed by a U. Turbotax freedom edition S. Turbotax freedom edition Church If you were employed by a U. Turbotax freedom edition S. Turbotax freedom edition church or a qualified church-controlled organization that chose exemption from social security and Medicare taxes and you received wages of $108. Turbotax freedom edition 28 or more from the organization, the amounts paid to you are subject to self-employment tax. Turbotax freedom edition However, you can choose to be exempt from social security and Medicare taxes if you are a member of a recognized religious sect. Turbotax freedom edition See Publication 517 for more information about church employees and self-employment tax. Turbotax freedom edition Effect of Exclusion You must take all of your self-employment income into account in figuring your net earnings from self-employment, even income that is exempt from income tax because of the foreign earned income exclusion. Turbotax freedom edition Example. Turbotax freedom edition You are in business abroad as a consultant and qualify for the foreign earned income exclusion. Turbotax freedom edition Your foreign earned income is $95,000, your business deductions total $27,000, and your net profit is $68,000. Turbotax freedom edition You must pay self-employment tax on all of your net profit, including the amount you can exclude from income. Turbotax freedom edition Members of the Clergy If you are a member of the clergy, you are treated as self-employed for self-employment tax purposes. Turbotax freedom edition Your U. Turbotax freedom edition S. Turbotax freedom edition self-employment tax is based upon net earnings from self-employment figured without regard to the foreign earned income exclusion or the foreign housing exclusion. Turbotax freedom edition You can receive exemption from coverage for your ministerial duties if you conscientiously oppose public insurance due to religious reasons or if you oppose it due to the religious principles of your denomination. Turbotax freedom edition You must file Form 4361 to apply for this exemption. Turbotax freedom edition This subject is discussed in further detail in Publication 517. Turbotax freedom edition Income From U. Turbotax freedom edition S. Turbotax freedom edition Possessions If you are a U. Turbotax freedom edition S. Turbotax freedom edition citizen or resident alien and you own and operate a business in Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, or the U. Turbotax freedom edition S. Turbotax freedom edition Virgin Islands, you must pay tax on your net earnings from self-employment (if they are $400 or more) from those sources. Turbotax freedom edition You must pay the self-employment tax whether or not the income is exempt from U. Turbotax freedom edition S. Turbotax freedom edition income taxes (or whether or not you otherwise must file a U. Turbotax freedom edition S. Turbotax freedom edition income tax return). Turbotax freedom edition Unless your situation is described below, attach Schedule SE (Form 1040) to your U. Turbotax freedom edition S. Turbotax freedom edition income tax return. Turbotax freedom edition If you do not have to file Form 1040 with the United States and you are a resident of any of the U. Turbotax freedom edition S. Turbotax freedom edition possessions listed in the preceding paragraph, figure your self-employment tax on Form 1040-SS. Turbotax freedom edition Residents of Puerto Rico may file the Spanish-language Formulario 1040-PR. Turbotax freedom edition If you are not enclosing a check or money order, file your return with the: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215 If you are enclosing a check or money order, file your return with the: Department of the Treasury P. Turbotax freedom edition O. Turbotax freedom edition Box 1303 Charlotte, NC 28201-1303 Exemption From Social Security and Medicare Taxes The United States may reach agreements with foreign countries to eliminate dual coverage and dual contributions (taxes) to social security systems for the same work. Turbotax freedom edition See Bilateral Social Security (Totalization) Agreements in chapter 2 under Social Security and Medicare Taxes. Turbotax freedom edition As a general rule, self-employed persons who are subject to dual taxation will only be covered by the social security system of the country where they reside. Turbotax freedom edition For more information on how any specific agreement affects self-employed persons, contact the United States Social Security Administration, as discussed under Bilateral Social Security (Totalization) Agreements in chapter 2. Turbotax freedom edition If your self-employment earnings should be exempt from foreign social security tax and subject only to U. Turbotax freedom edition S. Turbotax freedom edition self-employment tax, you should request a certificate of coverage from the U. Turbotax freedom edition S. Turbotax freedom edition Social Security Administration, Office of International Programs. Turbotax freedom edition The certificate will establish your exemption from the foreign social security tax. Turbotax freedom edition Send the request to the: Social Security Administration Office of International Programs P. Turbotax freedom edition O. Turbotax freedom edition Box 17741 Baltimore, MD 21235-7741 Prev  Up  Next   Home   More Online Publications