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Www irs gov freefile com 2. Www irs gov freefile com   Filing Status Table of Contents What's New Introduction Useful Items - You may want to see: Marital StatusDivorced persons. Www irs gov freefile com Divorce and remarriage. Www irs gov freefile com Annulled marriages. Www irs gov freefile com Head of household or qualifying widow(er) with dependent child. Www irs gov freefile com Considered married. Www irs gov freefile com Same-sex marriage. Www irs gov freefile com Spouse died during the year. Www irs gov freefile com Married persons living apart. Www irs gov freefile com Single Married Filing JointlyFiling a Joint Return Married Filing SeparatelySpecial Rules Head of HouseholdConsidered Unmarried Keeping Up a Home Qualifying Person Qualifying Widow(er) With Dependent Child What's New Filing status for same-sex married couples. Www irs gov freefile com  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. Www irs gov freefile com See Same-sex marriage under Marital Status, later. Www irs gov freefile com Introduction This chapter helps you determine which filing status to use. Www irs gov freefile com There are five filing statuses. Www irs gov freefile com Single. Www irs gov freefile com Married Filing Jointly. Www irs gov freefile com Married Filing Separately. Www irs gov freefile com Head of Household. Www irs gov freefile com Qualifying Widow(er) With Dependent Child. Www irs gov freefile com If more than one filing status applies to you, choose the one that will give you the lowest tax. Www irs gov freefile com You must determine your filing status before you can determine whether you must file a tax return (chapter 1), your standard deduction (chapter 20), and your tax (chapter 30). Www irs gov freefile com You also use your filing status to determine whether you are eligible to claim certain deductions and credits. Www irs gov freefile com Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 519 U. Www irs gov freefile com S. Www irs gov freefile com Tax Guide for Aliens 555 Community Property Marital Status In general, your filing status depends on whether you are considered unmarried or married. Www irs gov freefile com Unmarried persons. Www irs gov freefile com   You are considered unmarried for the whole year if, on the last day of your tax year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree. Www irs gov freefile com State law governs whether you are married or legally separated under a divorce or separate maintenance decree. Www irs gov freefile com Divorced persons. Www irs gov freefile com   If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year. Www irs gov freefile com Divorce and remarriage. Www irs gov freefile com   If you obtain a divorce for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to and do, in fact, remarry each other in the next tax year, you and your spouse must file as married individuals in both years. Www irs gov freefile com Annulled marriages. Www irs gov freefile com    If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. Www irs gov freefile com You must file Form 1040X, Amended U. Www irs gov freefile com S. Www irs gov freefile com Individual Income Tax Return, claiming single or head of household status for all tax years that are affected by the annulment and are not closed by the statute of limitations for filing a tax return. Www irs gov freefile com Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Www irs gov freefile com If you filed your original return early (for example, March 1), your return is considered filed on the due date (generally April 15). Www irs gov freefile com However, if you had an extension to file (for example, until October 15) but you filed earlier and we received it on July 1, your return is considered filed on July 1. Www irs gov freefile com Head of household or qualifying widow(er) with dependent child. Www irs gov freefile com   If you are considered unmarried, you may be able to file as a head of household or as a qualifying widow(er) with a dependent child. Www irs gov freefile com See Head of Household and Qualifying Widow(er) With Dependent Child to see if you qualify. Www irs gov freefile com Married persons. Www irs gov freefile com   If you are considered married, you and your spouse can file a joint return or separate returns. Www irs gov freefile com Considered married. Www irs gov freefile com   You are considered married for the whole year if, on the last day of your tax year, you and your spouse meet any one of the following tests. Www irs gov freefile com You are married and living together as a married couple. Www irs gov freefile com You are living together in a common law marriage recognized in the state where you now live or in the state where the common law marriage began. Www irs gov freefile com You are married and living apart, but not legally separated under a decree of divorce or separate maintenance. Www irs gov freefile com You are separated under an interlocutory (not final) decree of divorce. Www irs gov freefile com Same-sex marriage. Www irs gov freefile com   For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Www irs gov freefile com The term “spouse” includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. Www irs gov freefile com However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. Www irs gov freefile com For more details, see Publication 501. Www irs gov freefile com Spouse died during the year. Www irs gov freefile com   If your spouse died during the year, you are considered married for the whole year for filing status purposes. Www irs gov freefile com   If you did not remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. Www irs gov freefile com For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er) With Dependent Child . Www irs gov freefile com   If you remarried before the end of the tax year, you can file a joint return with your new spouse. Www irs gov freefile com Your deceased spouse's filing status is married filing separately for that year. Www irs gov freefile com Married persons living apart. Www irs gov freefile com   If you live apart from your spouse and meet certain tests, you may be able to file as head of household even if you are not divorced or legally separated. Www irs gov freefile com If you qualify to file as head of household instead of married filing separately, your standard deduction will be higher. Www irs gov freefile com Also, your tax may be lower, and you may be able to claim the earned income credit. Www irs gov freefile com See Head of Household , later. Www irs gov freefile com Single Your filing status is single if you are considered unmarried and you do not qualify for another filing status. Www irs gov freefile com To determine your marital status, see Marital Status , earlier. Www irs gov freefile com Widow(er). Www irs gov freefile com   Your filing status may be single if you were widowed before January 1, 2013, and did not remarry before the end of 2013. Www irs gov freefile com You may, however, be able to use another filing status that will give you a lower tax. Www irs gov freefile com See Head of Household and Qualifying Widow(er) With Dependent Child , later, to see if you qualify. Www irs gov freefile com How to file. Www irs gov freefile com   You can file Form 1040. Www irs gov freefile com If you have taxable income of less than $100,000, you may be able to file Form 1040A. Www irs gov freefile com If, in addition, you have no dependents, and are under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Www irs gov freefile com If you file Form 1040A or Form 1040, show your filing status as single by checking the box on line 1. Www irs gov freefile com Use the Single column of the Tax Table or Section A of the Tax Computation Worksheet to figure your tax. Www irs gov freefile com Married Filing Jointly You can choose married filing jointly as your filing status if you are considered married and both you and your spouse agree to file a joint return. Www irs gov freefile com On a joint return, you and your spouse report your combined income and deduct your combined allowable expenses. Www irs gov freefile com You can file a joint return even if one of you had no income or deductions. Www irs gov freefile com If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Www irs gov freefile com Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses. Www irs gov freefile com If you and your spouse each have income, you may want to figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). Www irs gov freefile com You can choose the method that gives the two of you the lower combined tax. Www irs gov freefile com How to file. Www irs gov freefile com   If you file as married filing jointly, you can use Form 1040. Www irs gov freefile com If you and your spouse have taxable income of less than $100,000, you may be able to file Form 1040A. Www irs gov freefile com If, in addition, you and your spouse have no dependents, are both under 65 and not blind, and meet other requirements, you can file Form 1040EZ. Www irs gov freefile com If you file Form 1040 or Form 1040A, show this filing status by checking the box on line 2. Www irs gov freefile com Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. Www irs gov freefile com Spouse died. Www irs gov freefile com   If your spouse died during the year, you are considered married for the whole year and can choose married filing jointly as your filing status. Www irs gov freefile com See Spouse died during the year under Marital Status, earlier, for more information. Www irs gov freefile com   If your spouse died in 2014 before filing a 2013 return, you can choose married filing jointly as your filing status on your 2013 return. Www irs gov freefile com Divorced persons. Www irs gov freefile com   If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose married filing jointly as your filing status. Www irs gov freefile com Filing a Joint Return Both you and your spouse must include all of your income, exemptions, and deductions on your joint return. Www irs gov freefile com Accounting period. Www irs gov freefile com   Both of you must use the same accounting period, but you can use different accounting methods. Www irs gov freefile com See Accounting Periods and Accounting Methods in chapter 1. Www irs gov freefile com Joint responsibility. Www irs gov freefile com   Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. Www irs gov freefile com This means that if one spouse does not pay the tax due, the other may have to. Www irs gov freefile com Or, if one spouse does not report the correct tax, both spouses may be responsible for any additional taxes assessed by the IRS. Www irs gov freefile com One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse. Www irs gov freefile com You may want to file separately if: You believe your spouse is not reporting all of his or her income, or You do not want to be responsible for any taxes due if your spouse does not have enough tax withheld or does not pay enough estimated tax. Www irs gov freefile com Divorced taxpayer. Www irs gov freefile com   You may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return filed before your divorce. Www irs gov freefile com This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. Www irs gov freefile com Relief from joint responsibility. Www irs gov freefile com   In some cases, one spouse may be relieved of joint responsibility for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Www irs gov freefile com You can ask for relief no matter how small the liability. Www irs gov freefile com   There are three types of relief available. Www irs gov freefile com Innocent spouse relief. Www irs gov freefile com Separation of liability (available only to joint filers who are divorced, widowed, legally separated, or have not lived together for the 12 months ending on the date the election for this relief is filed). Www irs gov freefile com Equitable relief. Www irs gov freefile com    You must file Form 8857, Request for Innocent Spouse Relief, to request relief from joint responsibility. Www irs gov freefile com Publication 971, Innocent Spouse Relief, explains these kinds of relief and who may qualify for them. Www irs gov freefile com Signing a joint return. Www irs gov freefile com   For a return to be considered a joint return, both spouses generally must sign the return. Www irs gov freefile com Spouse died before signing. Www irs gov freefile com   If your spouse died before signing the return, the executor or administrator must sign the return for your spouse. Www irs gov freefile com If neither you nor anyone else has yet been appointed as executor or administrator, you can sign the return for your spouse and enter “Filing as surviving spouse” in the area where you sign the return. Www irs gov freefile com Spouse away from home. Www irs gov freefile com   If your spouse is away from home, you should prepare the return, sign it, and send it to your spouse to sign so that it can be filed on time. Www irs gov freefile com Injury or disease prevents signing. Www irs gov freefile com   If your spouse cannot sign because of disease or injury and tells you to sign for him or her, you can sign your spouse's name in the proper space on the return followed by the words “By (your name), Husband (or Wife). Www irs gov freefile com ” Be sure to also sign in the space provided for your signature. Www irs gov freefile com Attach a dated statement, signed by you, to the return. Www irs gov freefile com The statement should include the form number of the return you are filing, the tax year, and the reason your spouse cannot sign, and should state that your spouse has agreed to your signing for him or her. Www irs gov freefile com Signing as guardian of spouse. Www irs gov freefile com   If you are the guardian of your spouse who is mentally incompetent, you can sign the return for your spouse as guardian. Www irs gov freefile com Spouse in combat zone. Www irs gov freefile com   You can sign a joint return for your spouse if your spouse cannot sign because he or she is serving in a combat zone (such as the Persian Gulf Area, Serbia, Montenegro, Albania, or Afghanistan), even if you do not have a power of attorney or other statement. Www irs gov freefile com Attach a signed statement to your return explaining that your spouse is serving in a combat zone. Www irs gov freefile com For more information on special tax rules for persons who are serving in a combat zone, or who are in missing status as a result of serving in a combat zone, see Publication 3, Armed Forces' Tax Guide. Www irs gov freefile com Other reasons spouse cannot sign. Www irs gov freefile com    If your spouse cannot sign the joint return for any other reason, you can sign for your spouse only if you are given a valid power of attorney (a legal document giving you permission to act for your spouse). Www irs gov freefile com Attach the power of attorney (or a copy of it) to your tax return. Www irs gov freefile com You can use Form 2848, Power of Attorney and Declaration of Representative. Www irs gov freefile com Nonresident alien or dual-status alien. Www irs gov freefile com   Generally, a married couple cannot file a joint return if either one is a nonresident alien at any time during the tax year. Www irs gov freefile com However, if one spouse was a nonresident alien or dual-status alien who was married to a U. Www irs gov freefile com S. Www irs gov freefile com citizen or resident alien at the end of the year, the spouses can choose to file a joint return. Www irs gov freefile com If you do file a joint return, you and your spouse are both treated as U. Www irs gov freefile com S. Www irs gov freefile com residents for the entire tax year. Www irs gov freefile com See chapter 1 of Publication 519. Www irs gov freefile com Married Filing Separately You can choose married filing separately as your filing status if you are married. Www irs gov freefile com This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return. Www irs gov freefile com If you and your spouse do not agree to file a joint return, you must use this filing status unless you qualify for head of household status, discussed later. Www irs gov freefile com You may be able to choose head of household filing status if you are considered unmarried because you live apart from your spouse and meet certain tests (explained later, under Head of Household ). Www irs gov freefile com This can apply to you even if you are not divorced or legally separated. Www irs gov freefile com If you qualify to file as head of household, instead of as married filing separately, your tax may be lower, you may be able to claim the earned income credit and certain other credits, and your standard deduction will be higher. Www irs gov freefile com The head of household filing status allows you to choose the standard deduction even if your spouse chooses to itemize deductions. Www irs gov freefile com See Head of Household , later, for more information. Www irs gov freefile com You will generally pay more combined tax on separate returns than you would on a joint return for the reasons listed under Special Rules, later. Www irs gov freefile com However, unless you are required to file separately, you should figure your tax both ways (on a joint return and on separate returns). Www irs gov freefile com This way you can make sure you are using the filing status that results in the lowest combined tax. Www irs gov freefile com When figuring the combined tax of a married couple, you may want to consider state taxes as well as federal taxes. Www irs gov freefile com How to file. Www irs gov freefile com   If you file a separate return, you generally report only your own income, exemptions, credits, and deductions. Www irs gov freefile com You can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another person. Www irs gov freefile com You can file Form 1040. Www irs gov freefile com If your taxable income is less than $100,000, you may be able to file Form 1040A. Www irs gov freefile com Select this filing status by checking the box on line 3 of either form. Www irs gov freefile com Enter your spouse's full name and SSN or ITIN in the spaces provided. Www irs gov freefile com If your spouse does not have and is not required to have an SSN or ITIN, enter “NRA” in the space for your spouse's SSN. Www irs gov freefile com Use the Married filing separately column of the Tax Table or Section C of the Tax Computation Worksheet to figure your tax. Www irs gov freefile com Special Rules If you choose married filing separately as your filing status, the following special rules apply. Www irs gov freefile com Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for. Www irs gov freefile com   Your tax rate generally is higher than on a joint return. Www irs gov freefile com Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return. Www irs gov freefile com You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000). Www irs gov freefile com If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. Www irs gov freefile com For more information about these expenses, the credit, and the exclusion, see chapter 32. Www irs gov freefile com You cannot take the earned income credit. Www irs gov freefile com You cannot take the exclusion or credit for adoption expenses in most cases. Www irs gov freefile com You cannot take the education credits (the American opportunity credit and lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction. Www irs gov freefile com You cannot exclude any interest income from qualified U. Www irs gov freefile com S. Www irs gov freefile com savings bonds you used for higher education expenses. Www irs gov freefile com If you lived with your spouse at any time during the tax year: You cannot claim the credit for the elderly or the disabled, and You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received. Www irs gov freefile com The following credits and deductions are reduced at income levels half those for a joint return: The child tax credit, The retirement savings contributions credit, The deduction for personal exemptions, and Itemized deductions. Www irs gov freefile com Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). Www irs gov freefile com If your spouse itemizes deductions, you cannot claim the standard deduction. Www irs gov freefile com If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return. Www irs gov freefile com Adjusted gross income (AGI) limits. Www irs gov freefile com   If your AGI on a separate return is lower than it would have been on a joint return, you may be able to deduct a larger amount for certain deductions that are limited by AGI, such as medical expenses. Www irs gov freefile com Individual retirement arrangements (IRAs). Www irs gov freefile com   You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse were covered by an employee retirement plan at work during the year. Www irs gov freefile com Your deduction is reduced or eliminated if your income is more than a certain amount. Www irs gov freefile com This amount is much lower for married individuals who file separately and lived together at any time during the year. Www irs gov freefile com For more information, see How Much Can You Deduct in chapter 17. Www irs gov freefile com Rental activity losses. Www irs gov freefile com   If you actively participated in a passive rental real estate activity that produced a loss, you generally can deduct the loss from your nonpassive income, up to $25,000. Www irs gov freefile com This is called a special allowance. Www irs gov freefile com However, married persons filing separate returns who lived together at any time during the year cannot claim this special allowance. Www irs gov freefile com Married persons filing separate returns who lived apart at all times during the year are each allowed a $12,500 maximum special allowance for losses from passive real estate activities. Www irs gov freefile com See Limits on Rental Losses in chapter 9. Www irs gov freefile com Community property states. Www irs gov freefile com   If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. Www irs gov freefile com See Publication 555. Www irs gov freefile com Joint Return After Separate Returns You can change your filing status from a separate return to a joint return by filing an amended return using Form 1040X. Www irs gov freefile com You generally can change to a joint return any time within 3 years from the due date of the separate return or returns. Www irs gov freefile com This does not include any extensions. Www irs gov freefile com A separate return includes a return filed by you or your spouse claiming married filing separately, single, or head of household filing status. Www irs gov freefile com Separate Returns After Joint Return Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return. Www irs gov freefile com Exception. Www irs gov freefile com   A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. Www irs gov freefile com The personal representative has 1 year from the due date of the return (including extensions) to make the change. Www irs gov freefile com See Publication 559, Survivors, Executors, and Administrators, for more information on filing a return for a decedent. Www irs gov freefile com Head of Household You may be able to file as head of household if you meet all the following requirements. Www irs gov freefile com You are unmarried or “considered unmarried” on the last day of the year. Www irs gov freefile com See Marital Status , earlier, and Considered Unmarried , later. Www irs gov freefile com You paid more than half the cost of keeping up a home for the year. Www irs gov freefile com A qualifying person lived with you in the home for more than half the year (except for temporary absences, such as school). Www irs gov freefile com However, if the qualifying person is your dependent parent, he or she does not have to live with you. Www irs gov freefile com See Special rule for parent , later, under Qualifying Person. Www irs gov freefile com If you qualify to file as head of household, your tax rate usually will be lower than the rates for single or married filing separately. Www irs gov freefile com You will also receive a higher standard deduction than if you file as single or married filing separately. Www irs gov freefile com Kidnapped child. Www irs gov freefile com   A child may qualify you to file as head of household even if the child has been kidnapped. Www irs gov freefile com For more information, see Publication 501. Www irs gov freefile com How to file. Www irs gov freefile com   If you file as head of household, you can use Form 1040. Www irs gov freefile com If your taxable income is less than $100,000, you may be able to file Form 1040A. Www irs gov freefile com Indicate your choice of this filing status by checking the box on line 4 of either form. Www irs gov freefile com Use the Head of a household column of the Tax Table or Section D of the Tax Computation Worksheet to figure your tax. Www irs gov freefile com Considered Unmarried To qualify for head of household status, you must be either unmarried or considered unmarried on the last day of the year. Www irs gov freefile com You are considered unmarried on the last day of the tax year if you meet all the following tests. Www irs gov freefile com You file a separate return (defined earlier under Joint Return After Separate Returns ). Www irs gov freefile com You paid more than half the cost of keeping up your home for the tax year. Www irs gov freefile com Your spouse did not live in your home during the last 6 months of the tax year. Www irs gov freefile com Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. Www irs gov freefile com See Temporary absences , under Qualifying Person, later. Www irs gov freefile com Your home was the main home of your child, stepchild, or foster child for more than half the year. Www irs gov freefile com (See Home of qualifying person , under Qualifying Person, later, for rules applying to a child's birth, death, or temporary absence during the year. Www irs gov freefile com ) You must be able to claim an exemption for the child. Www irs gov freefile com However, you meet this test if you cannot claim the exemption only because the noncustodial parent can claim the child using the rules described in Children of divorced or separated parents (or parents who live apart) under Qualifying Child in chapter 3, or in Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) under Qualifying Relative in chapter 3. Www irs gov freefile com The general rules for claiming an exemption for a dependent are explained under Exemptions for Dependents in chapter 3. Www irs gov freefile com If you were considered married for part of the year and lived in a community property state (listed earlier under Married Filing Separately), special rules may apply in determining your income and expenses. Www irs gov freefile com See Publication 555 for more information. Www irs gov freefile com Nonresident alien spouse. Www irs gov freefile com   You are considered unmarried for head of household purposes if your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien. Www irs gov freefile com However, your spouse is not a qualifying person for head of household purposes. Www irs gov freefile com You must have another qualifying person and meet the other tests to be eligible to file as a head of household. Www irs gov freefile com Choice to treat spouse as resident. Www irs gov freefile com   You are considered married if you choose to treat your spouse as a resident alien. Www irs gov freefile com See Publication 519. Www irs gov freefile com Keeping Up a Home To qualify for head of household status, you must pay more than half of the cost of keeping up a home for the year. Www irs gov freefile com You can determine whether you paid more than half of the cost of keeping up a home by using Worksheet 2–1. Www irs gov freefile com Worksheet 2-1. Www irs gov freefile com Cost of Keeping Up a Home   Amount You Paid Total Cost Property taxes $ $ Mortgage interest expense     Rent     Utility charges     Repairs/maintenance     Property insurance     Food consumed on the premises     Other household expenses     Totals $ $ Minus total amount you paid   () Amount others paid   $ If the total amount you paid is more than the amount others paid, you meet the requirement of paying more than half the cost of keeping up the home. Www irs gov freefile com Costs you include. Www irs gov freefile com   Include in the cost of keeping up a home expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home. Www irs gov freefile com   If you used payments you received under Temporary Assistance for Needy Families (TANF) or other public assistance programs to pay part of the cost of keeping up your home, you cannot count them as money you paid. Www irs gov freefile com However, you must include them in the total cost of keeping up your home to figure if you paid over half the cost. Www irs gov freefile com Costs you do not include. Www irs gov freefile com   Do not include the costs of clothing, education, medical treatment, vacations, life insurance, or transportation. Www irs gov freefile com Also, do not include the rental value of a home you own or the value of your services or those of a member of your household. Www irs gov freefile com Qualifying Person See Table 2-1 to see who is a qualifying person. Www irs gov freefile com Any person not described in Table 2-1 is not a qualifying person. Www irs gov freefile com Table 2-1. Www irs gov freefile com Who Is a Qualifying Person Qualifying You To File as Head of Household?1 Caution. Www irs gov freefile com See the text of this chapter for the other requirements you must meet to claim head of household filing status. Www irs gov freefile com IF the person is your . Www irs gov freefile com . Www irs gov freefile com . Www irs gov freefile com   AND . Www irs gov freefile com . Www irs gov freefile com . Www irs gov freefile com   THEN that person is . Www irs gov freefile com . Www irs gov freefile com . Www irs gov freefile com qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2   he or she is single   a qualifying person, whether or not you can claim an exemption for the person. Www irs gov freefile com   he or she is married and you can claim an exemption for him or her   a qualifying person. Www irs gov freefile com   he or she is married and you cannot claim an exemption for him or her   not a qualifying person. Www irs gov freefile com 3 qualifying relative4 who is your father or mother   you can claim an exemption for him or her5   a qualifying person. Www irs gov freefile com 6   you cannot claim an exemption for him or her   not a qualifying person. Www irs gov freefile com qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests)   he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and you can claim an exemption for him or her5   a qualifying person. Www irs gov freefile com   he or she did not live with you more than half the year   not a qualifying person. Www irs gov freefile com   he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and is your qualifying relative only because he or she lived with you all year as a member of your household   not a qualifying person. Www irs gov freefile com   you cannot claim an exemption for him or her   not a qualifying person. Www irs gov freefile com 1A person cannot qualify more than one taxpayer to use the head of household filing status for the year. Www irs gov freefile com 2The term “qualifying child” is defined in chapter 3. Www irs gov freefile com Note. Www irs gov freefile com If you are a noncustodial parent, the term “qualifying child” for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of divorced or separated parents (or parents who live apart) under Qualifying Child in chapter 3. Www irs gov freefile com If you are the custodial parent and those rules apply, the child generally is your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption. Www irs gov freefile com 3This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return. Www irs gov freefile com 4The term “ qualifying relative ” is defined in chapter 3. Www irs gov freefile com 5If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. Www irs gov freefile com See Multiple Support Agreement in chapter 3. Www irs gov freefile com 6See Special rule for parent . Www irs gov freefile com Example 1—child. Www irs gov freefile com Your unmarried son lived with you all year and was 18 years old at the end of the year. Www irs gov freefile com He did not provide more than half of his own support and does not meet the tests to be a qualifying child of anyone else. Www irs gov freefile com As a result, he is your qualifying child (see Qualifying Child in chapter 3) and, because he is single, your qualifying person for you to claim head of household filing status. Www irs gov freefile com Example 2—child who is not qualifying person. Www irs gov freefile com The facts are the same as in Example 1 except your son was 25 years old at the end of the year and his gross income was $5,000. Www irs gov freefile com Because he does not meet the age test (explained under Qualifying Child in chapter 3), your son is not your qualifying child. Www irs gov freefile com Because he does not meet the gross income test (explained later under Qualifying Relative in chapter 3), he is not your qualifying relative. Www irs gov freefile com As a result, he is not your qualifying person for head of household purposes. Www irs gov freefile com Example 3—girlfriend. Www irs gov freefile com Your girlfriend lived with you all year. Www irs gov freefile com Even though she may be your qualifying relative if the gross income and support tests (explained in chapter 3) are met, she is not your qualifying person for head of household purposes because she is not related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3. Www irs gov freefile com See Table 2-1. Www irs gov freefile com Example 4—girlfriend's child. Www irs gov freefile com The facts are the same as in Example 3 except your girlfriend's 10-year-old son also lived with you all year. Www irs gov freefile com He is not your qualifying child and, because he is your girlfriend's qualifying child, he is not your qualifying relative (see Not a Qualifying Child Test in chapter 3). Www irs gov freefile com As a result, he is not your qualifying person for head of household purposes. Www irs gov freefile com Home of qualifying person. Www irs gov freefile com   Generally, the qualifying person must live with you for more than half of the year. Www irs gov freefile com Special rule for parent. Www irs gov freefile com   If your qualifying person is your father or mother, you may be eligible to file as head of household even if your father or mother does not live with you. Www irs gov freefile com However, you must be able to claim an exemption for your father or mother. Www irs gov freefile com Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. Www irs gov freefile com   You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly. Www irs gov freefile com Death or birth. Www irs gov freefile com   You may be eligible to file as head of household even if the individual who qualifies you for this filing status is born or dies during the year. Www irs gov freefile com If the individual is your qualifying child, the child must have lived with you for more than half the part of the year he or she was alive. Www irs gov freefile com If the individual is anyone else, see Publication 501. Www irs gov freefile com Temporary absences. Www irs gov freefile com   You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. Www irs gov freefile com It must be reasonable to assume the absent person will return to the home after the temporary absence. Www irs gov freefile com You must continue to keep up the home during the absence. Www irs gov freefile com Qualifying Widow(er) With Dependent Child If your spouse died in 2013, you can use married filing jointly as your filing status for 2013 if you otherwise qualify to use that status. Www irs gov freefile com The year of death is the last year for which you can file jointly with your deceased spouse. Www irs gov freefile com See Married Filing Jointly , earlier. Www irs gov freefile com You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year your spouse died. Www irs gov freefile com For example, if your spouse died in 2012, and you have not remarried, you may be able to use this filing status for 2013 and 2014. Www irs gov freefile com This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you do not itemize deductions). Www irs gov freefile com It does not entitle you to file a joint return. Www irs gov freefile com How to file. Www irs gov freefile com   If you file as qualifying widow(er) with dependent child, you can use Form 1040. Www irs gov freefile com If you also have taxable income of less than $100,000 and meet certain other conditions, you may be able to file Form 1040A. Www irs gov freefile com Check the box on line 5 of either form. Www irs gov freefile com Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax. Www irs gov freefile com Eligibility rules. Www irs gov freefile com   You are eligible to file your 2013 return as a qualifying widow(er) with dependent child if you meet all of the following tests. Www irs gov freefile com You were entitled to file a joint return with your spouse for the year your spouse died. Www irs gov freefile com It does not matter whether you actually filed a joint return. Www irs gov freefile com Your spouse died in 2011 or 2012 and you did not remarry before the end of 2013. Www irs gov freefile com You have a child or stepchild for whom you can claim an exemption. Www irs gov freefile com This does not include a foster child. Www irs gov freefile com This child lived in your home all year, except for temporary absences. Www irs gov freefile com See Temporary absences , earlier, under Head of Household. Www irs gov freefile com There are also exceptions, described later, for a child who was born or died during the year and for a kidnapped child. Www irs gov freefile com You paid more than half the cost of keeping up a home for the year. Www irs gov freefile com See Keeping Up a Home , earlier, under Head of Household. Www irs gov freefile com Example. Www irs gov freefile com John's wife died in 2011. Www irs gov freefile com John has not remarried. Www irs gov freefile com During 2012 and 2013, he continued to keep up a home for himself and his child, who lives with him and for whom he can claim an exemption. Www irs gov freefile com For 2011 he was entitled to file a joint return for himself and his deceased wife. Www irs gov freefile com For 2012 and 2013, he can file as qualifying widower with a dependent child. Www irs gov freefile com After 2013 he can file as head of household if he qualifies. Www irs gov freefile com Death or birth. Www irs gov freefile com    You may be eligible to file as a qualifying widow(er) with dependent child if the child who qualifies you for this filing status is born or dies during the year. Www irs gov freefile com You must have provided more than half of the cost of keeping up a home that was the child's main home during the entire part of the year he or she was alive. Www irs gov freefile com Kidnapped child. Www irs gov freefile com   A child may qualify you for qualifying widow(er) with dependent child, even if the child has been kidnapped. Www irs gov freefile com See Publication 501. Www irs gov freefile com    As mentioned earlier, this filing status is available for only 2 years following the year your spouse died. 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Powers of Attorney for LLCs

If… And… Then the taxpayer is… Form 2848, POA is…

The LLC is a single member disregarded entity…

(except for employment taxes for which the entity is not considered disregarded; see Treas. Reg. § 301.7701-2(c)(2)(iv)(B))

The business or activity is reporting income and expenses on Form 1040, Schedules C or E… The individual. Spouses cannot sign on behalf of the member/spouse unless a separate POA exists naming the spouse.  Signed by the individual (member) and should include the SSN (and if one exists for employment or excise taxes, the EIN of the LLC.)
The business or activity is reporting income on Form 1041, Trust or Estate Tax Return The trustee, executor or other fiduciary responsible for filing the Form 1041 return; Generally the fiduciary must submit Form 56. Signed by the trustee, executor or fiduciary with the authority to bind the trust or estate, listing the EIN from the Form 1041.

The issue is employment taxes reported on Forms 940/941 series

The LLC business.

Signed by the LLC member.

See Treas. Reg. § 301.7701-2(c)(2)(iv)(B)

The LLC (regardless of number of members) elects to be treated as an association taxable as a corporation… The business is reporting income on Form 1120, U.S. Corporation Tax Return… The corporation Signed by a current corporate officer or employee having the authority to bind the corporation using the corporate EIN. 
The business is reporting income on Form 1120 S, U.S. Income Tax Return for an S Corporation and liability is determined at the corporate level… The corporation Signed by a current corporate officer or employee having the authority to bind the corporation using the corporate EIN. 
The business is reporting income on Form 1120 S, U.S. Income Tax Return for an S Corporation and liability is determined at the shareholder level… The individual shareholder Signed by the shareholder using the SSN (or in the case of a qualifying trust, the trust EIN).

The LLC is a multiple member entity…

Also refer to the TEFRA Rules

The business or activity is reporting on Form 1065, U.S. Return of Partnership Income, is not subject to TEFRA rules and the liability is determined at the partnership level (for example: employment taxes) The partnership  Signed by any manager authorized to act in the name of the partnership (based on state law that LLC manager has the authority to bind the partnership); the partnership uses its EIN. 
The business or activity is reporting on Form 1065, U.S. Return of Partnership Income, is not subject to TEFRA rules and the liability is determined at the partner level (eg: flow through items, distributive shares of income, deductions, credits, etc.)… Each partner separately Signed by each partner using his/her SSN. See flowchart below.
The LLC is a TEFRA partnership and has designated a Tax Matters Partner (TMP) on its return or via Form 13798-L for regular partnership level business The partners Form 2848 is signed by the manager under state law or the TMP. Generally, only a TMP signed POA can extend the period for assessing partners and only a manager signed POA can sign documents for the LLC itself. If the TMP is not a natural person, the attribution for who acts on behalf of that partner/entity signs the POA (for example: the person authorized under state law to sign on behalf of a partnership, officer of a corporation, trustee of a trust, etc.). 
The LLC is a TEFRA partnership and has designated a TMP but involves issues binding non-notice partners or requests for partnership level administrative adjustments The partners Not allowed. Only the TMP can file a partnership-level AAR or sign a settlement agreement binding non-notice partners.
The LLC is a TEFRA partnership and has not designated a TMP The partners A manager under state law or the default TMP under the largest profits interests test. See IRC § 6231(a)(7)(B);Treas. Reg. § 301.6231(a)(7)-2
Page Last Reviewed or Updated: 06-Dec-2013

The Www Irs Gov Freefile Com

Www irs gov freefile com Publication 15-B - Main Content Table of Contents 1. Www irs gov freefile com Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. Www irs gov freefile com Fringe Benefit Exclusion RulesAccident 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 Working Condition Benefits 3. Www irs gov freefile com Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. Www irs gov freefile com Rules for Withholding, Depositing, and ReportingTransfer of property. Www irs gov freefile com Amount of deposit. Www irs gov freefile com Limitation. Www irs gov freefile com Conformity rules. Www irs gov freefile com Election not to withhold income tax. Www irs gov freefile com How To Get Tax Help 1. Www irs gov freefile com Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. Www irs gov freefile com For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work. Www irs gov freefile com Performance of services. Www irs gov freefile com   A person who performs services for you does not have to be your employee. Www irs gov freefile com A person may perform services for you as an independent contractor, partner, or director. Www irs gov freefile com Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services. Www irs gov freefile com Provider of benefit. Www irs gov freefile com   You are the provider of a fringe benefit if it is provided for services performed for you. Www irs gov freefile com You are considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. Www irs gov freefile com For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you are the provider of this fringe benefit even though the customer is actually providing the day care. Www irs gov freefile com Recipient of benefit. Www irs gov freefile com   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. Www irs gov freefile com That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. Www irs gov freefile com For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. Www irs gov freefile com Are Fringe Benefits Taxable? Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Www irs gov freefile com Section 2 discusses the exclusions that apply to certain fringe benefits. Www irs gov freefile com Any benefit not excluded under the rules discussed in section 2 is taxable. Www irs gov freefile com Including taxable benefits in pay. Www irs gov freefile com   You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. Www irs gov freefile com Any amount the law excludes from pay. Www irs gov freefile com Any amount the recipient paid for the benefit. Www irs gov freefile com The rules used to determine the value of a fringe benefit are discussed in section 3. Www irs gov freefile com   If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. Www irs gov freefile com However, you can use special rules to withhold, deposit, and report the employment taxes. Www irs gov freefile com These rules are discussed in section 4. Www irs gov freefile com   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. Www irs gov freefile com However, you may have to report the benefit on one of the following information returns. Www irs gov freefile com If the recipient receives the benefit as: Use: An independent contractor Form 1099-MISC, Miscellaneous Income A partner Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Www irs gov freefile com For more information, see the instructions for the forms listed above. Www irs gov freefile com Cafeteria Plans A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. Www irs gov freefile com If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. Www irs gov freefile com Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. Www irs gov freefile com However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Www irs gov freefile com Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. Www irs gov freefile com Qualified benefits. Www irs gov freefile com   A cafeteria plan can include the following benefits discussed in section 2. Www irs gov freefile com Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). Www irs gov freefile com Adoption assistance. Www irs gov freefile com Dependent care assistance. Www irs gov freefile com Group-term life insurance coverage (including costs that cannot be excluded from wages). Www irs gov freefile com Health savings accounts (HSAs). Www irs gov freefile com Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. Www irs gov freefile com Benefits not allowed. Www irs gov freefile com   A cafeteria plan cannot include the following benefits discussed in section 2. Www irs gov freefile com Archer MSAs. Www irs gov freefile com See Accident and Health Benefits in section 2. Www irs gov freefile com Athletic facilities. Www irs gov freefile com De minimis (minimal) benefits. Www irs gov freefile com Educational assistance. Www irs gov freefile com Employee discounts. Www irs gov freefile com Employer-provided cell phones. Www irs gov freefile com Lodging on your business premises. Www irs gov freefile com Meals. Www irs gov freefile com Moving expense reimbursements. Www irs gov freefile com No-additional-cost services. Www irs gov freefile com Transportation (commuting) benefits. Www irs gov freefile com Tuition reduction. Www irs gov freefile com Working condition benefits. Www irs gov freefile com It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). Www irs gov freefile com $2,500 limit on a health flexible spending arrangement (FSA). Www irs gov freefile com   For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. Www irs gov freefile com For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. Www irs gov freefile com   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). Www irs gov freefile com While cafeteria plans generally must be amended on a prospective basis, an amendment that is adopted on or before December 31, 2014, may be made effective retroactively, provided that in operation the cafeteria plan meets the limit for plan years beginning after December 31, 2012. Www irs gov freefile com A cafeteria plan that does not limit health FSA contributions to the dollar limit is not a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income. Www irs gov freefile com   For more information, see Notice 2012-40, 2012-26 I. Www irs gov freefile com R. Www irs gov freefile com B. Www irs gov freefile com 1046, available at www. Www irs gov freefile com irs. Www irs gov freefile com gov/irb/2012-26_IRB/ar09. Www irs gov freefile com html. Www irs gov freefile com Employee. Www irs gov freefile com   For these plans, treat the following individuals as employees. Www irs gov freefile com A current common-law employee. Www irs gov freefile com See section 2 in Publication 15 (Circular E) for more information. Www irs gov freefile com A full-time life insurance agent who is a current statutory employee. Www irs gov freefile com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www irs gov freefile com Exception for S corporation shareholders. Www irs gov freefile com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Www irs gov freefile com A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www irs gov freefile com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www irs gov freefile com Plans that favor highly compensated employees. Www irs gov freefile com   If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. Www irs gov freefile com A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. Www irs gov freefile com   A highly compensated employee for this purpose is any of the following employees. Www irs gov freefile com An officer. Www irs gov freefile com A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. Www irs gov freefile com An employee who is highly compensated based on the facts and circumstances. Www irs gov freefile com A spouse or dependent of a person described in (1), (2), or (3). Www irs gov freefile com Plans that favor key employees. Www irs gov freefile com   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. Www irs gov freefile com A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. Www irs gov freefile com However, a plan you maintain under a collective bargaining agreement does not favor key employees. Www irs gov freefile com   A key employee during 2014 is generally an employee who is either of the following. Www irs gov freefile com An officer having annual pay of more than $170,000. Www irs gov freefile com An employee who for 2014 is either of the following. Www irs gov freefile com A 5% owner of your business. Www irs gov freefile com A 1% owner of your business whose annual pay was more than $150,000. Www irs gov freefile com Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Www irs gov freefile com Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. Www irs gov freefile com Eligible employer. Www irs gov freefile com   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. Www irs gov freefile com If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. Www irs gov freefile com If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year. Www irs gov freefile com Eligibility and participation requirements. Www irs gov freefile com   These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. Www irs gov freefile com You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement, or Are nonresident aliens working outside the United States whose income did not come from a U. Www irs gov freefile com S. Www irs gov freefile com source. Www irs gov freefile com Contribution requirements. Www irs gov freefile com   You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. Www irs gov freefile com If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee. Www irs gov freefile com More information. Www irs gov freefile com   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. Www irs gov freefile com 2. Www irs gov freefile com Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. Www irs gov freefile com These rules exclude all or part of the value of certain benefits from the recipient's pay. Www irs gov freefile com The excluded benefits are not subject to federal income tax withholding. Www irs gov freefile com Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2. Www irs gov freefile com This section discusses the exclusion rules for the following fringe benefits. Www irs gov freefile com Accident and health benefits. Www irs gov freefile com Achievement awards. Www irs gov freefile com Adoption assistance. Www irs gov freefile com Athletic facilities. Www irs gov freefile com De minimis (minimal) benefits. Www irs gov freefile com Dependent care assistance. Www irs gov freefile com Educational assistance. Www irs gov freefile com Employee discounts. Www irs gov freefile com Employee stock options. Www irs gov freefile com Employer-provided cell phones. Www irs gov freefile com Group-term life insurance coverage. Www irs gov freefile com Health savings accounts (HSAs). Www irs gov freefile com Lodging on your business premises. Www irs gov freefile com Meals. Www irs gov freefile com Moving expense reimbursements. Www irs gov freefile com No-additional-cost services. Www irs gov freefile com Retirement planning services. Www irs gov freefile com Transportation (commuting) benefits. Www irs gov freefile com Tuition reduction. Www irs gov freefile com Working condition benefits. Www irs gov freefile com See Table 2-1, later, for an overview of the employment tax treatment of these benefits. Www irs gov freefile com Table 2-1. Www irs gov freefile com Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. Www irs gov freefile com ) Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) Federal Unemployment (FUTA) Accident and health benefits Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement. Www irs gov freefile com Exempt, except for certain payments to S corporation employees who are 2% shareholders. Www irs gov freefile com Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). Www irs gov freefile com Adoption assistance Exempt1,3 Taxable Taxable Athletic facilities Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer. Www irs gov freefile com De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). Www irs gov freefile com Educational assistance Exempt up to $5,250 of benefits each year. Www irs gov freefile com (See Educational Assistance , later in this section. Www irs gov freefile com ) Employee discounts Exempt3 up to certain limits. Www irs gov freefile com (See Employee Discounts , later in this section. Www irs gov freefile com ) Employee stock options See Employee Stock Options , later in this section. Www irs gov freefile com Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. Www irs gov freefile com Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. Www irs gov freefile com (Special rules apply to former employees. Www irs gov freefile com ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. Www irs gov freefile com (See Health Savings Accounts , later in this section. Www irs gov freefile com ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. Www irs gov freefile com Meals Exempt if furnished on your business premises for your convenience. Www irs gov freefile com Exempt if de minimis. Www irs gov freefile com Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. Www irs gov freefile com No-additional-cost services Exempt3 Exempt3 Exempt3 Retirement planning services Exempt5 Exempt5 Exempt5 Transportation (commuting) benefits Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement6 ($20). Www irs gov freefile com (See Transportation (Commuting) Benefits , later in this section. Www irs gov freefile com ) Exempt if de minimis. Www irs gov freefile com Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Www irs gov freefile com Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. Www irs gov freefile com 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. Www irs gov freefile com 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. Www irs gov freefile com 4 Exemption does not apply to certain key employees under a plan that favors those employees. Www irs gov freefile com 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. Www irs gov freefile com 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. Www irs gov freefile com 7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Www irs gov freefile com Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Www irs gov freefile com Also, show it in box 12 with code “C. Www irs gov freefile com ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Www irs gov freefile com Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. Www irs gov freefile com Contributions to the cost of accident or health insurance including qualified long-term care insurance. Www irs gov freefile com Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Www irs gov freefile com Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). Www irs gov freefile com This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. Www irs gov freefile com Payments or reimbursements of medical expenses. Www irs gov freefile com Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). Www irs gov freefile com The payments must be figured without regard to any period of absence from work. Www irs gov freefile com Accident or health plan. Www irs gov freefile com   This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. Www irs gov freefile com The plan may be insured or noninsured and does not need to be in writing. Www irs gov freefile com Employee. Www irs gov freefile com   For this exclusion, treat the following individuals as employees. Www irs gov freefile com A current common-law employee. Www irs gov freefile com A full-time life insurance agent who is a current statutory employee. Www irs gov freefile com A retired employee. Www irs gov freefile com A former employee you maintain coverage for based on the employment relationship. Www irs gov freefile com A widow or widower of an individual who died while an employee. Www irs gov freefile com A widow or widower of a retired employee. Www irs gov freefile com For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www irs gov freefile com Special rule for certain government plans. Www irs gov freefile com   For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. Www irs gov freefile com See section 105(j) for details. Www irs gov freefile com Exception for S corporation shareholders. Www irs gov freefile com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Www irs gov freefile com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www irs gov freefile com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www irs gov freefile com Exclusion from wages. Www irs gov freefile com   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. Www irs gov freefile com Exception for certain long-term care benefits. Www irs gov freefile com   You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. Www irs gov freefile com This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. Www irs gov freefile com However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Www irs gov freefile com S corporation shareholders. Www irs gov freefile com   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. Www irs gov freefile com However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Www irs gov freefile com Exception for highly compensated employees. Www irs gov freefile com   If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. Www irs gov freefile com However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Www irs gov freefile com   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. Www irs gov freefile com   A highly compensated employee for this exception is any of the following individuals. Www irs gov freefile com One of the five highest paid officers. Www irs gov freefile com An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. Www irs gov freefile com An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). Www irs gov freefile com   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. Www irs gov freefile com COBRA premiums. Www irs gov freefile com   The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). Www irs gov freefile com The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary. Www irs gov freefile com Achievement Awards This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. Www irs gov freefile com The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. Www irs gov freefile com The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. Www irs gov freefile com Employee. Www irs gov freefile com   For this exclusion, treat the following individuals as employees. Www irs gov freefile com A current employee. Www irs gov freefile com A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. Www irs gov freefile com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www irs gov freefile com Exception for S corporation shareholders. Www irs gov freefile com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Www irs gov freefile com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www irs gov freefile com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www irs gov freefile com Exclusion from wages. Www irs gov freefile com   You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. Www irs gov freefile com The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). Www irs gov freefile com See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. Www irs gov freefile com    To determine for 2014 whether an achievement award is a “qualified plan award” under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2013 as a highly compensated employee. Www irs gov freefile com   If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts. Www irs gov freefile com The part of the cost that is more than your allowable deduction (up to the value of the awards). Www irs gov freefile com The amount by which the value of the awards exceeds your allowable deduction. Www irs gov freefile com Exclude the remaining value of the awards from the employee's wages. Www irs gov freefile com Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. Www irs gov freefile com It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. Www irs gov freefile com To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. Www irs gov freefile com It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). Www irs gov freefile com A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Www irs gov freefile com You give reasonable notice of the plan to eligible employees. Www irs gov freefile com Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. Www irs gov freefile com For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Www irs gov freefile com The employee was a 5% owner at any time during the year or the preceding year. Www irs gov freefile com The employee received more than $115,000 in pay for the preceding year. Www irs gov freefile com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www irs gov freefile com You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. Www irs gov freefile com However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Www irs gov freefile com For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. Www irs gov freefile com You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Www irs gov freefile com Use code “T” to identify this amount. Www irs gov freefile com Exception for S corporation shareholders. Www irs gov freefile com   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Www irs gov freefile com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www irs gov freefile com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, including using the benefit as a reduction in distributions to the 2% shareholder. Www irs gov freefile com Athletic Facilities You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. Www irs gov freefile com For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25. Www irs gov freefile com On-premises facility. Www irs gov freefile com   The athletic facility must be located on premises you own or lease. Www irs gov freefile com It does not have to be located on your business premises. Www irs gov freefile com However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. Www irs gov freefile com Employee. Www irs gov freefile com   For this exclusion, treat the following individuals as employees. Www irs gov freefile com A current employee. Www irs gov freefile com A former employee who retired or left on disability. Www irs gov freefile com A widow or widower of an individual who died while an employee. Www irs gov freefile com A widow or widower of a former employee who retired or left on disability. Www irs gov freefile com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www irs gov freefile com A partner who performs services for a partnership. Www irs gov freefile com De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. Www irs gov freefile com A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Www irs gov freefile com Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. Www irs gov freefile com Examples of de minimis benefits include the following. Www irs gov freefile com Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. Www irs gov freefile com See Employer-Provided Cell Phones , later in this section, for details. Www irs gov freefile com Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. Www irs gov freefile com Holiday gifts, other than cash, with a low fair market value. Www irs gov freefile com Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000. Www irs gov freefile com Meals. Www irs gov freefile com See Meals , later in this section, for details. Www irs gov freefile com Occasional parties or picnics for employees and their guests. Www irs gov freefile com Occasional tickets for theater or sporting events. Www irs gov freefile com Transportation fare. Www irs gov freefile com See Transportation (Commuting) Benefits , later in this section, for details. Www irs gov freefile com Employee. Www irs gov freefile com   For this exclusion, treat any recipient of a de minimis benefit as an employee. Www irs gov freefile com Dependent Care Assistance This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. Www irs gov freefile com The services must be for a qualifying person's care and must be provided to allow the employee to work. Www irs gov freefile com These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. Www irs gov freefile com For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. Www irs gov freefile com Employee. Www irs gov freefile com   For this exclusion, treat the following individuals as employees. Www irs gov freefile com A current employee. Www irs gov freefile com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www irs gov freefile com Yourself (if you are a sole proprietor). Www irs gov freefile com A partner who performs services for a partnership. Www irs gov freefile com Exclusion from wages. Www irs gov freefile com   You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income. Www irs gov freefile com   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. Www irs gov freefile com This limit is reduced to $2,500 for married employees filing separate returns. Www irs gov freefile com   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. Www irs gov freefile com Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. Www irs gov freefile com For more information on the earned income limit, see Publication 503. Www irs gov freefile com Exception for highly compensated employees. Www irs gov freefile com   You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. Www irs gov freefile com   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Www irs gov freefile com The employee was a 5% owner at any time during the year or the preceding year. Www irs gov freefile com The employee received more than $115,000 in pay for the preceding year. Www irs gov freefile com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www irs gov freefile com Form W-2. Www irs gov freefile com   Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. Www irs gov freefile com Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. Www irs gov freefile com Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. Www irs gov freefile com Example. Www irs gov freefile com   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. Www irs gov freefile com In addition, it provides occasional on-site dependent care to its employees at no cost. Www irs gov freefile com Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. Www irs gov freefile com In addition, Emily used the on-site dependent care several times. Www irs gov freefile com The fair market value of the on-site care was $700. Www irs gov freefile com Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). Www irs gov freefile com Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount. Www irs gov freefile com Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. Www irs gov freefile com The exclusion also applies to graduate level courses. Www irs gov freefile com Educational assistance means amounts you pay or incur for your employees' education expenses. Www irs gov freefile com These expenses generally include the cost of books, equipment, fees, supplies, and tuition. Www irs gov freefile com However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education: Has a reasonable relationship to your business, or Is required as part of a degree program. Www irs gov freefile com Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Www irs gov freefile com Nor do they include the cost of lodging, meals, or transportation. Www irs gov freefile com Educational assistance program. Www irs gov freefile com   An educational assistance program is a separate written plan that provides educational assistance only to your employees. Www irs gov freefile com The program qualifies only if all of the following tests are met. Www irs gov freefile com The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. Www irs gov freefile com To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining. Www irs gov freefile com The program does not provide more than 5% of its benefits during the year for shareholders or owners. Www irs gov freefile com A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Www irs gov freefile com The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance. Www irs gov freefile com You give reasonable notice of the program to eligible employees. Www irs gov freefile com Your program can cover former employees if their employment is the reason for the coverage. Www irs gov freefile com   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Www irs gov freefile com The employee was a 5% owner at any time during the year or the preceding year. Www irs gov freefile com The employee received more than $115,000 in pay for the preceding year. Www irs gov freefile com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www irs gov freefile com Employee. Www irs gov freefile com   For this exclusion, treat the following individuals as employees. Www irs gov freefile com A current employee. Www irs gov freefile com A former employee who retired, left on disability, or was laid off. Www irs gov freefile com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www irs gov freefile com Yourself (if you are a sole proprietor). Www irs gov freefile com A partner who performs services for a partnership. Www irs gov freefile com Exclusion from wages. Www irs gov freefile com   You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year. Www irs gov freefile com Assistance over $5,250. Www irs gov freefile com   If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Www irs gov freefile com Working condition benefits may be excluded from wages. Www irs gov freefile com Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. Www irs gov freefile com See Working Condition Benefits , later, in this section. Www irs gov freefile com Employee Discounts This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. Www irs gov freefile com However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). Www irs gov freefile com Employee. Www irs gov freefile com   For this exclusion, treat the following individuals as employees. Www irs gov freefile com A current employee. Www irs gov freefile com A former employee who retired or left on disability. Www irs gov freefile com A widow or widower of an individual who died while an employee. Www irs gov freefile com A widow or widower of an employee who retired or left on disability. Www irs gov freefile com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Www irs gov freefile com A partner who performs services for a partnership. Www irs gov freefile com Exclusion from wages. Www irs gov freefile com   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. Www irs gov freefile com For a discount on services, 20% of the price you charge nonemployee customers for the service. Www irs gov freefile com For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. Www irs gov freefile com   Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. Www irs gov freefile com To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. Www irs gov freefile com Exception for highly compensated employees. Www irs gov freefile com   You cannot exclude from the wages of a highly compensated employee any part of the value of a discount that is not available on the same terms to one of the following groups. Www irs gov freefile com All of your employees. Www irs gov freefile com A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. Www irs gov freefile com   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Www irs gov freefile com The employee was a 5% owner at any time during the year or the preceding year. Www irs gov freefile com The employee received more than $115,000 in pay for the preceding year. Www irs gov freefile com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www irs gov freefile com Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. Www irs gov freefile com Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting from the exercise, after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. Www irs gov freefile com The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such exercise. Www irs gov freefile com Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition of stock acquired by the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any disposition of the stock. Www irs gov freefile com The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. Www irs gov freefile com However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. Www irs gov freefile com An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code “V. Www irs gov freefile com ” See Regulations section 1. Www irs gov freefile com 83-7. Www irs gov freefile com An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. Www irs gov freefile com The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. Www irs gov freefile com See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. Www irs gov freefile com You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. Www irs gov freefile com irs. Www irs gov freefile com gov/pub/irs-irbs/irb02-19. Www irs gov freefile com pdf. Www irs gov freefile com See Revenue Ruling 2004-60, 2004-24 I. Www irs gov freefile com R. Www irs gov freefile com B. Www irs gov freefile com 1051, available at www. Www irs gov freefile com irs. Www irs gov freefile com gov/irb/2004-24_IRB/ar13. Www irs gov freefile com html. Www irs gov freefile com For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. Www irs gov freefile com Employer-Provided Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Www irs gov freefile com Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. Www irs gov freefile com For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section. Www irs gov freefile com Noncompensatory business purposes. Www irs gov freefile com   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Www irs gov freefile com Examples of substantial business reasons include the employer's: Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. Www irs gov freefile com Cell phones provided to promote goodwill, boost morale, or attract prospective employees. Www irs gov freefile com   You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. Www irs gov freefile com Additional information. Www irs gov freefile com   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. Www irs gov freefile com R. Www irs gov freefile com B. Www irs gov freefile com 407, available at  www. Www irs gov freefile com irs. Www irs gov freefile com gov/irb/2011-38_IRB/ar07. Www irs gov freefile com html. Www irs gov freefile com Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. Www irs gov freefile com It provides a general death benefit that is not included in income. Www irs gov freefile com You provide it to a group of employees. Www irs gov freefile com See The 10-employee rule , later. Www irs gov freefile com It provides an amount of insurance to each employee based on a formula that prevents individual selection. Www irs gov freefile com This formula must use factors such as the employee's age, years of service, pay, or position. Www irs gov freefile com You provide it under a policy you directly or indirectly carry. Www irs gov freefile com Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Www irs gov freefile com Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. Www irs gov freefile com Group-term life insurance does not include the following insurance. Www irs gov freefile com Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. Www irs gov freefile com Life insurance on the life of your employee's spouse or dependent. Www irs gov freefile com However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. Www irs gov freefile com See De Minimis (Minimal) Benefits , earlier in this section. Www irs gov freefile com Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. Www irs gov freefile com See Regulations section 1. Www irs gov freefile com 79-1 for details. Www irs gov freefile com Employee. Www irs gov freefile com   For this exclusion, treat the following individuals as employees. Www irs gov freefile com A current common-law employee. Www irs gov freefile com A full-time life insurance agent who is a current statutory employee. Www irs gov freefile com An individual who was formerly your employee under (1) or (2). Www irs gov freefile com A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction and control. Www irs gov freefile com Exception for S corporation shareholders. Www irs gov freefile com   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Www irs gov freefile com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www irs gov freefile com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www irs gov freefile com The 10-employee rule. Www irs gov freefile com   Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. Www irs gov freefile com   For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. Www irs gov freefile com For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. Www irs gov freefile com However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. Www irs gov freefile com A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. Www irs gov freefile com Exceptions. Www irs gov freefile com   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. Www irs gov freefile com   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. Www irs gov freefile com If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical. Www irs gov freefile com You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts. Www irs gov freefile com You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. Www irs gov freefile com See Regulations section 1. Www irs gov freefile com 79-1 for details. Www irs gov freefile com   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. Www irs gov freefile com You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you. Www irs gov freefile com The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. Www irs gov freefile com Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. Www irs gov freefile com   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. Www irs gov freefile com They were 65 or older. Www irs gov freefile com They customarily work 20 hours or less a week or 5 months or less in a calendar year. Www irs gov freefile com They have not been employed for the waiting period given in the policy. Www irs gov freefile com This waiting period cannot be more than 6 months. Www irs gov freefile com Exclusion from wages. Www irs gov freefile com   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. Www irs gov freefile com You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. Www irs gov freefile com In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. Www irs gov freefile com Coverage over the limit. Www irs gov freefile com   You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Www irs gov freefile com Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Www irs gov freefile com Also, show it in box 12 with code “C. Www irs gov freefile com ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Www irs gov freefile com   Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. Www irs gov freefile com For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. Www irs gov freefile com You must prorate the cost from the table if less than a full month of coverage is involved. Www irs gov freefile com Table 2-2. Www irs gov freefile com Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . Www irs gov freefile com 05 25 through 29 . Www irs gov freefile com 06 30 through 34 . Www irs gov freefile com 08 35 through 39 . Www irs gov freefile com 09 40 through 44 . Www irs gov freefile com 10 45 through 49 . Www irs gov freefile com 15 50 through 54 . Www irs gov freefile com 23 55 through 59 . Www irs gov freefile com 43 60 through 64 . Www irs gov freefile com 66 65 through 69 1. Www irs gov freefile com 27 70 and older 2. Www irs gov freefile com 06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost. Www irs gov freefile com Example. Www irs gov freefile com Tom's employer provides him with group-term life insurance coverage of $200,000. Www irs gov freefile com Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Www irs gov freefile com Tom's employer must include $170 in his wages. Www irs gov freefile com The $200,000 of insurance coverage is reduced by $50,000. Www irs gov freefile com The yearly cost of $150,000 of coverage is $270 ($. Www irs gov freefile com 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. Www irs gov freefile com The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. Www irs gov freefile com The employer also enters $170 in box 12 with code “C. Www irs gov freefile com ” Coverage for dependents. Www irs gov freefile com   Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount is not more than $2,000. Www irs gov freefile com If the face amount is greater than $2,000, the entire cost of the dependent coverage must be included in income unless the amount over $2,000 is purchased with employee contributions on an after-tax basis. Www irs gov freefile com The cost of the insurance is determined by using Table 2-2. Www irs gov freefile com Former employees. Www irs gov freefile com   When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. Www irs gov freefile com You are not required to collect those taxes. Www irs gov freefile com Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. Www irs gov freefile com Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. Www irs gov freefile com ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. Www irs gov freefile com Exception for key employees. Www irs gov freefile com   Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. Www irs gov freefile com This exception generally does not apply to church plans. Www irs gov freefile com When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Www irs gov freefile com Include the cost in boxes 1, 3, and 5 of Form W-2. Www irs gov freefile com However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee. Www irs gov freefile com   For this purpose, the cost of the insurance is the greater of the following amounts. Www irs gov freefile com The premiums you pay for the employee's insurance. Www irs gov freefile com See Regulations section 1. Www irs gov freefile com 79-4T(Q&A 6) for more information. Www irs gov freefile com The cost you figure using Table 2-2. Www irs gov freefile com   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. Www irs gov freefile com See section 416(i) of the Internal Revenue Code for more information. Www irs gov freefile com An officer having annual pay of more than $170,000. Www irs gov freefile com An individual who for 2014 was either of the following. Www irs gov freefile com A 5% owner of your business. Www irs gov freefile com A 1% owner of your business whose annual pay was more than $150,000. Www irs gov freefile com   A former employee who was a key employee upon retirement or separation from service is also a key employee. Www irs gov freefile com   Your plan does not favor key employees as to participation if at least one of the following is true. Www irs gov freefile com It benefits at least 70% of your employees. Www irs gov freefile com At least 85% of the participating employees are not key employees. Www irs gov freefile com It benefits employees who qualify under a set of rules you set up that do not favor key employees. Www irs gov freefile com   Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those plans. Www irs gov freefile com   When applying this test, do not consider employees who: Have not completed 3 years of service, Are part-time or seasonal, Are nonresident aliens who receive no U. Www irs gov freefile com S. Www irs gov freefile com source earned income from you, or Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives. Www irs gov freefile com   Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. Www irs gov freefile com Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. Www irs gov freefile com S corporation shareholders. Www irs gov freefile com   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. Www irs gov freefile com When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Www irs gov freefile com Include the cost in boxes 1, 3, and 5 of Form W-2. Www irs gov freefile com However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder. Www irs gov freefile com Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Www irs gov freefile com Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. Www irs gov freefile com Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Www irs gov freefile com The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. Www irs gov freefile com For more information about HSAs, visit the Department of Treasury's website at www. Www irs gov freefile com treasury. Www irs gov freefile com gov and enter “HSA” in the search box. Www irs gov freefile com Eligibility. Www irs gov freefile com   A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. Www irs gov freefile com For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage and $12,700 for family coverage. Www irs gov freefile com   There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution. Www irs gov freefile com Exceptions. Www irs gov freefile com   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. Www irs gov freefile com Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. Www irs gov freefile com However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. Www irs gov freefile com For more information, see Other employee health plans in Publication 969. Www irs gov freefile com Employer contributions. Www irs gov freefile com   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. Www irs gov freefile com For 2014, you can contribute up to $3,300 for self-only coverage or $6,550 for family coverage to a qualified individual's HSA. Www irs gov freefile com   The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. Www irs gov freefile com For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. Www irs gov freefile com No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. Www irs gov freefile com Nondiscrimination rules. Www irs gov freefile com    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. Www irs gov freefile com Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. Www irs gov freefile com   For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54. Www irs gov freefile com 4980G-4. Www irs gov freefile com Exception. Www irs gov freefile com   The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. Www irs gov freefile com A highly compensated employee for 2014 is an employee who meets either of the following tests. Www irs gov freefile com The employee was a 5% owner at any time during the year or the preceding year. Www irs gov freefile com The employee received more than $115,000 in pay for the preceding year. Www irs gov freefile com You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Www irs gov freefile com Partnerships and S corporations. Www irs gov freefile com   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Www irs gov freefile com Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances. Www irs gov freefile com Cafeteria plans. Www irs gov freefile com   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. Www irs gov freefile com However, cafeteria plan nondiscrimination rules still apply. Www irs gov freefile com For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Www irs gov freefile com Contributions that favor lower-paid employees are not prohibited. Www irs gov freefile com Reporting requirements. Www irs gov freefile com   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. Www irs gov freefile com ” The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Www irs gov freefile com Lodging on Your Business Premises You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests. Www irs gov freefile com It is furnished on your business premises. Www irs gov freefile com It is furnished for your convenience. Www irs gov freefile com The employee must accept it as a condition of employment. Www irs gov freefile com Different tests may apply to lodging furnished by educational institutions. Www irs gov freefile com See section 119(d) of the Internal Revenue Code for details. Www irs gov freefile com The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. Www irs gov freefile com On your business premises. Www irs gov freefile com   For this exclusion, your business premises is generally your employee's place of work. Www irs gov freefile com For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. Www irs gov freefile com For your convenience. Www irs gov freefile com   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. Www irs gov freefile com You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. Www irs gov freefile com This is true even if a law or an employment contract provides that the lodging is furnished as pay. Www irs gov freefile com However, a written statement that the lodging is furnished for your convenience is not sufficient. Www irs gov freefile com Condition of employment. Www irs gov freefile com   Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Www irs gov freefile com Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. Www irs gov freefile com   It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment. Www irs gov freefile com Example. Www irs gov freefile com A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. Www irs gov freefile com If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her employment. Www irs gov freefile com S corporation shareholders. Www irs gov freefile com   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Www irs gov freefile com A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Www irs gov freefile com Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Www irs gov freefile com Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. Www irs gov freefile com De Minimis Meals You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. Www irs gov freefile com The exclusion applies, for example, to the following items. Www irs gov freefile com Coffee, doughnuts, or soft drinks. Www irs gov freefile com Occasional meals or meal money provided to enable an employee to work overtime. Www irs gov freefile com However, the exclusion does not apply to meal money figured on the basis of hours worked. Www irs gov freefile com Occasional parties or picnics for employees and their guests. Www irs gov freefile com This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. Www irs gov freefile com For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later. Www irs gov freefile com If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. Www irs gov freefile com The 50% limit on deductions for the cost of meals does not apply. Www irs gov freefile com The deduction limit on meals is discussed in chapter 2 of Publication 535. Www irs gov freefile com Employee. Www irs gov freefile com   For this exclusion, treat any recipient of a de minimis meal as