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1040x Amendment

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1040x Amendment

1040x amendment 5. 1040x amendment   Additional Rules for Listed Property Table of Contents Introduction Useful Items - You may want to see: What Is Listed Property?Passenger Automobiles Other Property Used for Transportation Computers and Related Peripheral Equipment Can Employees Claim a Deduction? What Is the Business-Use Requirement?How To Allocate Use Qualified Business Use Recapture of Excess Depreciation Lessee's Inclusion Amount Do the Passenger Automobile Limits Apply?Maximum Depreciation Deduction Deductions After the Recovery Period Deductions For Passenger Automobiles Acquired in a Trade-in What Records Must Be Kept?Adequate Records How Is Listed Property Information Reported? Introduction This chapter discusses the deduction limits and other special rules that apply to certain listed property. 1040x amendment Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. 1040x amendment Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. 1040x amendment Deduction for employees. 1040x amendment If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee. 1040x amendment Business-use requirement. 1040x amendment If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. 1040x amendment In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. 1040x amendment You may also have to recapture (include in income) any excess depreciation claimed in previous years. 1040x amendment A similar inclusion amount applies to certain leased property. 1040x amendment Passenger automobile limits and rules. 1040x amendment Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. 1040x amendment You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. 1040x amendment This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. 1040x amendment It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. 1040x amendment Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. 1040x amendment What Is Listed Property? Listed property is any of the following. 1040x amendment Passenger automobiles (as defined later). 1040x amendment Any other property used for transportation, unless it is an excepted vehicle. 1040x amendment Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). 1040x amendment Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. 1040x amendment A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587. 1040x amendment Improvements to listed property. 1040x amendment   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. 1040x amendment The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. 1040x amendment For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method. 1040x amendment Passenger Automobiles A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). 1040x amendment It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile. 1040x amendment The following vehicles are not considered passenger automobiles for these purposes. 1040x amendment An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. 1040x amendment A vehicle used directly in the trade or business of transporting persons or property for pay or hire. 1040x amendment A truck or van that is a qualified nonpersonal use vehicle. 1040x amendment Qualified nonpersonal use vehicles. 1040x amendment   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. 1040x amendment They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. 1040x amendment They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. 1040x amendment For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. 1040x amendment Other Property Used for Transportation Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. 1040x amendment Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. 1040x amendment Excepted vehicles. 1040x amendment   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). 1040x amendment Clearly marked police and fire vehicles. 1040x amendment Unmarked vehicles used by law enforcement officers if the use is officially authorized. 1040x amendment Ambulances used as such and hearses used as such. 1040x amendment Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. 1040x amendment Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. 1040x amendment Combines, cranes and derricks, and forklifts. 1040x amendment Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. 1040x amendment Qualified moving vans. 1040x amendment Qualified specialized utility repair trucks. 1040x amendment School buses used in transporting students and employees of schools. 1040x amendment Other buses with a capacity of at least 20 passengers that are used as passenger buses. 1040x amendment Tractors and other special purpose farm vehicles. 1040x amendment Clearly marked police and fire vehicle. 1040x amendment   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. 1040x amendment It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. 1040x amendment It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. 1040x amendment It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency. 1040x amendment It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. 1040x amendment A marking on a license plate is not a clear marking for these purposes. 1040x amendment Qualified moving van. 1040x amendment   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met. 1040x amendment No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another. 1040x amendment Personal use for travel to and from a move site happens no more than five times a month on average. 1040x amendment Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location. 1040x amendment Qualified specialized utility repair truck. 1040x amendment   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. 1040x amendment The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. 1040x amendment Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes. 1040x amendment The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services. 1040x amendment Computers and Related Peripheral Equipment A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. 1040x amendment It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. 1040x amendment Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. 1040x amendment The following are neither computers nor related peripheral equipment. 1040x amendment Any equipment that is an integral part of other property that is not a computer. 1040x amendment Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. 1040x amendment Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. 1040x amendment Can Employees Claim a Deduction? If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. 1040x amendment The use of your property in performing services as an employee is a business use only if both the following requirements are met. 1040x amendment The use is for your employer's convenience. 1040x amendment The use is required as a condition of your employment. 1040x amendment If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee. 1040x amendment Employer's convenience. 1040x amendment   Whether the use of listed property is for your employer's convenience must be determined from all the facts. 1040x amendment The use is for your employer's convenience if it is for a substantial business reason of the employer. 1040x amendment The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience. 1040x amendment Condition of employment. 1040x amendment   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. 1040x amendment The use of property must be required for you to perform your duties properly. 1040x amendment Your employer does not have to require explicitly that you use the property. 1040x amendment However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. 1040x amendment Example 1. 1040x amendment Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. 1040x amendment She owns and uses a motorcycle to deliver packages to downtown offices. 1040x amendment We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. 1040x amendment Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. 1040x amendment Example 2. 1040x amendment Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. 1040x amendment He must travel to these sites on a regular basis. 1040x amendment Uplift does not furnish an automobile or explicitly require him to use his own automobile. 1040x amendment However, it pays him for any costs he incurs in traveling to the various sites. 1040x amendment The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. 1040x amendment Example 3. 1040x amendment Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. 1040x amendment The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. 1040x amendment Example 4. 1040x amendment Marilyn Lee is a pilot for Y Company, a small charter airline. 1040x amendment Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. 1040x amendment Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. 1040x amendment Marilyn owns her own airplane. 1040x amendment The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment. 1040x amendment Example 5. 1040x amendment David Rule is employed as an engineer with Zip, an engineering contracting firm. 1040x amendment He occasionally takes work home at night rather than work late in the office. 1040x amendment He owns and uses a home computer which is virtually identical to the office model. 1040x amendment His use of the computer is neither for the convenience of his employer nor required as a condition of employment. 1040x amendment What Is the Business-Use Requirement? You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. 1040x amendment To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. 1040x amendment If this requirement is not met, the following rules apply. 1040x amendment Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction. 1040x amendment Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance. 1040x amendment Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. 1040x amendment This rule applies each year of the recovery period. 1040x amendment Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use. 1040x amendment A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use. 1040x amendment Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. 1040x amendment It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. 1040x amendment Exception for leased property. 1040x amendment   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. 1040x amendment   You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. 1040x amendment This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. 1040x amendment Occasional or incidental leasing activity is insufficient. 1040x amendment For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. 1040x amendment An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. 1040x amendment How To Allocate Use To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. 1040x amendment For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. 1040x amendment You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year. 1040x amendment For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). 1040x amendment For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year. 1040x amendment Entertainment use. 1040x amendment   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense. 1040x amendment Commuting use. 1040x amendment   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. 1040x amendment For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. 1040x amendment This is also true for a business meeting held in a car while commuting to work. 1040x amendment Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. 1040x amendment The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use. 1040x amendment Use of your automobile by another person. 1040x amendment   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. 1040x amendment That use is directly connected with your business. 1040x amendment You properly report the value of the use as income to the other person and withhold tax on the income where required. 1040x amendment You are paid a fair market rent. 1040x amendment Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). 1040x amendment Employee deductions. 1040x amendment   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. 1040x amendment See Can Employees Claim a Deduction , earlier. 1040x amendment Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. 1040x amendment However, it does not include the following uses. 1040x amendment The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property). 1040x amendment The use of property as pay for the services of a 5% owner or related person. 1040x amendment The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required. 1040x amendment Property does not stop being used predominantly for qualified business use because of a transfer at death. 1040x amendment Exception for leasing or compensatory use of aircraft. 1040x amendment   Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use. 1040x amendment 5% owner. 1040x amendment   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business. 1040x amendment   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. 1040x amendment More than 5% of the outstanding stock of the corporation. 1040x amendment Stock possessing more than 5% of the total combined voting power of all stock in the corporation. 1040x amendment Related persons. 1040x amendment   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 . 1040x amendment For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. 1040x amendment Examples. 1040x amendment   The following examples illustrate whether the use of business property is qualified business use. 1040x amendment Example 1. 1040x amendment John Maple is the sole proprietor of a plumbing contracting business. 1040x amendment John employs his brother, Richard, in the business. 1040x amendment As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. 1040x amendment The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. 1040x amendment The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use. 1040x amendment Example 2. 1040x amendment John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. 1040x amendment He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. 1040x amendment This use of company automobiles by employees is not a qualified business use. 1040x amendment Example 3. 1040x amendment James Company Inc. 1040x amendment owns several automobiles that its employees use for business purposes. 1040x amendment The employees also are allowed to take the automobiles home at night. 1040x amendment The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. 1040x amendment This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. 1040x amendment Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. 1040x amendment However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. 1040x amendment Example 1. 1040x amendment Sarah Bradley uses a home computer 50% of the time to manage her investments. 1040x amendment She also uses the computer 40% of the time in her part-time consumer research business. 1040x amendment Sarah's home computer is listed property because it is not used at a regular business establishment. 1040x amendment She does not use the computer predominantly for qualified business use. 1040x amendment Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. 1040x amendment She must depreciate it using the straight line method over the ADS recovery period. 1040x amendment Her combined business/investment use for determining her depreciation deduction is 90%. 1040x amendment Example 2. 1040x amendment If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. 1040x amendment She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. 1040x amendment Her combined business/investment use for determining her depreciation deduction is 90%. 1040x amendment Recapture of Excess Depreciation If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. 1040x amendment You also increase the adjusted basis of your property by the same amount. 1040x amendment Excess depreciation is: The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service. 1040x amendment To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. 1040x amendment Example. 1040x amendment In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. 1040x amendment She used it only for qualified business use for 2009 through 2012. 1040x amendment Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. 1040x amendment She began depreciating it using the 200% DB method over a 5-year GDS recovery period. 1040x amendment The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. 1040x amendment During 2013, she used the truck 50% for business and 50% for personal purposes. 1040x amendment She includes $4,018 excess depreciation in her gross income for 2013. 1040x amendment The excess depreciation is determined as follows. 1040x amendment Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. 1040x amendment (Depreciation is from Table A-1. 1040x amendment ) $16,618 Minus: Depreciation allowable (Table A-8):     2009 – 10% of $18,000 $1,800   2010 – 20% of $18,000 3,600   2011 – 20% of $18,000 3,600   2012 – 20% of $18,000 3,600 12,600 Excess depreciation $4,018 If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2015, there will be no excess depreciation. 1040x amendment The total depreciation allowable using Table A-8 through 2015 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed. 1040x amendment Where to figure and report recapture. 1040x amendment   Use Form 4797, Part IV, to figure the recapture amount. 1040x amendment Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. 1040x amendment For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. 1040x amendment If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. 1040x amendment Lessee's Inclusion Amount If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. 1040x amendment Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). 1040x amendment For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. 1040x amendment The inclusion amount is the sum of Amount A and Amount B, described next. 1040x amendment However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year. 1040x amendment Amount A. 1040x amendment   Amount A is: The fair market value of the property, multiplied by The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A-19 in Appendix A . 1040x amendment   The fair market value of the property is the value on the first day of the lease term. 1040x amendment If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value. 1040x amendment Amount B. 1040x amendment   Amount B is: The fair market value of the property, multiplied by The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A–20 in Appendix A . 1040x amendment Maximum inclusion amount. 1040x amendment   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income. 1040x amendment Inclusion amount worksheet. 1040x amendment   The following worksheet is provided to help you figure the inclusion amount for leased listed property. 1040x amendment Inclusion Amount Worksheet for Leased Listed Property 1. 1040x amendment Fair market value   2. 1040x amendment Business/investment use for first year business use is 50% or less   3. 1040x amendment Multiply line 1 by line 2. 1040x amendment   4. 1040x amendment Rate (%) from Table A-19   5. 1040x amendment Multiply line 3 by line 4. 1040x amendment This is Amount A. 1040x amendment   6. 1040x amendment Fair market value   7. 1040x amendment Average business/investment use for years property leased before the first year business use is 50% or less . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment . 1040x amendment   8. 1040x amendment Multiply line 6 by line 7   9. 1040x amendment Rate (%) from Table A-20   10. 1040x amendment Multiply line 8 by line 9. 1040x amendment This is Amount B. 1040x amendment   11. 1040x amendment Add line 5 and line 10. 1040x amendment This is your inclusion amount. 1040x amendment Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. 1040x amendment )         Example. 1040x amendment On February 1, 2011, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. 1040x amendment The lease is for a period of 5 years. 1040x amendment Larry does not use the computer at a regular business establishment, so it is listed property. 1040x amendment His business use of the property (all of which is qualified business use) is 80% in 2011, 60% in 2012, and 40% in 2013. 1040x amendment He must add an inclusion amount to gross income for 2013, the first tax year his qualified business-use percentage is 50% or less. 1040x amendment The computer has a 5-year recovery period under both GDS and ADS. 1040x amendment 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. 1040x amendment 8%. 1040x amendment The applicable percentage from Table A-20 is 22. 1040x amendment 0%. 1040x amendment Larry's deductible rent for the computer for 2013 is $800. 1040x amendment Larry uses the Inclusion amount worksheet. 1040x amendment to figure the amount he must include in income for 2013. 1040x amendment His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). 1040x amendment Inclusion Amount Worksheet for Leased Listed Property 1. 1040x amendment Fair market value $3,000   2. 1040x amendment Business/investment use for first year business use is 50% or less 40 % 3. 1040x amendment Multiply line 1 by line 2. 1040x amendment 1,200   4. 1040x amendment Rate (%) from Table A-19 −19. 1040x amendment 8 % 5. 1040x amendment Multiply line 3 by line 4. 1040x amendment This is Amount A. 1040x amendment −238   6. 1040x amendment Fair market value 3,000   7. 1040x amendment Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. 1040x amendment Multiply line 6 by line 7 2,100   9. 1040x amendment Rate (%) from Table A-20 22. 1040x amendment 0 % 10. 1040x amendment Multiply line 8 by line 9. 1040x amendment This is Amount B. 1040x amendment 462   11. 1040x amendment Add line 5 and line 10. 1040x amendment This is your inclusion amount. 1040x amendment Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. 1040x amendment ) $224           Lease beginning in the last 9 months of your tax year. 1040x amendment    The inclusion amount is subject to a special rule if all the following apply. 1040x amendment The lease term begins within 9 months before the close of your tax year. 1040x amendment You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. 1040x amendment The lease term continues into your next tax year. 1040x amendment Under this special rule, add the inclusion amount to income in the next tax year. 1040x amendment Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. 1040x amendment Skip lines 6 through 9 of the worksheet and enter zero on line 10. 1040x amendment Example 1. 1040x amendment On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. 1040x amendment The property is 5-year property with a fair market value of $10,000. 1040x amendment Her property has a recovery period of 5 years under ADS. 1040x amendment The lease is for 5 years. 1040x amendment Her business use of the property was 50% in 2012 and 90% in 2013. 1040x amendment She paid rent of $3,600 for 2012, of which $3,240 is deductible. 1040x amendment She must include $147 in income in 2013. 1040x amendment The $147 is the sum of Amount A and Amount B. 1040x amendment Amount A is $147 ($10,000 × 70% × 2. 1040x amendment 1%), the product of the fair market value, the average business use for 2012 and 2013, and the applicable percentage for year one from Table A-19 . 1040x amendment Amount B is zero. 1040x amendment Lease for less than one year. 1040x amendment   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. 1040x amendment The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. 1040x amendment The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years). 1040x amendment   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. 1040x amendment If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease. 1040x amendment Example 2. 1040x amendment On October 1, 2012, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. 1040x amendment This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. 1040x amendment The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. 1040x amendment He must include $71 in income in 2013. 1040x amendment The $71 is the sum of Amount A and Amount B. 1040x amendment Amount A is $71 ($15,000 × 45% × 2. 1040x amendment 1% × 183/365), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19 , prorated for the length of the lease. 1040x amendment Amount B is zero. 1040x amendment Where to report inclusion amount. 1040x amendment   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. 1040x amendment For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. 1040x amendment If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. 1040x amendment Do the Passenger Automobile Limits Apply? The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited. 1040x amendment This section describes the maximum depreciation deduction amounts for 2013 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit. 1040x amendment Exception for leased cars. 1040x amendment   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. 1040x amendment For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement . 1040x amendment Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. 1040x amendment They are based on the date you placed the automobile in service. 1040x amendment Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. 1040x amendment Maximum Depreciation Deduction for Passenger Automobiles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,1601 $5,100 $3,050 $1,875 2012 11,1601 5,100 3,050 1,875 2011 11,0602 4,900 2,950 1,775 2010 11,0602  4,900 2,950 1,775 2009 10,9603 4,800 2,850 1,775 2008 10,9603  4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6104 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7105 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6606 4,900 2,950 1,775 1If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. 1040x amendment 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. 1040x amendment 3If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. 1040x amendment 4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960. 1040x amendment 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. 1040x amendment If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. 1040x amendment 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. 1040x amendment If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. 1040x amendment If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. 1040x amendment The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. 1040x amendment Example. 1040x amendment On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. 1040x amendment She used the car only in her business. 1040x amendment She files her tax return based on the calendar year. 1040x amendment She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. 1040x amendment Under MACRS, a car is 5-year property. 1040x amendment Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. 1040x amendment Virginia multiplies the $14,500 unadjusted basis of her car by 0. 1040x amendment 20 to get her MACRS depreciation of $2,900 for 2013. 1040x amendment This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. 1040x amendment She can deduct the full $2,900. 1040x amendment Electric Vehicles The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. 1040x amendment The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. 1040x amendment Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts later for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans later, for electric vehicles classified as trucks and vans. 1040x amendment Maximum Depreciation Deduction For Electric Vehicles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2006 $8,980 $14,400 $8,650 $5,225 2005 8,880 14,200 8,450 5,125 2004 31,8301 14,300 8,550 5,125 5/06/2003– 12/31/2003 32,0302 14,600 8,750 5,225 1/01/2003– 5/05/2003 22,8803 14,600 8,750 5,225 1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. 1040x amendment 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. 1040x amendment If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. 1040x amendment 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. 1040x amendment Trucks and Vans The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. 1040x amendment The maximum deduction amounts for trucks and vans are shown in the following table. 1040x amendment Maximum Depreciation Deduction For Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 11,3601 5,300 3,150 1,875 2011 11,2602 5,200 3,150 1,875 2010 11,1603 5,100 3,050 1,875 2009 11,0604 4,900 2,950 1,775 2008 11,1605 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2006 3,260 5,200 3,150 1,875 2005 3,260 5,200 3,150 1,875 2004 10,9106 5,300 3,150 1,875 5/06/2003– 12/31/2003 11,0107 5,400 3,250 1,975 1/01/2003– 5/05/2003 7,9608 5,400 3,250 1,975 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. 1040x amendment 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. 1040x amendment 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. 1040x amendment 4 If you elect not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. 1040x amendment 5If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. 1040x amendment 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, or the maximum deduction is $3,260. 1040x amendment 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. 1040x amendment If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. 1040x amendment 8 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. 1040x amendment Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. 1040x amendment Then use the information from this worksheet to prepare Form 4562. 1040x amendment Depreciation Worksheet for Passenger Automobiles   Part I   1. 1040x amendment MACRS system (GDS or ADS)     2. 1040x amendment Property class     3. 1040x amendment Date placed in service     4. 1040x amendment Recovery period     5. 1040x amendment Method and convention     6. 1040x amendment Depreciation rate (from tables)     7. 1040x amendment Maximum depreciation deduction for this year from the appropriate table       8. 1040x amendment Business/investment-use percentage       9. 1040x amendment Multiply line 7 by line 8. 1040x amendment This is your adjusted maximum depreciation deduction       10. 1040x amendment Section 179 deduction claimed this year (not more than line 9). 1040x amendment Enter -0- if this is not the year you placed the car in service. 1040x amendment         Note. 1040x amendment  1) If line 10 is equal to line 9, stop here. 1040x amendment Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. 1040x amendment  2) If line 10 is less than line 9, complete Part II. 1040x amendment   Part II   11. 1040x amendment Subtract line 10 from line 9. 1040x amendment This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. 1040x amendment Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. 1040x amendment Multiply line 12 by line 8. 1040x amendment This is your business/investment cost       14. 1040x amendment Section 179 deduction claimed in the year you placed the car in service       15. 1040x amendment Subtract line 14 from line 13. 1040x amendment This is your tentative basis for depreciation       16. 1040x amendment Multiply line 15 by . 1040x amendment 50 if the 50% special depreciation allowance applies. 1040x amendment This is your special depreciation allowance. 1040x amendment Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance       Note 1) If line 16 is equal to line 11, stop here. 1040x amendment Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. 1040x amendment  2) If line 16 is less than line 11, complete Part III. 1040x amendment   Part III   17. 1040x amendment Subtract line 16 from 11. 1040x amendment This is the limit on the amount you can deduct for MACRS depreciation       18. 1040x amendment Subtract line 16 from line 15. 1040x amendment This is your basis for depreciation. 1040x amendment       19. 1040x amendment Multiply line 18 by line 6. 1040x amendment This is your tentative MACRS depreciation deduction. 1040x amendment       20. 1040x amendment Enter the lesser of line 17 or line 19. 1040x amendment This is your MACRS depreciation deduction. 1040x amendment     1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. 1040x amendment 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. 1040x amendment             Deductions After the Recovery Period If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. 1040x amendment If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. 1040x amendment You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. 1040x amendment The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. 1040x amendment See Maximum Depreciation Deduction , earlier. 1040x amendment Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied. 1040x amendment You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. 1040x amendment There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. 1040x amendment Example. 1040x amendment In May 2007, you bought and placed in service a car costing $31,500. 1040x amendment The car was 5-year property under GDS (MACRS). 1040x amendment You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. 1040x amendment You used the car exclusively for business during the recovery period (2007 through 2012). 1040x amendment You figured your depreciation as shown below. 1040x amendment Year Percentage Amount Limit   Allowed 2007 20. 1040x amendment 0% $6,300 $2,960   $2,960 2008 32. 1040x amendment 0 10,080 4,800   4,800 2009 19. 1040x amendment 2 6,048 2,850   2,850 2010 11. 1040x amendment 52 3,629 1,675   1,675 2011 11. 1040x amendment 52 3,629 1,675   1,675 2012 5. 1040x amendment 76 1,814 1,675   1,675 Total   $15,635 At the end of 2012, you had an unrecovered basis of $15,865 ($31,500 − $15,635). 1040x amendment If in 2013 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,675 or your remaining unrecovered basis. 1040x amendment If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. 1040x amendment However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. 1040x amendment For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,519 ($15,865 × 60%), but you still would have to reduce your basis by $15,865 to determine your unrecovered basis. 1040x amendment Deductions For Passenger Automobiles Acquired in a Trade-in If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. 1040x amendment Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. 1040x amendment This excess basis is the additional cash paid for the new automobile in the trade-in. 1040x amendment The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. 1040x amendment Special rules apply in determining the passenger automobile limits. 1040x amendment These rules and examples are discussed in section 1. 1040x amendment 168(i)-6(d)(3) of the regulations. 1040x amendment Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. 1040x amendment For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1. 1040x amendment 168(i)-6(i) and 1. 1040x amendment 168(i)-6(j) of the regulations. 1040x amendment What Records Must Be Kept? You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. 1040x amendment For listed property, you must keep records for as long as any recapture can still occur. 1040x amendment Recapture can occur in any tax year of the recovery period. 1040x amendment Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. 1040x amendment You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. 1040x amendment However, your records should back up your receipts in an orderly manner. 1040x amendment Elements of expenditure or use. 1040x amendment   Your records or other documentary evidence must support all the following. 1040x amendment The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses. 1040x amendment The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year. 1040x amendment The date of the expenditure or use. 1040x amendment The business or investment purpose for the expenditure or use. 1040x amendment   Written documents of your expenditure or use are generally better evidence than oral statements alone. 1040x amendment You do not have to keep a daily log. 1040x amendment However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later. 1040x amendment Timeliness. 1040x amendment   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. 1040x amendment An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business: The statement is given by an employee to the employer, or The statement is given by an independent contractor to the client or customer. 1040x amendment   For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use. 1040x amendment Business purpose supported. 1040x amendment   Generally, an adequate record of business purpose must be in the form of a written statement. 1040x amendment However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. 1040x amendment A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. 1040x amendment For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. 1040x amendment Business use supported. 1040x amendment   An adequate record contains enough information on each element of every business or investment use. 1040x amendment The amount of detail required to support the use depends on the facts and circumstances. 1040x amendment For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. 1040x amendment   Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program. 1040x amendment Separate or combined expenditures or uses. 1040x amendment   Each use by you normally is considered a separate use. 1040x amendment However, you can combine repeated uses as a single item. 1040x amendment   Record each expenditure as a separate item. 1040x amendment Do not combine it with other expenditures. 1040x amendment If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. 1040x amendment If you combine these expenses, you do not need to support the business purpose of each expense. 1040x amendment Instead, you can divide the expenses based on the total business use of the listed property. 1040x amendment   You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. 1040x amendment For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. 1040x amendment You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. 1040x amendment Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. 1040x amendment Confidential information. 1040x amendment   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. 1040x amendment You must keep it elsewhere and make it available as support to the IRS director for your area on request. 1040x amendment Substantial compliance. 1040x amendment   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate. 1040x amendment   If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows. 1040x amendment By your own oral or written statement containing detailed information as to the element. 1040x amendment By other evidence sufficient to establish the element. 1040x amendment   If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. 1040x amendment If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. 1040x amendment Sampling. 1040x amendment   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year. 1040x amendment Example 1. 1040x amendment Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. 1040x amendment She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. 1040x amendment There is no other business use of the automobile, but she and family members also use it for personal purposes. 1040x amendment She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. 1040x amendment Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. 1040x amendment If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. 1040x amendment Example 2. 1040x amendment Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. 1040x amendment Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. 1040x amendment The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. 1040x amendment Example 3. 1040x amendment Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. 1040x amendment For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. 1040x amendment During these weeks, his business use of the automobile does not follow a consistent pattern. 1040x amendment During the fourth week of each month, he delivers all business orders taken during the previous month. 1040x amendment The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. 1040x amendment The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods. 1040x amendment Loss of records. 1040x amendment   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. 1040x amendment How Is Listed Property Information Reported? You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions. 1040x amendment Any deduction for a vehicle. 1040x amendment A depreciation deduction for any other listed property. 1040x amendment If you claim any deduction for a vehicle, you also must provide the information requested in Section B. 1040x amendment If you provide the vehicle for your employee's use, the employee must give you this information. 1040x amendment If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle. 1040x amendment Vehicles used by your employees. 1040x amendment   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements. 1040x amendment You maintain a written policy statement that prohibits one of the following uses of the vehicles. 1040x amendment All personal use including commuting. 1040x amendment Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. 1040x amendment You treat all use of the vehicles by your employees as personal use. 1040x amendment You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees. 1040x amendment For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions. 1040x amendment Exceptions. 1040x amendment   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. 1040x amendment Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562. 1040x amendment Prev  Up  Next   Home   More Online Publications
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The 1040x Amendment

1040x amendment Publication 15 - Main Content Table of Contents 1. 1040x amendment Employer Identification Number (EIN) 2. 1040x amendment Who Are Employees?Relief provisions. 1040x amendment Business Owned and Operated by Spouses 3. 1040x amendment Family Employees 4. 1040x amendment Employee's Social Security Number (SSN)Registering for SSNVS. 1040x amendment 5. 1040x amendment Wages and Other CompensationAccountable plan. 1040x amendment Nonaccountable plan. 1040x amendment Per diem or other fixed allowance. 1040x amendment 50% test. 1040x amendment Health Savings Accounts and medical savings accounts. 1040x amendment Nontaxable fringe benefits. 1040x amendment When fringe benefits are treated as paid. 1040x amendment Valuation of fringe benefits. 1040x amendment Withholding on fringe benefits. 1040x amendment Depositing taxes on fringe benefits. 1040x amendment 6. 1040x amendment TipsOrdering rule. 1040x amendment 7. 1040x amendment Supplemental Wages 8. 1040x amendment Payroll Period 9. 1040x amendment Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. 1040x amendment Required Notice to Employees About the Earned Income Credit (EIC) 11. 1040x amendment Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. 1040x amendment Filing Form 941 or Form 944 13. 1040x amendment Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. 1040x amendment Federal Unemployment (FUTA) TaxSuccessor employer. 1040x amendment Household employees. 1040x amendment When to deposit. 1040x amendment Household employees. 1040x amendment Electronic filing by reporting agents. 1040x amendment 16. 1040x amendment How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. 1040x amendment Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. 1040x amendment The EIN is a nine-digit number the IRS issues. 1040x amendment The digits are arranged as follows: 00-0000000. 1040x amendment It is used to identify the tax accounts of employers and certain others who have no employees. 1040x amendment Use your EIN on all of the items you send to the IRS and SSA. 1040x amendment For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. 1040x amendment If you do not have an EIN, you may apply for one online. 1040x amendment Go to the IRS. 1040x amendment gov and click on the Apply for an EIN Online link under Tools. 1040x amendment You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. 1040x amendment Do not use an SSN in place of an EIN. 1040x amendment You should have only one EIN. 1040x amendment If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). 1040x amendment Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. 1040x amendment The IRS will tell you which number to use. 1040x amendment If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. 1040x amendment If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. 1040x amendment 2. 1040x amendment Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. 1040x amendment See Publication 15-A for details on statutory employees and nonemployees. 1040x amendment Employee status under common law. 1040x amendment   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. 1040x amendment This is so even when you give the employee freedom of action. 1040x amendment What matters is that you have the right to control the details of how the services are performed. 1040x amendment See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. 1040x amendment   Generally, people in business for themselves are not employees. 1040x amendment For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. 1040x amendment However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. 1040x amendment   If an employer-employee relationship exists, it does not matter what it is called. 1040x amendment The employee may be called an agent or independent contractor. 1040x amendment It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. 1040x amendment Statutory employees. 1040x amendment   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. 1040x amendment Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. 1040x amendment An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. 1040x amendment A full-time life insurance salesperson who sells primarily for one company. 1040x amendment A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. 1040x amendment A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. 1040x amendment The orders must be for merchandise for resale or supplies for use in the customer's business. 1040x amendment The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. 1040x amendment    Statutory nonemployees. 1040x amendment   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. 1040x amendment They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. 1040x amendment H-2A agricultural workers. 1040x amendment   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. 1040x amendment Treating employees as nonemployees. 1040x amendment   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. 1040x amendment You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. 1040x amendment The applicable rates depend on whether you filed required Forms 1099. 1040x amendment You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. 1040x amendment You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. 1040x amendment You continue to owe the full employer share of social security and Medicare taxes. 1040x amendment The employee remains liable for the employee share of social security and Medicare taxes. 1040x amendment See Internal Revenue Code section 3509 for details. 1040x amendment Also see the Instructions for Form 941-X. 1040x amendment   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. 1040x amendment Section 3509 is not available for reclassifying statutory employees. 1040x amendment See Statutory employees , earlier in this section. 1040x amendment   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. 1040x amendment 2% plus 20% of the employee rate (see the Instructions for Form 941-X). 1040x amendment For Medicare taxes; employer rate of 1. 1040x amendment 45% plus 20% of the employee rate of 1. 1040x amendment 45%, for a total rate of 1. 1040x amendment 74% of wages. 1040x amendment For Additional Medicare Tax; 0. 1040x amendment 18% (20% of the employee rate of 0. 1040x amendment 9%) of wages subject to Additional Medicare Tax. 1040x amendment For income tax withholding, the rate is 1. 1040x amendment 5% of wages. 1040x amendment   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. 1040x amendment 2% plus 40% of the employee rate (see the Instructions for Form 941-X). 1040x amendment For Medicare taxes; employer rate of 1. 1040x amendment 45% plus 40% of the employee rate of 1. 1040x amendment 45%, for a total rate of 2. 1040x amendment 03% of wages. 1040x amendment For Additional Medicare Tax; 0. 1040x amendment 36% (40% of the employee rate of 0. 1040x amendment 9%) of wages subject to Additional Medicare Tax. 1040x amendment For income tax withholding, the rate is 3. 1040x amendment 0% of wages. 1040x amendment Relief provisions. 1040x amendment   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. 1040x amendment To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. 1040x amendment You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. 1040x amendment See Publication 1976, Do You Qualify for Relief Under Section 530. 1040x amendment IRS help. 1040x amendment   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. 1040x amendment Voluntary Classification Settlement Program (VCSP). 1040x amendment   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. 1040x amendment To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). 1040x amendment For more information visit IRS. 1040x amendment gov and enter “VCSP” in the search box. 1040x amendment Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. 1040x amendment See Publication 541, Partnerships, for more details. 1040x amendment The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. 1040x amendment Exception—Qualified joint venture. 1040x amendment   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. 1040x amendment A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). 1040x amendment   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. 1040x amendment Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. 1040x amendment   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. 1040x amendment If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. 1040x amendment Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. 1040x amendment However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. 1040x amendment    Note. 1040x amendment If your spouse is your employee, not your partner, see One spouse employed by another in section 3. 1040x amendment   For more information on qualified joint ventures, visit IRS. 1040x amendment gov and enter “qualified joint venture” in the search box. 1040x amendment Exception—Community income. 1040x amendment   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. 1040x amendment S. 1040x amendment possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. 1040x amendment You may still make an election to be taxed as a qualified joint venture instead of a partnership. 1040x amendment See Exception—Qualified joint venture , earlier. 1040x amendment 3. 1040x amendment Family Employees Child employed by parents. 1040x amendment   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. 1040x amendment If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. 1040x amendment However, see Covered services of a child or spouse , later in this section. 1040x amendment Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. 1040x amendment Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. 1040x amendment One spouse employed by another. 1040x amendment   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. 1040x amendment However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. 1040x amendment Covered services of a child or spouse. 1040x amendment   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. 1040x amendment Parent employed by son or daughter. 1040x amendment   When the employer is a son or daughter employing his or her parent the following rules apply. 1040x amendment Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. 1040x amendment Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. 1040x amendment    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. 1040x amendment   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. 1040x amendment 4. 1040x amendment Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. 1040x amendment This requirement also applies to resident and nonresident alien employees. 1040x amendment You should ask your employee to show you his or her social security card. 1040x amendment The employee may show the card if it is available. 1040x amendment Do not accept a social security card that says “Not valid for employment. 1040x amendment ” A social security number issued with this legend does not permit employment. 1040x amendment You may, but are not required to, photocopy the social security card if the employee provides it. 1040x amendment If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. 1040x amendment See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. 1040x amendment Applying for a social security card. 1040x amendment   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation. 1040x amendment You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. 1040x amendment socialsecurity. 1040x amendment gov/online/ss-5. 1040x amendment html. 1040x amendment The employee must complete and sign Form SS-5; it cannot be filed by the employer. 1040x amendment You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. 1040x amendment Applying for a social security number. 1040x amendment   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. 1040x amendment If you are filing electronically, enter all zeros (000-00-000) in the social security number field. 1040x amendment When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. 1040x amendment Furnish copies B, C, and 2 of Form W-2c to the employee. 1040x amendment Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. 1040x amendment For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. 1040x amendment socialsecurity. 1040x amendment gov/employer. 1040x amendment Advise your employee to correct the SSN on his or her original Form W-2. 1040x amendment Correctly record the employee's name and SSN. 1040x amendment   Record the name and number of each employee as they are shown on the employee's social security card. 1040x amendment If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. 1040x amendment Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. 1040x amendment If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported for the most recently filed Form W-2. 1040x amendment It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. 1040x amendment IRS individual taxpayer identification numbers (ITINs) for aliens. 1040x amendment   Do not accept an ITIN in place of an SSN for employee identification or for work. 1040x amendment An ITIN is only available to resident and nonresident aliens who are not eligible for U. 1040x amendment S. 1040x amendment employment and need identification for other tax purposes. 1040x amendment You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). 1040x amendment    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. 1040x amendment If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier. 1040x amendment Do not use an ITIN in place of an SSN on Form W-2. 1040x amendment Verification of social security numbers. 1040x amendment   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. 1040x amendment Visit www. 1040x amendment socialsecurity. 1040x amendment gov/employer/ssnv. 1040x amendment htm for more information. 1040x amendment Registering for SSNVS. 1040x amendment   You must register online and receive authorization from your employer to use SSNVS. 1040x amendment To register, visit SSA's website at www. 1040x amendment ssa. 1040x amendment gov/employer and click on the Business Services Online link. 1040x amendment Follow the registration instructions to obtain a user identification (ID) and password. 1040x amendment You will need to provide the following information about yourself and your company. 1040x amendment Name. 1040x amendment SSN. 1040x amendment Date of birth. 1040x amendment Type of employer. 1040x amendment EIN. 1040x amendment Company name, address, and telephone number. 1040x amendment Email address. 1040x amendment   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. 1040x amendment You must enter the activation code online to use SSNVS. 1040x amendment 5. 1040x amendment Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. 1040x amendment The pay may be in cash or in other forms. 1040x amendment It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. 1040x amendment It does not matter how you measure or make the payments. 1040x amendment Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. 1040x amendment Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. 1040x amendment More information. 1040x amendment   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. 1040x amendment Also, see section 15 for exceptions to the general rules for wages. 1040x amendment Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. 1040x amendment Publication 15-B provides information on other forms of compensation, including: Accident and health benefits, Achievement awards, Adoption assistance, Athletic facilities, De minimis (minimal) benefits, Dependent care assistance, Educational assistance, Employee discounts, Employee stock options, Employer-provided cell phones, Group-term life insurance coverage, Health Savings Accounts, Lodging on your business premises, Meals, Moving expense reimbursements, No-additional-cost services, Retirement planning services, Transportation (commuting) benefits, Tuition reduction, and Working condition benefits. 1040x amendment Employee business expense reimbursements. 1040x amendment   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. 1040x amendment How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. 1040x amendment If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. 1040x amendment   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. 1040x amendment Accountable plan. 1040x amendment   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. 1040x amendment They must have paid or incurred deductible expenses while performing services as your employees. 1040x amendment The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. 1040x amendment They must substantiate these expenses to you within a reasonable period of time. 1040x amendment They must return any amounts in excess of substantiated expenses within a reasonable period of time. 1040x amendment   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. 1040x amendment   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. 1040x amendment This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. 1040x amendment   A reasonable period of time depends on the facts and circumstances. 1040x amendment Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. 1040x amendment Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. 1040x amendment Nonaccountable plan. 1040x amendment   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. 1040x amendment Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. 1040x amendment   See section 7 for more information on supplemental wages. 1040x amendment Per diem or other fixed allowance. 1040x amendment   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. 1040x amendment In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. 1040x amendment The 2013 standard mileage rate for auto expenses was 56. 1040x amendment 5 cents per mile. 1040x amendment The rate for 2014 is 56 cents per mile. 1040x amendment   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. 1040x amendment Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). 1040x amendment   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. 1040x amendment This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. 1040x amendment Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. 1040x amendment ” Wages not paid in money. 1040x amendment   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. 1040x amendment ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. 1040x amendment Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. 1040x amendment   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. 1040x amendment Withhold income tax on these payments only if you and the employee agree to do so. 1040x amendment Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. 1040x amendment Moving expenses. 1040x amendment   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. 1040x amendment Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. 1040x amendment For more information on moving expenses, see Publication 521, Moving Expenses. 1040x amendment Meals and lodging. 1040x amendment   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. 1040x amendment The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. 1040x amendment    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. 1040x amendment For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. 1040x amendment   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. 1040x amendment A written statement that the meals or lodging are for your convenience is not sufficient. 1040x amendment 50% test. 1040x amendment   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. 1040x amendment If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. 1040x amendment For more information, see Publication 15-B. 1040x amendment Health insurance plans. 1040x amendment   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. 1040x amendment Generally, this exclusion also applies to qualified long-term care insurance contracts. 1040x amendment However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). 1040x amendment For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. 1040x amendment See Announcement 92-16 for more information. 1040x amendment You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. 1040x amendment Health Savings Accounts and medical savings accounts. 1040x amendment   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. 1040x amendment To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. 1040x amendment Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. 1040x amendment However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. 1040x amendment For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). 1040x amendment Medical care reimbursements. 1040x amendment   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. 1040x amendment See Publication 15-B for an exception for highly compensated employees. 1040x amendment Differential wage payments. 1040x amendment   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. 1040x amendment   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. 1040x amendment Employers should report differential wage payments in box 1 of Form W-2. 1040x amendment For more information about the tax treatment of differential wage payments, visit IRS. 1040x amendment gov and enter “employees in a combat zone” in the search box. 1040x amendment Fringe benefits. 1040x amendment   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). 1040x amendment The benefits are subject to income tax withholding and employment taxes. 1040x amendment Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. 1040x amendment In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. 1040x amendment There are other special rules you and your employees may use to value certain fringe benefits. 1040x amendment See Publication 15-B for more information. 1040x amendment Nontaxable fringe benefits. 1040x amendment   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. 1040x amendment See Publication 15-B for details. 1040x amendment The following are some examples of nontaxable fringe benefits. 1040x amendment Services provided to your employees at no additional cost to you. 1040x amendment Qualified employee discounts. 1040x amendment Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. 1040x amendment Examples include a company car for business use and subscriptions to business magazines. 1040x amendment Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). 1040x amendment Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). 1040x amendment Qualified moving expense reimbursement. 1040x amendment See Moving expenses , earlier in this section, for details. 1040x amendment The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. 1040x amendment Qualified tuition reduction an educational organization provides to its employees for education. 1040x amendment For more information, see Publication 970, Tax Benefits for Education. 1040x amendment Employer-provided cell phones provided primarily for a noncompensatory business reason. 1040x amendment   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. 1040x amendment No-additional-cost services. 1040x amendment Qualified employee discounts. 1040x amendment Meals provided at an employer operated eating facility. 1040x amendment Reduced tuition for education. 1040x amendment  For more information, including the definition of a highly compensated employee, see Publication 15-B. 1040x amendment When fringe benefits are treated as paid. 1040x amendment   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. 1040x amendment You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. 1040x amendment You do not have to make this choice for all employees. 1040x amendment You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. 1040x amendment See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. 1040x amendment Valuation of fringe benefits. 1040x amendment   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. 1040x amendment Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. 1040x amendment Withholding on fringe benefits. 1040x amendment   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. 1040x amendment However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. 1040x amendment   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. 1040x amendment You must, however, withhold social security and Medicare taxes on the use of the vehicle. 1040x amendment See Publication 15-B for more information on this election. 1040x amendment Depositing taxes on fringe benefits. 1040x amendment   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. 1040x amendment To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. 1040x amendment   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. 1040x amendment See Valuation of fringe benefits , earlier. 1040x amendment If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. 1040x amendment See section 11 for information on deposit penalties. 1040x amendment   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. 1040x amendment However, you must recover the income taxes before April 1 of the following year. 1040x amendment Sick pay. 1040x amendment   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. 1040x amendment These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. 1040x amendment In either case, these payments are subject to social security, Medicare, and FUTA taxes. 1040x amendment Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. 1040x amendment The payments are always subject to federal income tax. 1040x amendment See Publication 15-A for more information. 1040x amendment 6. 1040x amendment Tips Tips your employee receives from customers are generally subject to withholding. 1040x amendment Your employee must report cash tips to you by the 10th of the month after the month the tips are received. 1040x amendment The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. 1040x amendment Both directly and indirectly tipped employees must report tips to you. 1040x amendment No report is required for months when tips are less than $20. 1040x amendment Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. 1040x amendment The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period the report covers, and The total of tips received during the month or period. 1040x amendment Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. 1040x amendment You are permitted to establish a system for electronic tip reporting by employees. 1040x amendment See Regulations section 31. 1040x amendment 6053-1(d). 1040x amendment Collecting taxes on tips. 1040x amendment   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. 1040x amendment The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. 1040x amendment If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. 1040x amendment   You can collect these taxes from the employee's wages or from other funds he or she makes available. 1040x amendment See Tips treated as supplemental wages in section 7 for more information. 1040x amendment Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. 1040x amendment You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. 1040x amendment You are responsible for the employer Medicare tax for the whole year on all wages and tips. 1040x amendment File Form 941 or Form 944 to report withholding and employment taxes on tips. 1040x amendment Ordering rule. 1040x amendment   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. 1040x amendment If there are not enough funds available, withhold taxes in the following order. 1040x amendment Withhold on regular wages and other compensation. 1040x amendment Withhold social security and Medicare taxes on tips. 1040x amendment Withhold income tax on tips. 1040x amendment Reporting tips. 1040x amendment   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). 1040x amendment Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. 1040x amendment Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. 1040x amendment ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. 1040x amendment See section 13 and the General Instructions for Forms W-2 and W-3. 1040x amendment   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. 1040x amendment See Revenue Ruling 2012-18, 2012-26 I. 1040x amendment R. 1040x amendment B. 1040x amendment 1032, available at www. 1040x amendment irs. 1040x amendment gov/irb/2012-26_IRB/ar07. 1040x amendment html. 1040x amendment Allocated tips. 1040x amendment   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. 1040x amendment However, do not withhold income, social security, or Medicare taxes on allocated tips. 1040x amendment   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. 1040x amendment   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. 1040x amendment For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. 1040x amendment For information on filing Form 8027 electronically with the IRS, see Publication 1239. 1040x amendment Tip Rate Determination and Education Program. 1040x amendment   Employers may participate in the Tip Rate Determination and Education Program. 1040x amendment The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. 1040x amendment The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). 1040x amendment A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. 1040x amendment To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. 1040x amendment Additionally, visit IRS. 1040x amendment gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. 1040x amendment 7. 1040x amendment Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. 1040x amendment They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. 1040x amendment Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. 1040x amendment How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. 1040x amendment See Regulations section 31. 1040x amendment 3402(g)-1 for additional guidance for wages paid after January 1, 2007. 1040x amendment Also see Revenue Ruling 2008-29, 2008-24 I. 1040x amendment R. 1040x amendment B. 1040x amendment 1149, available at www. 1040x amendment irs. 1040x amendment gov/irb/2008-24_IRB/ar08. 1040x amendment html. 1040x amendment Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. 1040x amendment   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. 1040x amendment If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. 1040x amendment 6% (or the highest rate of income tax for the year). 1040x amendment Withhold using the 39. 1040x amendment 6% rate without regard to the employee's Form W-4. 1040x amendment In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. 1040x amendment For more information, see Treasury Decision 9276, 2006-37 I. 1040x amendment R. 1040x amendment B. 1040x amendment 423, available at www. 1040x amendment irs. 1040x amendment gov/irb/2006-37_IRB/ar09. 1040x amendment html. 1040x amendment Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. 1040x amendment   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. 1040x amendment Supplemental wages combined with regular wages. 1040x amendment   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. 1040x amendment Supplemental wages identified separately from regular wages. 1040x amendment   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages. 1040x amendment If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. 1040x amendment Withhold a flat 25% (no other percentage allowed). 1040x amendment If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. 1040x amendment If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. 1040x amendment Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. 1040x amendment Subtract the tax withheld from the regular wages. 1040x amendment Withhold the remaining tax from the supplemental wages. 1040x amendment If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax. 1040x amendment If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. 1040x amendment This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. 1040x amendment Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. 1040x amendment Example 1. 1040x amendment You pay John Peters a base salary on the 1st of each month. 1040x amendment He is single and claims one withholding allowance. 1040x amendment In January he is paid $1,000. 1040x amendment Using the wage bracket tables, you withhold $50 from this amount. 1040x amendment In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. 1040x amendment You figure the withholding based on the total of $3,000. 1040x amendment The correct withholding from the tables is $338. 1040x amendment Example 2. 1040x amendment You pay Sharon Warren a base salary on the 1st of each month. 1040x amendment She is single and claims one allowance. 1040x amendment Her May 1 pay is $2,000. 1040x amendment Using the wage bracket tables, you withhold $188. 1040x amendment On May 14 she receives a bonus of $1,000. 1040x amendment Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). 1040x amendment Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. 1040x amendment Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). 1040x amendment Withhold $150 from the bonus payment. 1040x amendment Example 3. 1040x amendment The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. 1040x amendment You withhold 25% of $1,000, or $250, from Sharon's bonus payment. 1040x amendment Example 4. 1040x amendment The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. 1040x amendment Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). 1040x amendment Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. 1040x amendment Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). 1040x amendment Withhold $443 from the second bonus payment. 1040x amendment Tips treated as supplemental wages. 1040x amendment   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. 1040x amendment If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. 1040x amendment If you have not withheld income tax from the regular wages, add the tips to the regular wages. 1040x amendment Then withhold income tax on the total. 1040x amendment If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. 1040x amendment Vacation pay. 1040x amendment   Vacation pay is subject to withholding as if it were a regular wage payment. 1040x amendment When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. 1040x amendment If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. 1040x amendment 8. 1040x amendment Payroll Period Your payroll period is a period of service for which you usually pay wages. 1040x amendment When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. 1040x amendment No regular payroll period. 1040x amendment   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. 1040x amendment Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. 1040x amendment If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. 1040x amendment Employee paid for period less than 1 week. 1040x amendment   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. 1040x amendment If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. 1040x amendment You then figure withholding based on the daily or miscellaneous period. 1040x amendment 9. 1040x amendment Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. 1040x amendment   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. 1040x amendment Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. 1040x amendment Advise your employees to use the IRS Withholding Calculator on the IRS website at www. 1040x amendment irs. 1040x amendment gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. 1040x amendment   Ask all new employees to give you a signed Form W-4 when they start work. 1040x amendment Make the form effective with the first wage payment. 1040x amendment If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. 1040x amendment Form in Spanish. 1040x amendment   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. 1040x amendment For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). 1040x amendment The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). 1040x amendment Electronic system to receive Form W-4. 1040x amendment   You may establish a system to electronically receive Forms W-4 from your employees. 1040x amendment See Regulations section 31. 1040x amendment 3402(f)(5)-1(c) for more information. 1040x amendment Effective date of Form W-4. 1040x amendment   A Form W-4 remains in effect until the employee gives you a new one. 1040x amendment When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. 1040x amendment If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. 1040x amendment For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. 1040x amendment A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. 1040x amendment Successor employer. 1040x amendment   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. 1040x amendment See Revenue Procedure 2004-53, 2004-34 I. 1040x amendment R. 1040x amendment B. 1040x amendment 320, available at www. 1040x amendment irs. 1040x amendment gov/irb/2004-34_IRB/ar13. 1040x amendment html. 1040x amendment Completing Form W-4. 1040x amendment   The amount of any federal income tax withholding must be based on marital status and withholding allowances. 1040x amendment Your employees may not base their withholding amounts on a fixed dollar amount or percentage. 1040x amendment However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. 1040x amendment Employees may claim fewer withholding allowances than they are entitled to claim. 1040x amendment They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. 1040x amendment See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. 1040x amendment Along with Form W-4, you may wish to order Publication 505 for use by your employees. 1040x amendment Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. 1040x amendment If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. 1040x amendment Exemption from federal income tax withholding. 1040x amendment   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. 1040x amendment See the Form W-4 instructions for more information. 1040x amendment However, the wages are still subject to social security and Medicare taxes. 1040x amendment See also Invalid Forms W-4 , later in this section. 1040x amendment   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. 1040x amendment To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. 1040x amendment If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. 1040x amendment If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. 1040x amendment Withholding income taxes on the wages of nonresident alien employees. 1040x amendment   In general, you must withhold federal income taxes on the wages of nonresident alien employees. 1040x amendment However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. 1040x amendment Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. 1040x amendment Withholding adjustment for nonresident alien employees. 1040x amendment   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. 1040x amendment Nonresident alien students from India and business apprentices from India are not subject to this procedure. 1040x amendment Instructions. 1040x amendment   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. 1040x amendment Step 1. 1040x amendment   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. 1040x amendment    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. 1040x amendment 30     Biweekly 86. 1040x amendment 50     Semimonthly 93. 1040x amendment 80     Monthly 187. 1040x amendment 50     Quarterly 562. 1040x amendment 50     Semiannually 1,125. 1040x amendment 00     Annually 2,250. 1040x amendment 00     Daily or Miscellaneous (each day of the payroll period) 8. 1040x amendment 70   Step 2. 1040x amendment   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. 1040x amendment Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. 1040x amendment Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. 1040x amendment If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. 1040x amendment If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. 1040x amendment The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. 1040x amendment The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. 1040x amendment Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. 1040x amendment This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. 1040x amendment Example. 1040x amendment An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. 1040x amendment The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). 1040x amendment The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. 1040x amendment 50 from the chart under Step 1 ($586. 1040x amendment 50 total). 1040x amendment The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). 1040x amendment Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. 1040x amendment The $86. 1040x amendment 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. 1040x amendment Also, the $86. 1040x amendment 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. 1040x amendment Supplemental wage payment. 1040x amendment   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. 1040x amendment 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. 1040x amendment Nonresident alien employee's Form W-4. 1040x amendment   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding, Request withholding as if they are single, regardless of their actual marital status, Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. 1040x amendment   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. 1040x amendment A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. 1040x amendment Form 8233. 1040x amendment   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. 1040x amendment See Publication 515 for details. 1040x amendment IRS review of requested Forms W-4. 1040x amendment   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. 1040x amendment You may also be directed to send certain Forms W-4 to the IRS. 1040x amendment You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. 1040x amendment Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. 1040x amendment The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. 1040x amendment R. 1040x amendment B. 1040x amendment 455, which is available at www. 1040x amendment irs. 1040x amendment gov/irb/2007-35_IRB/ar10. 1040x amendment html. 1040x amendment When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. 1040x amendment After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). 1040x amendment However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter