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2010 Income Tax

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2010 Income Tax

2010 income tax Publication 969 - Main Content Table of Contents Health Savings Accounts (HSAs)Qualifying for an HSA Contributions to an HSA Distributions From an HSA Balance in an HSA Death of HSA Holder Filing Form 8889 Employer Participation Medical Savings Accounts (MSAs)Archer MSAs Contributions to an MSA Distributions From an MSA Balance in an Archer MSA Death of the Archer MSA Holder Filing Form 8853 Employer Participation Medicare Advantage MSAs Flexible Spending Arrangements (FSAs)Qualifying for an FSA Contributions to an FSA Distributions From an FSA Balance in an FSA Employer Participation Health Reimbursement Arrangements (HRAs)Qualifying for an HRA Contributions to an HRA Distributions From an HRA Balance in an HRA Employer Participation How To Get Tax HelpLow Income Taxpayer Clinics Health Savings Accounts (HSAs) A health savings account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. 2010 income tax You must be an eligible individual to qualify for an HSA. 2010 income tax No permission or authorization from the IRS is necessary to establish an HSA. 2010 income tax You set up an HSA with a trustee. 2010 income tax A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. 2010 income tax The HSA can be established through a trustee that is different from your health plan provider. 2010 income tax Your employer may already have some information on HSA trustees in your area. 2010 income tax If you have an Archer MSA, you can generally roll it over into an HSA tax free. 2010 income tax See Rollovers, later. 2010 income tax What are the benefits of an HSA?   You may enjoy several benefits from having an HSA. 2010 income tax You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040. 2010 income tax Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. 2010 income tax The contributions remain in your account until you use them. 2010 income tax The interest or other earnings on the assets in the account are tax free. 2010 income tax Distributions may be tax free if you pay qualified medical expenses. 2010 income tax See Qualified medical expenses , later. 2010 income tax An HSA is “portable. 2010 income tax ” It stays with you if you change employers or leave the work force. 2010 income tax Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. 2010 income tax You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. 2010 income tax You have no other health coverage except what is permitted under Other health coverage , later. 2010 income tax You are not enrolled in Medicare. 2010 income tax You cannot be claimed as a dependent on someone else's 2013 tax return. 2010 income tax Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). 2010 income tax If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse's coverage does not cover you. 2010 income tax If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. 2010 income tax This is true even if the other person does not actually claim your exemption. 2010 income tax Each spouse who is an eligible individual who wants an HSA must open a separate HSA. 2010 income tax You cannot have a joint HSA. 2010 income tax High deductible health plan (HDHP). 2010 income tax   An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. 2010 income tax Out-of-pocket expenses include copayments and other amounts, but do not include premiums. 2010 income tax   An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. 2010 income tax Preventive care includes, but is not limited to, the following. 2010 income tax Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. 2010 income tax Routine prenatal and well-child care. 2010 income tax Child and adult immunizations. 2010 income tax Tobacco cessation programs. 2010 income tax Obesity weight-loss programs. 2010 income tax Screening services. 2010 income tax This includes screening services for the following: Cancer. 2010 income tax Heart and vascular diseases. 2010 income tax Infectious diseases. 2010 income tax Mental health conditions. 2010 income tax Substance abuse. 2010 income tax Metabolic, nutritional, and endocrine conditions. 2010 income tax Musculoskeletal disorders. 2010 income tax Obstetric and gynecological conditions. 2010 income tax Pediatric conditions. 2010 income tax Vision and hearing disorders. 2010 income tax For more information on screening services, see Notice 2004-23, 2004-15 I. 2010 income tax R. 2010 income tax B. 2010 income tax 725 available at www. 2010 income tax irs. 2010 income tax gov/irb/2004-15_IRB/ar10. 2010 income tax html. 2010 income tax     The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013. 2010 income tax      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,250 $12,500 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. 2010 income tax Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. 2010 income tax    The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2014. 2010 income tax      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,350 $12,700 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. 2010 income tax Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. 2010 income tax   Self-only HDHP coverage is an HDHP covering only an eligible individual. 2010 income tax Family HDHP coverage is an HDHP covering an eligible individual and at least one other individual (whether or not that individual is an eligible individual). 2010 income tax Example. 2010 income tax An eligible individual and his dependent child are covered under an “employee plus one” HDHP offered by the individual's employer. 2010 income tax This is family HDHP coverage. 2010 income tax Family plans that do not meet the high deductible rules. 2010 income tax   There are some family plans that have deductibles for both the family as a whole and for individual family members. 2010 income tax Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. 2010 income tax If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. 2010 income tax Example. 2010 income tax You have family health insurance coverage in 2013. 2010 income tax The annual deductible for the family plan is $3,500. 2010 income tax This plan also has an individual deductible of $1,500 for each family member. 2010 income tax The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($2,500) for family coverage. 2010 income tax Other health coverage. 2010 income tax   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. 2010 income tax However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. 2010 income tax    You can have additional insurance that provides benefits only for the following items. 2010 income tax Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property. 2010 income tax A specific disease or illness. 2010 income tax A fixed amount per day (or other period) of hospitalization. 2010 income tax   You can also have coverage (whether provided through insurance or otherwise) for the following items. 2010 income tax Accidents. 2010 income tax Disability. 2010 income tax Dental care. 2010 income tax Vision care. 2010 income tax Long-term care. 2010 income tax    Plans in which substantially all of the coverage is through the items listed earlier are not HDHPs. 2010 income tax For example, if your plan provides coverage substantially all of which is for a specific disease or illness, the plan is not an HDHP for purposes of establishing an HSA. 2010 income tax Prescription drug plans. 2010 income tax   You can have a prescription drug plan, either as part of your HDHP or a separate plan (or rider), and qualify as an eligible individual if the plan does not provide benefits until the minimum annual deductible of the HDHP has been met. 2010 income tax If you can receive benefits before that deductible is met, you are not an eligible individual. 2010 income tax Other employee health plans. 2010 income tax   An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. 2010 income tax Health FSAs and HRAs are discussed later. 2010 income tax   However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. 2010 income tax Limited-purpose health FSA or HRA. 2010 income tax These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. 2010 income tax Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible. 2010 income tax Suspended HRA. 2010 income tax Before the beginning of an HRA coverage period, you can elect to suspend the HRA. 2010 income tax The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage. 2010 income tax When the suspension period ends, you are no longer eligible to make contributions to an HSA. 2010 income tax Post-deductible health FSA or HRA. 2010 income tax These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. 2010 income tax The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met. 2010 income tax Retirement HRA. 2010 income tax This arrangement pays or reimburses only those medical expenses incurred after retirement. 2010 income tax After retirement you are no longer eligible to make contributions to an HSA. 2010 income tax Health FSA – grace period. 2010 income tax   Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero. 2010 income tax See Flexible Spending Arrangements (FSAs) , later. 2010 income tax Contributions to an HSA Any eligible individual can contribute to an HSA. 2010 income tax For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. 2010 income tax For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. 2010 income tax Family members or any other person may also make contributions on behalf of an eligible individual. 2010 income tax Contributions to an HSA must be made in cash. 2010 income tax Contributions of stock or property are not allowed. 2010 income tax Limit on Contributions The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual. 2010 income tax For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. 2010 income tax If you have family HDHP coverage, you can contribute up to $6,450. 2010 income tax For 2014, if you have self-only HDHP coverage, you can contribute up to $3,300. 2010 income tax If you have family HDHP coverage you can contribute up to $6,550. 2010 income tax If you were, or were considered (under the last-month rule, discussed later), an eligible individual for the entire year and did not change your type of coverage, you can contribute the full amount based on your type of coverage. 2010 income tax However, if you were not an eligible individual for the entire year or changed your coverage during the year, your contribution limit is the greater of: The limitation shown on the Line 3 Limitation Chart and Worksheetin the Instructions for Form 8889, Health Savings Accounts (HSAs), or The maximum annual HSA contribution based on your HDHP coverage (self-only or family) on the first day of the last month of your tax year. 2010 income tax If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2013 is $6,450 even if you changed coverage during the year. 2010 income tax Last-month rule. 2010 income tax   Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. 2010 income tax You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. 2010 income tax Testing period. 2010 income tax   If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. 2010 income tax For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. 2010 income tax For example, December 1, 2013, through December 31, 2014. 2010 income tax   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the total contributions made to your HSA that would not have been made except for the last-month rule. 2010 income tax You include this amount in your income in the year in which you fail to be an eligible individual. 2010 income tax This amount is also subject to a 10% additional tax. 2010 income tax The income and additional tax are shown on Form 8889, Part III. 2010 income tax Example 1. 2010 income tax Chris, age 53, becomes an eligible individual on December 1, 2013. 2010 income tax He has family HDHP coverage on that date. 2010 income tax Under the last-month rule, he contributes $6,450 to his HSA. 2010 income tax Chris fails to be an eligible individual in June 2014. 2010 income tax Because Chris did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), he must include in his 2014 income the contributions made in 2013 that would not have been made except for the last-month rule. 2010 income tax Chris uses the worksheet in the Form 8889 instructions to determine this amount. 2010 income tax January -0- February -0- March -0- April -0- May -0- June -0- July -0- August -0- September -0- October -0- November -0- December $6,450. 2010 income tax 00 Total for all months $6,450. 2010 income tax 00 Limitation. 2010 income tax Divide the total by 12 $537. 2010 income tax 50 Chris would include $5,912. 2010 income tax 50 ($6,450. 2010 income tax 00 – $537. 2010 income tax 50) in his gross income on his 2014 tax return. 2010 income tax Also, a 10% additional tax applies to this amount. 2010 income tax Example 2. 2010 income tax Erika, age 39, has self-only HDHP coverage on January 1, 2013. 2010 income tax Erika changes to family HDHP coverage on November 1, 2013. 2010 income tax Because Erika has family HDHP coverage on December 1, 2013, she contributes $6,450 for 2013. 2010 income tax Erika fails to be an eligible individual in March 2014. 2010 income tax Because she did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), she must include in income the contribution made that would not have been made except for the last-month rule. 2010 income tax Erika uses the worksheet in the Form 8889 instructions to determine this amount. 2010 income tax January $3,250. 2010 income tax 00 February $3,250. 2010 income tax 00 March $3,250. 2010 income tax 00 April $3,250. 2010 income tax 00 May $3,250. 2010 income tax 00 June $3,250. 2010 income tax 00 July $3,250. 2010 income tax 00 August $3,250. 2010 income tax 00 September $3,250. 2010 income tax 00 October $3,250. 2010 income tax 00 November $6,450. 2010 income tax 00 December $6,450. 2010 income tax 00 Total for all months $45,400. 2010 income tax 00 Limitation. 2010 income tax Divide the total by 12 $3,783. 2010 income tax 34 Erika would include $2,666. 2010 income tax 67 ($6,450 – $3,783. 2010 income tax 34) in her gross income on her 2014 tax return. 2010 income tax Also, a 10% additional tax applies to this amount. 2010 income tax Additional contribution. 2010 income tax   If you are an eligible individual who is age 55 or older at the end of your tax year, your contribution limit is increased by $1,000. 2010 income tax For example, if you have self-only coverage, you can contribute up to $4,250 (the contribution limit for self-only coverage ($3,250) plus the additional contribution of $1,000). 2010 income tax However, see Enrolled in Medicare , later. 2010 income tax If you have more than one HSA in 2013, your total contributions to all the HSAs cannot be more than the limits discussed earlier. 2010 income tax Reduction of contribution limit. 2010 income tax   You must reduce the amount that can be contributed (including any additional contribution) to your HSA by the amount of any contribution made to your Archer MSA (including employer contributions) for the year. 2010 income tax A special rule applies to married people, discussed next, if each spouse has family coverage under an HDHP. 2010 income tax Rules for married people. 2010 income tax   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. 2010 income tax If each spouse has family coverage under a separate plan, the contribution limit for 2013 is $6,450. 2010 income tax You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. 2010 income tax After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. 2010 income tax The rules for married people apply only if both spouses are eligible individuals. 2010 income tax If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. 2010 income tax If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,450. 2010 income tax Each spouse must make the additional contribution to his or her own HSA. 2010 income tax Example. 2010 income tax For 2013, Mr. 2010 income tax Auburn and his wife are both eligible individuals. 2010 income tax They each have family coverage under separate HDHPs. 2010 income tax Mr. 2010 income tax Auburn is 58 years old and Mrs. 2010 income tax Auburn is 53. 2010 income tax Mr. 2010 income tax and Mrs. 2010 income tax Auburn can split the family contribution limit ($6,450) equally or they can agree on a different division. 2010 income tax If they split it equally, Mr. 2010 income tax Auburn can contribute $4,225 to an HSA (one-half the maximum contribution for family coverage ($3,225) + $1,000 additional contribution) and Mrs. 2010 income tax Auburn can contribute $3,225 to an HSA. 2010 income tax Employer contributions. 2010 income tax   You must reduce the amount you, or any other person, can contribute to your HSA by the amount of any contributions made by your employer that are excludable from your income. 2010 income tax This includes amounts contributed to your account by your employer through a cafeteria plan. 2010 income tax Enrolled in Medicare. 2010 income tax   Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. 2010 income tax Example. 2010 income tax You turned age 65 in July 2013 and enrolled in Medicare. 2010 income tax You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. 2010 income tax Your contribution limit is $2,125 ($4,250 × 6 ÷ 12). 2010 income tax Qualified HSA funding distribution. 2010 income tax   A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. 2010 income tax This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. 2010 income tax For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within your tax year in which the distribution would be made. 2010 income tax   The maximum qualified HSA funding distribution depends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. 2010 income tax The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. 2010 income tax The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. 2010 income tax The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made. 2010 income tax   You can make only one qualified HSA funding distribution during your lifetime. 2010 income tax However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. 2010 income tax The total qualified HSA funding distribution cannot be more than the contribution limit for family HDHP coverage plus any additional contribution to which you are entitled. 2010 income tax Example. 2010 income tax In 2013, you are an eligible individual, age 57, with self-only HDHP coverage. 2010 income tax You can make a qualified HSA funding distribution of $4,250 ($3,250 plus $1,000 additional contribution). 2010 income tax Funding distribution – testing period. 2010 income tax   You must remain an eligible individual during the testing period. 2010 income tax For a qualified HSA funding distribution, the testing period begins with the month in which the qualified HSA funding distribution is contributed and ends on the last day of the 12th month following that month. 2010 income tax For example, if a qualified HSA funding distribution is contributed to your HSA on August 10, 2013, your testing period begins in August 2013, and ends on August 31, 2014. 2010 income tax   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the qualified HSA funding distribution. 2010 income tax You include this amount in income in the year in which you fail to be an eligible individual. 2010 income tax This amount is also subject to a 10% additional tax. 2010 income tax The income and the additional tax are shown on Form 8889, Part III. 2010 income tax   Each qualified HSA funding distribution allowed has its own testing period. 2010 income tax For example, you are an eligible individual, age 45, with self-only HDHP coverage. 2010 income tax On June 18, 2013, you make a qualified HSA funding distribution of $3,250. 2010 income tax On July 27, 2013, you enroll in family HDHP coverage and on August 17, 2013, you make a qualified HSA funding distribution of $3,200. 2010 income tax Your testing period for the first distribution begins in June 2013 and ends on June 30, 2014. 2010 income tax Your testing period for the second distribution begins in August 2013 and ends on August 31, 2014. 2010 income tax   The testing period rule that applies under the last-month rule (discussed earlier) does not apply to amounts contributed to an HSA through a qualified HSA funding distribution. 2010 income tax If you remain an eligible individual during the entire funding distribution testing period, then no amount of that distribution is included in income and will not be subject to the additional tax for failing to meet the last-month rule testing period. 2010 income tax Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. 2010 income tax Archer MSAs and other HSAs. 2010 income tax   You can roll over amounts from Archer MSAs and other HSAs into an HSA. 2010 income tax You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. 2010 income tax Rollover contributions do not need to be in cash. 2010 income tax Rollovers are not subject to the annual contribution limits. 2010 income tax   You must roll over the amount within 60 days after the date of receipt. 2010 income tax You can make only one rollover contribution to an HSA during a 1-year period. 2010 income tax Note. 2010 income tax If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer is not considered a rollover. 2010 income tax There is no limit on the number of these transfers. 2010 income tax Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889. 2010 income tax When To Contribute You can make contributions to your HSA for 2013 until April 15, 2014. 2010 income tax If you fail to be an eligible individual during 2013, you can still make contributions, up until April 15, 2014, for the months you were an eligible individual. 2010 income tax Your employer can make contributions to your HSA between January 1, 2014, and April 15, 2014, that are allocated to 2013. 2010 income tax Your employer must notify you and the trustee of your HSA that the contribution is for 2013. 2010 income tax The contribution will be reported on your 2014 Form W-2. 2010 income tax Reporting Contributions on Your Return Contributions made by your employer are not included in your income. 2010 income tax Contributions to an employee's account by an employer using the amount of an employee's salary reduction through a cafeteria plan are treated as employer contributions. 2010 income tax Generally, you can claim contributions you made and contributions made by any other person, other than your employer, on your behalf, as an adjustment to income. 2010 income tax Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. 2010 income tax The contributions are treated as a distribution of money and are not included in the partner's gross income. 2010 income tax Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are deductible by the partnership and includible in the partner's gross income. 2010 income tax In both situations, the partner can deduct the contribution made to the partner's HSA. 2010 income tax Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee's gross income. 2010 income tax The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. 2010 income tax Form 8889. 2010 income tax   Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. 2010 income tax You should include all contributions made for 2013, including those made by April 15, 2014, that are designated for 2013. 2010 income tax Contributions made by your employer and qualified HSA funding distributions are also shown on the form. 2010 income tax   You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. 2010 income tax Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. 2010 income tax Follow the instructions for Form 8889. 2010 income tax Report your HSA deduction on Form 1040 or Form 1040NR. 2010 income tax Excess contributions. 2010 income tax   You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. 2010 income tax Excess contributions are not deductible. 2010 income tax Excess contributions made by your employer are included in your gross income. 2010 income tax If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. 2010 income tax   Generally, you must pay a 6% excise tax on excess contributions. 2010 income tax See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. 2010 income tax The excise tax applies to each tax year the excess contribution remains in the account. 2010 income tax   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. 2010 income tax You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made. 2010 income tax You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. 2010 income tax If you fail to remain an eligible individual during any of the testing periods, discussed earlier, the amount you have to include in income is not an excess contribution. 2010 income tax If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later. 2010 income tax Deducting an excess contribution in a later year. 2010 income tax   You may be able to deduct excess contributions for previous years that are still in your HSA. 2010 income tax The excess contribution you can deduct for the current year is the lesser of the following two amounts. 2010 income tax Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year. 2010 income tax The total excess contributions in your HSA at the beginning of the year. 2010 income tax   Amounts contributed for the year include contributions by you, your employer, and any other person. 2010 income tax They also include any qualified HSA funding distribution made to your HSA. 2010 income tax Any excess contribution remaining at the end of a tax year is subject to the excise tax. 2010 income tax See Form 5329. 2010 income tax Distributions From an HSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. 2010 income tax When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA. 2010 income tax You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. 2010 income tax If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. 2010 income tax You do not have to make distributions from your HSA each year. 2010 income tax If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. 2010 income tax Generally, a distribution is money you get from your health savings account. 2010 income tax Your total distributions include amounts paid with a debit card that restricts payments to health care and amounts withdrawn from the HSA by other individuals that you have designated. 2010 income tax The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. 2010 income tax Qualified medical expenses. 2010 income tax   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. 2010 income tax These are explained in Publication 502, Medical and Dental Expenses. 2010 income tax   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. 2010 income tax A medicine or drug will be a qualified medical expense for HSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. 2010 income tax   For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. 2010 income tax State law determines when an HSA is established. 2010 income tax An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established. 2010 income tax   If, under the last-month rule, you are considered to be an eligible individual for the entire year for determining the contribution amount, only those expenses incurred after you actually establish your HSA are qualified medical expenses. 2010 income tax   Qualified medical expenses are those incurred by the following persons. 2010 income tax You and your spouse. 2010 income tax All dependents you claim on your tax return. 2010 income tax Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. 2010 income tax    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. 2010 income tax You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your HSA. 2010 income tax Insurance premiums. 2010 income tax   You cannot treat insurance premiums as qualified medical expenses unless the premiums are for: Long-term care insurance. 2010 income tax Health care continuation coverage (such as coverage under COBRA). 2010 income tax Health care coverage while receiving unemployment compensation under federal or state law. 2010 income tax Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). 2010 income tax   The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are subject to limits based on age and are adjusted annually. 2010 income tax See Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040). 2010 income tax   Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. 2010 income tax For item (4), if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally are not qualified medical expenses. 2010 income tax Health coverage tax credit. 2010 income tax   You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. 2010 income tax See Publication 502 for more information on this credit. 2010 income tax Deemed distributions from HSAs. 2010 income tax   The following situations result in deemed taxable distributions from your HSA. 2010 income tax You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2013. 2010 income tax Your account ceases to be an HSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8889. 2010 income tax You used any portion of any of your HSAs as security for a loan at any time in 2013. 2010 income tax You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. 2010 income tax   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the HSA, Lending of money between you and the HSA, Furnishing goods, services, or facilities between you and the HSA, and Transfer to or use by you, or for your benefit, of any assets of the HSA. 2010 income tax   Any deemed distribution will not be treated as used to pay qualified medical expenses. 2010 income tax These distributions are included in your income and are subject to the additional 20% tax, discussed later. 2010 income tax Recordkeeping. 2010 income tax You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. 2010 income tax Do not send these records with your tax return. 2010 income tax Keep them with your tax records. 2010 income tax Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). 2010 income tax If you use a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8889. 2010 income tax However, the distribution of an excess contribution taken out after the due date, including extensions, of your return is subject to tax even if used for qualified medical expenses. 2010 income tax Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. 2010 income tax If you do not use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. 2010 income tax Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. 2010 income tax You may have to pay an additional 20% tax on your taxable distribution. 2010 income tax HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the HSA. 2010 income tax Additional tax. 2010 income tax   There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. 2010 income tax Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. 2010 income tax Exceptions. 2010 income tax   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. 2010 income tax Balance in an HSA An HSA is generally exempt from tax. 2010 income tax You are permitted to take a distribution from your HSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. 2010 income tax Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). 2010 income tax Earnings on amounts in an HSA are not included in your income while held in the HSA. 2010 income tax Death of HSA Holder You should choose a beneficiary when you set up your HSA. 2010 income tax What happens to that HSA when you die depends on whom you designate as the beneficiary. 2010 income tax Spouse is the designated beneficiary. 2010 income tax   If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death. 2010 income tax Spouse is not the designated beneficiary. 2010 income tax   If your spouse is not the designated beneficiary of your HSA: The account stops being an HSA, and The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die. 2010 income tax If your estate is the beneficiary, the value is included on your final income tax return. 2010 income tax The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. 2010 income tax Filing Form 8889 You must file Form 8889 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your HSA during the year. 2010 income tax You must file the form even if only your employer or your spouse's employer made contributions to the HSA. 2010 income tax If, during the tax year, you are the beneficiary of two or more HSAs or you are a beneficiary of an HSA and you have your own HSA, you must complete a separate Form 8889 for each HSA. 2010 income tax Enter “statement” at the top of each Form 8889 and complete the form as instructed. 2010 income tax Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. 2010 income tax Attach the statements to your tax return after the controlling Form 8889. 2010 income tax Employer Participation This section contains the rules that employers must follow if they decide to make HSAs available to their employees. 2010 income tax Unlike the previous discussions, “you” refers to the employer and not to the employee. 2010 income tax Health plan. 2010 income tax   If you want your employees to be able to have an HSA, they must have an HDHP. 2010 income tax You can provide no additional coverage other than those exceptions listed previously under Other health coverage . 2010 income tax Contributions. 2010 income tax   You can make contributions to your employees' HSAs. 2010 income tax You deduct the contributions on your business income tax return for the year in which you make the contributions. 2010 income tax If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. 2010 income tax   For more information on employer contributions, see Notice 2008-59, 2008-29 I. 2010 income tax R. 2010 income tax B. 2010 income tax 123, questions 23 through 27, available at www. 2010 income tax irs. 2010 income tax gov/irb/2008-29_IRB/ar11. 2010 income tax html. 2010 income tax Comparable contributions. 2010 income tax   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. 2010 income tax Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. 2010 income tax The comparability rules do not apply to contributions made through a cafeteria plan. 2010 income tax Comparable participating employees. 2010 income tax   Comparable participating employees: Are covered by your HDHP and are eligible to establish an HSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (part-time, full-time, or former employees). 2010 income tax   To meet the comparability requirements for eligible employees who have not established an HSA by December 31 or have not notified you that they have an HSA, you must meet a notice requirement and a contribution requirement. 2010 income tax   You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. 2010 income tax The notice must state that each eligible employee who, by the last day of February, establishes an HSA and notifies you that they have established an HSA will receive a comparable contribution to the HSA for the prior year. 2010 income tax For a sample of the notice, see Regulation 54. 2010 income tax 4980G-4 A-14(c). 2010 income tax You will meet the contribution requirement for these employees if by April 15, 2014, you contribute comparable amounts plus reasonable interest to the employee's HSA for the prior year. 2010 income tax Note. 2010 income tax For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating employees. 2010 income tax Excise tax. 2010 income tax   If you made contributions to your employees' HSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. 2010 income tax Employment taxes. 2010 income tax   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. 2010 income tax You must report the contributions in box 12 of the Form W-2 you file for each employee. 2010 income tax This includes the amounts the employee elected to contribute through a cafeteria plan. 2010 income tax Enter code “W” in box 12. 2010 income tax Medical Savings Accounts (MSAs) Archer MSAs were created to help self-employed individuals and employees of certain small employers meet the medical care costs of the account holder, the account holder's spouse, or the account holder's dependent(s). 2010 income tax After December 31, 2007, you cannot be treated as an eligible individual for Archer MSA purposes unless: You were an active participant for any tax year ending before January 1, 2008, or You became an active participant for a tax year ending after December 31, 2007, by reason of coverage under a high deductible health plan (HDHP) of an Archer MSA participating employer. 2010 income tax A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is eligible for Medicare. 2010 income tax Archer MSAs An Archer MSA is a tax-exempt trust or custodial account that you set up with a U. 2010 income tax S. 2010 income tax financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. 2010 income tax What are the benefits of an Archer MSA?   You may enjoy several benefits from having an Archer MSA. 2010 income tax You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040 or Form 1040NR. 2010 income tax The interest or other earnings on the assets in your Archer MSA are tax free. 2010 income tax Distributions may be tax free if you pay qualified medical expenses. 2010 income tax See Qualified medical expenses , later. 2010 income tax The contributions remain in your Archer MSA from year to year until you use them. 2010 income tax An Archer MSA is “portable” so it stays with you if you change employers or leave the work force. 2010 income tax Qualifying for an Archer MSA To qualify for an Archer MSA, you must be either of the following. 2010 income tax An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse). 2010 income tax A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. 2010 income tax You can have no other health or Medicare coverage except what is permitted under Other health coverage , later. 2010 income tax You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. 2010 income tax If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an Archer MSA contribution. 2010 income tax This is true even if the other person does not actually claim your exemption. 2010 income tax Small employer. 2010 income tax   A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar years. 2010 income tax The definition of small employer is modified for new employers and growing employers. 2010 income tax Growing employer. 2010 income tax   A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. 2010 income tax The employer will continue to meet the requirement for small employers if he or she: Had 50 or fewer employees when the Archer MSAs began, Made a contribution that was excludable or deductible as an Archer MSA for the last year he or she had 50 or fewer employees, and Had an average of 200 or fewer employees each year after 1996. 2010 income tax Changing employers. 2010 income tax   If you change employers, your Archer MSA moves with you. 2010 income tax However, you may not make additional contributions unless you are otherwise eligible. 2010 income tax High deductible health plan (HDHP). 2010 income tax   To be eligible for an Archer MSA, you must be covered under an HDHP. 2010 income tax An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the annual out-of-pocket medical expenses that you must pay for covered expenses. 2010 income tax Limits. 2010 income tax   The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2013. 2010 income tax   Self-only coverage Family coverage Minimum annual deductible $2,150 $4,300 Maximum annual deductible $3,200 $6,450 Maximum annual out-of-pocket expenses $4,300 $7,850 Family plans that do not meet the high deductible rules. 2010 income tax   There are some family plans that have deductibles for both the family as a whole and for individual family members. 2010 income tax Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. 2010 income tax If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. 2010 income tax Example. 2010 income tax You have family health insurance coverage in 2013. 2010 income tax The annual deductible for the family plan is $5,500. 2010 income tax This plan also has an individual deductible of $2,000 for each family member. 2010 income tax The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($4,300) for family coverage. 2010 income tax Other health coverage. 2010 income tax   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. 2010 income tax However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. 2010 income tax However, you can have additional insurance that provides benefits only for the following items. 2010 income tax Liabilities incurred under workers' compensation laws, torts, or ownership or use of property. 2010 income tax A specific disease or illness. 2010 income tax A fixed amount per day (or other period) of hospitalization. 2010 income tax You can also have coverage (whether provided through insurance or otherwise) for the following items. 2010 income tax Accidents. 2010 income tax Disability. 2010 income tax Dental care. 2010 income tax Vision care. 2010 income tax Long-term care. 2010 income tax Contributions to an MSA Contributions to an Archer MSA must be made in cash. 2010 income tax You cannot contribute stock or other property to an Archer MSA. 2010 income tax Who can contribute to my Archer MSA?   If you are an employee, your employer may make contributions to your Archer MSA. 2010 income tax (You do not pay tax on these contributions. 2010 income tax ) If your employer does not make contributions to your Archer MSA, or you are self-employed, you can make your own contributions to your Archer MSA. 2010 income tax Both you and your employer cannot make contributions to your Archer MSA in the same year. 2010 income tax You do not have to make contributions to your Archer MSA every year. 2010 income tax    If your spouse is covered by your HDHP and an excludable amount is contributed by your spouse's employer to an Archer MSA belonging to your spouse, you cannot make contributions to your own Archer MSA that year. 2010 income tax Limits There are two limits on the amount you or your employer can contribute to your Archer MSA: The annual deductible limit. 2010 income tax An income limit. 2010 income tax Annual deductible limit. 2010 income tax   You (or your employer) can contribute up to 75% of the annual deductible of your HDHP (65% if you have a self-only plan) to your Archer MSA. 2010 income tax You must have the HDHP all year to contribute the full amount. 2010 income tax If you do not qualify to contribute the full amount for the year, determine your annual deductible limit by using the worksheet in the Instructions for Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. 2010 income tax Example 1. 2010 income tax You have an HDHP for your family all year in 2013. 2010 income tax The annual deductible is $5,000. 2010 income tax You can contribute up to $3,750 ($5,000 × 75%) to your Archer MSA for the year. 2010 income tax Example 2. 2010 income tax You have an HDHP for your family for the entire months of July through December 2013 (6 months). 2010 income tax The annual deductible is $5,000. 2010 income tax You can contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer MSA for the year. 2010 income tax If you and your spouse each have a family plan, you are treated as having family coverage with the lower annual deductible of the two health plans. 2010 income tax The contribution limit is split equally between you unless you agree on a different division. 2010 income tax Income limit. 2010 income tax   You cannot contribute more than you earned for the year from the employer through whom you have your HDHP. 2010 income tax   If you are self-employed, you cannot contribute more than your net self-employment income. 2010 income tax This is your income from self-employment minus expenses (including the deductible part of self-employment tax). 2010 income tax Example 1. 2010 income tax Noah Paul earned $25,000 from ABC Company in 2013. 2010 income tax Through ABC, he had an HDHP for his family for the entire year. 2010 income tax The annual deductible was $5,000. 2010 income tax He can contribute up to $3,750 to his Archer MSA (75% × $5,000). 2010 income tax He can contribute the full amount because he earned more than $3,750 at ABC. 2010 income tax Example 2. 2010 income tax Westley Lawrence is self-employed. 2010 income tax He had an HDHP for his family for the entire year in 2013. 2010 income tax The annual deductible was $5,000. 2010 income tax Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,750 (75% × $5,000). 2010 income tax However, after deducting his business expenses, Joe's net self-employment income is $2,500 for the year. 2010 income tax Therefore, he is limited to a contribution of $2,500. 2010 income tax Individuals enrolled in Medicare. 2010 income tax   Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. 2010 income tax However, you may be eligible for a Medicare Advantage MSA, discussed later. 2010 income tax When To Contribute You can make contributions to your Archer MSA for 2013 until April 15, 2014. 2010 income tax Reporting Contributions on Your Return Report all contributions to your Archer MSA on Form 8853 and file it with your Form 1040 or Form 1040NR. 2010 income tax You should include all contributions you, or your employer, made for 2013, including those made by April 15, 2014, that are designated for 2013. 2010 income tax You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount you (or your employer) contributed during the year. 2010 income tax Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. 2010 income tax Follow the instructions for Form 8853 and complete the worksheet in the instructions. 2010 income tax Report your Archer MSA deduction on Form 1040 or Form 1040NR. 2010 income tax Excess contributions. 2010 income tax   You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. 2010 income tax Excess contributions are not deductible. 2010 income tax Excess contributions made by your employer are included in your gross income. 2010 income tax If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. 2010 income tax   Generally, you must pay a 6% excise tax on excess contributions. 2010 income tax See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. 2010 income tax The excise tax applies to each tax year the excess contribution remains in the account. 2010 income tax   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. 2010 income tax You withdraw the excess contributions by the due date, including extensions, of your tax return. 2010 income tax You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. 2010 income tax Deducting an excess contribution in a later year. 2010 income tax   You may be able to deduct excess contributions for previous years that are still in your Archer MSA. 2010 income tax The excess contribution you can deduct in the current year is the lesser of the following two amounts. 2010 income tax Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year. 2010 income tax The total excess contributions in your Archer MSA at the beginning of the year. 2010 income tax   Any excess contributions remaining at the end of a tax year are subject to the excise tax. 2010 income tax See Form 5329. 2010 income tax Distributions From an MSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. 2010 income tax When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your Archer MSA to send you a distribution from your Archer MSA. 2010 income tax You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). 2010 income tax If you receive distributions for other reasons, the amount will be subject to income tax and may be subject to an additional 20% tax as well. 2010 income tax You do not have to make withdrawals from your Archer MSA each year. 2010 income tax If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. 2010 income tax A distribution is money you get from your Archer MSA. 2010 income tax The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. 2010 income tax Qualified medical expenses. 2010 income tax   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. 2010 income tax These are explained in Publication 502. 2010 income tax   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for MSA purposes. 2010 income tax A medicine or drug will be a qualified medical expense for MSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. 2010 income tax   Qualified medical expenses are those incurred by the following persons. 2010 income tax You and your spouse. 2010 income tax All dependents you claim on your tax return. 2010 income tax Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. 2010 income tax    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. 2010 income tax    You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your Archer MSA. 2010 income tax Special rules for insurance premiums. 2010 income tax   Generally, you cannot treat insurance premiums as qualified medical expenses for Archer MSAs. 2010 income tax You can, however, treat premiums for long-term care coverage, health care coverage while you receive unemployment benefits, or health care continuation coverage required under any federal law as qualified medical expenses for Archer MSAs. 2010 income tax Health coverage tax credit. 2010 income tax   You cannot claim this credit for premiums that you pay with a tax-free distribution from your Archer MSA. 2010 income tax See Publication 502 for information on this credit. 2010 income tax Deemed distributions from Archer MSAs. 2010 income tax   The following situations result in deemed taxable distributions from your Archer MSA. 2010 income tax You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2013. 2010 income tax Your account ceases to be an Archer MSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8853. 2010 income tax You used any portion of any of your Archer MSAs as security for a loan at any time in 2013. 2010 income tax You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. 2010 income tax   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the Archer MSA, Lending of money between you and the Archer MSA, Furnishing goods, services, or facilities between you and the Archer MSA, and Transfer to or use by you, or for your benefit, of any assets of the Archer MSA. 2010 income tax   Any deemed distribution will not be treated as used to pay qualified medical expenses. 2010 income tax These distributions are included in your income and are subject to the additional 20% tax, discussed later. 2010 income tax Recordkeeping. 2010 income tax You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. 2010 income tax Do not send these records with your tax return. 2010 income tax Keep them with your tax records. 2010 income tax Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). 2010 income tax If you use a distribution from your Archer MSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8853. 2010 income tax Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. 2010 income tax If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. 2010 income tax Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. 2010 income tax You may have to pay an additional 20% tax, discussed later, on your taxable distribution. 2010 income tax If an amount (other than a rollover) is contributed to your Archer MSA this year (by you or your employer), you also must report and pay tax on a distribution you receive from your Archer MSA this year that is used to pay medical expenses of someone who is not covered by an HDHP, or is also covered by another health plan that is not an HDHP, at the time the expenses are incurred. 2010 income tax Rollovers. 2010 income tax   Generally, any distribution from an Archer MSA that you roll over into another Archer MSA or an HSA is not taxable if you complete the rollover within 60 days. 2010 income tax An Archer MSA and an HSA can only receive one rollover contribution during a 1-year period. 2010 income tax See the Form 8853 instructions for more information. 2010 income tax Additional tax. 2010 income tax   There is a 20% additional tax on the part of your distributions not used for qualified medical expenses. 2010 income tax Figure the tax on Form 8853 and file it with your Form 1040 or Form 1040NR. 2010 income tax Report the additional tax in the total on Form 1040 or Form 1040NR. 2010 income tax Exceptions. 2010 income tax   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. 2010 income tax Balance in an Archer MSA An Archer MSA is generally exempt from tax. 2010 income tax You are permitted to take a distribution from your Archer MSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. 2010 income tax Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). 2010 income tax Earnings on amounts in an Archer MSA are not included in your income while held in the Archer MSA. 2010 income tax Death of the Archer MSA Holder You should choose a beneficiary when you set up your Archer MSA. 2010 income tax What happens to that Archer MSA when you die depends on whom you designate as the beneficiary. 2010 income tax Spouse is the designated beneficiary. 2010 income tax   If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse's Archer MSA after your death. 2010 income tax Spouse is not the designated beneficiary. 2010 income tax   If your spouse is not the designated beneficiary of your Archer MSA: The account stops being an Archer MSA, and The fair market value of the Archer MSA becomes taxable to the beneficiary in the year in which you die. 2010 income tax   If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return. 2010 income tax The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. 2010 income tax Filing Form 8853 You must file Form 8853 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your Archer MSA during the year. 2010 income tax You must file the form even if only your employer or your spouse's employer made contributions to the Archer MSA. 2010 income tax If, during the tax year, you are the beneficiary of two or more Archer MSAs or you are a beneficiary of an Archer MSA and you have your own Archer MSA, you must complete a separate Form 8853 for each MSA. 2010 income tax Enter “statement” at the top of each Form 8853 and complete the form as instructed. 2010 income tax Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. 2010 income tax Attach the statements to your tax return after the controlling Form 8853. 2010 income tax Employer Participation This section contains the rules that employers must follow if they decide to make Archer MSAs available to their employees. 2010 income tax Unlike the previous discussions, “you” refers to the employer and not to the employee. 2010 income tax Health plan. 2010 income tax   If you want your employees to be able to have an Archer MSA, you must make an HDHP available to them. 2010 income tax You can provide no additional coverage other than those exceptions listed previously under Other health coverage . 2010 income tax Contributions. 2010 income tax   You can make contributions to your employees' Archer MSAs. 2010 income tax You deduct the contributions on the “Employee benefit programs” line of your business income tax return for the year in which you make the contributions. 2010 income tax If you are filing Form 1040, Schedule C, this is Part II, line 14. 2010 income tax Comparable contributions. 2010 income tax   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' Archer MSAs. 2010 income tax Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. 2010 income tax Comparable participating employees. 2010 income tax   Comparable participating employees: Are covered by your HDHP and are eligible to establish an Archer MSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (either part-time or full-time). 2010 income tax Excise tax. 2010 income tax   If you made contributions to your employees' Archer MSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. 2010 income tax Employment taxes. 2010 income tax   Amounts you contribute to your employees' Archer MSAs are generally not subject to employment taxes. 2010 income tax You must report the contributions in box 12 of the Form W-2 you file for each employee. 2010 income tax Enter code “R” in box 12. 2010 income tax Medicare Advantage MSAs A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. 2010 income tax To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare and have a high deductible health plan (HDHP) that meets the Medicare guidelines. 2010 income tax A Medicare Advantage MSA is a tax-exempt trust or custodial savings account that you set up with a financial institution (such as a bank or an insurance company) in which the Medicare program can deposit money for qualified medical expenses. 2010 income tax The money in your account is not taxed if it is used for qualified medical expenses, and it may earn interest or dividends. 2010 income tax An HDHP is a special health insurance policy that has a high deductible. 2010 income tax You choose the policy you want to use as part of your Medicare Advantage MSA plan. 2010 income tax However, the policy must be approved by the Medicare program. 2010 income tax Medicare Advantage MSAs are administered through the federal Medicare program. 2010 income tax You can get information by calling 1-800-Medicare (1-800-633-4227) or through the Internet at www. 2010 income tax medicare. 2010 income tax gov. 2010 income tax Note. 2010 income tax You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA. 2010 income tax Flexible Spending Arrangements (FSAs) A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. 2010 income tax FSAs are usually funded through voluntary salary reduction agreements with your employer. 2010 income tax No employment or federal income taxes are deducted from your contribution. 2010 income tax The employer may also contribute. 2010 income tax Note. 2010 income tax Unlike HSAs or Archer MSAs which must be reported on Form 1040 or Form 1040NR, there are no reporting requirements for FSAs on your income tax return. 2010 income tax For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier. 2010 income tax What are the benefits of an FSA?   You may enjoy several benefits from having an FSA. 2010 income tax Contributions made by your employer can be excluded from your gross income. 2010 income tax No employment or federal income taxes are deducted from the contributions. 2010 income tax Withdrawals may be tax free if you pay qualified medical expenses. 2010 income tax See Qualified medical expenses , later. 2010 income tax You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account. 2010 income tax Qualifying for an FSA Health FSAs are employer-established benefit plans. 2010 income tax These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. 2010 income tax Employers have complete flexibility to offer various combinations of benefits in designing their plan. 2010 income tax You do not have to be covered under any other health care plan to participate. 2010 income tax Self-employed persons are not eligible for an FSA. 2010 income tax Certain limitations may apply if you are a highly compensated participant or a key employee. 2010 income tax Contributions to an FSA You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. 2010 income tax This is sometimes called a salary reduction agreement. 2010 income tax The employer may also contribute to your FSA if specified in the plan. 2010 income tax You do not pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. 2010 income tax However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. 2010 income tax When To Contribute At the
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The 2010 Income Tax

2010 income tax Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. 2010 income tax S. 2010 income tax Taxpayer Identification NumbersUnexpected payment. 2010 income tax Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. 2010 income tax Electronic reporting. 2010 income tax Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. 2010 income tax S. 2010 income tax Real Property InterestForeign corporations. 2010 income tax Domestic corporations. 2010 income tax U. 2010 income tax S. 2010 income tax real property holding corporations. 2010 income tax Partnerships. 2010 income tax Trusts and estates. 2010 income tax Domestically controlled QIE. 2010 income tax Late filing of certifications or notices. 2010 income tax Certifications. 2010 income tax Liability of agent or qualified substitute. 2010 income tax Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 2010 income tax Withholding of Tax In most cases, a foreign person is subject to U. 2010 income tax S. 2010 income tax tax on its U. 2010 income tax S. 2010 income tax source income. 2010 income tax Most types of U. 2010 income tax S. 2010 income tax source income received by a foreign person are subject to U. 2010 income tax S. 2010 income tax tax of 30%. 2010 income tax A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. 2010 income tax The tax is generally withheld (NRA withholding) from the payment made to the foreign person. 2010 income tax The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. 2010 income tax In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. 2010 income tax S. 2010 income tax source income. 2010 income tax Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. 2010 income tax NRA withholding does not include withholding under section 1445 of the Code (see U. 2010 income tax S. 2010 income tax Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). 2010 income tax A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. 2010 income tax However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. 2010 income tax S. 2010 income tax person is not required to withhold. 2010 income tax In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. 2010 income tax Withholding Agent You are a withholding agent if you are a U. 2010 income tax S. 2010 income tax or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. 2010 income tax A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. 2010 income tax S. 2010 income tax branch of certain foreign banks and insurance companies. 2010 income tax You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. 2010 income tax Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. 2010 income tax In most cases, the U. 2010 income tax S. 2010 income tax person who pays an amount subject to NRA withholding is the person responsible for withholding. 2010 income tax However, other persons may be required to withhold. 2010 income tax For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. 2010 income tax In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. 2010 income tax Liability for tax. 2010 income tax   As a withholding agent, you are personally liable for any tax required to be withheld. 2010 income tax This liability is independent of the tax liability of the foreign person to whom the payment is made. 2010 income tax If you fail to withhold and the foreign payee fails to satisfy its U. 2010 income tax S. 2010 income tax tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. 2010 income tax   The applicable tax will be collected only once. 2010 income tax If the foreign person satisfies its U. 2010 income tax S. 2010 income tax tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. 2010 income tax Determination of amount to withhold. 2010 income tax   You must withhold on the gross amount subject to NRA withholding. 2010 income tax You cannot reduce the gross amount by any deductions. 2010 income tax However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. 2010 income tax   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. 2010 income tax In no case, however, should you withhold more than 30% of the total amount paid. 2010 income tax Or, you may make a reasonable estimate of the amount from U. 2010 income tax S. 2010 income tax sources and put a corresponding part of the amount due in escrow until the amount from U. 2010 income tax S. 2010 income tax sources can be determined, at which time withholding becomes due. 2010 income tax When to withhold. 2010 income tax   Withholding is required at the time you make a payment of an amount subject to withholding. 2010 income tax A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. 2010 income tax A payment is considered made to a person if it is paid for that person's benefit. 2010 income tax For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. 2010 income tax A payment also is considered made to a person if it is made to that person's agent. 2010 income tax   A U. 2010 income tax S. 2010 income tax partnership should withhold when any distributions that include amounts subject to withholding are made. 2010 income tax However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. 2010 income tax S. 2010 income tax partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. 2010 income tax If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. 2010 income tax A U. 2010 income tax S. 2010 income tax trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. 2010 income tax To the extent a U. 2010 income tax S. 2010 income tax trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. 2010 income tax Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. 2010 income tax (See Returns Required , later. 2010 income tax ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. 2010 income tax Form 1099 reporting and backup withholding. 2010 income tax    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. 2010 income tax S. 2010 income tax person. 2010 income tax You must withhold 28% (backup withholding rate) from a reportable payment made to a U. 2010 income tax S. 2010 income tax person that is subject to Form 1099 reporting if any of the following apply. 2010 income tax The U. 2010 income tax S. 2010 income tax person has not provided its taxpayer identification number (TIN) in the manner required. 2010 income tax The IRS notifies you that the TIN furnished by the payee is incorrect. 2010 income tax There has been a notified payee underreporting. 2010 income tax There has been a payee certification failure. 2010 income tax In most cases, a TIN must be provided by a U. 2010 income tax S. 2010 income tax non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. 2010 income tax A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. 2010 income tax You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. 2010 income tax S. 2010 income tax person. 2010 income tax For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. 2010 income tax S. 2010 income tax person subject to Form 1099 reporting. 2010 income tax See Identifying the Payee , later, for more information. 2010 income tax Also see Section S. 2010 income tax Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. 2010 income tax Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. 2010 income tax Wages paid to employees. 2010 income tax   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. 2010 income tax See Pay for Personal Services Performed , later. 2010 income tax Effectively connected income by partnerships. 2010 income tax   A withholding agent that is a partnership (whether U. 2010 income tax S. 2010 income tax or foreign) is also responsible for withholding on its income effectively connected with a U. 2010 income tax S. 2010 income tax trade or business that is allocable to foreign partners. 2010 income tax See Partnership Withholding on Effectively Connected Income , later, for more information. 2010 income tax U. 2010 income tax S. 2010 income tax real property interest. 2010 income tax   A withholding agent also may be responsible for withholding if a foreign person transfers a U. 2010 income tax S. 2010 income tax real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. 2010 income tax S. 2010 income tax real property interest to a shareholder, partner, or beneficiary that is a foreign person. 2010 income tax See U. 2010 income tax S. 2010 income tax Real Property Interest , later. 2010 income tax Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. 2010 income tax It does not apply to payments made to U. 2010 income tax S. 2010 income tax persons. 2010 income tax Usually, you determine the payee's status as a U. 2010 income tax S. 2010 income tax or foreign person based on the documentation that person provides. 2010 income tax See Documentation , later. 2010 income tax However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. 2010 income tax Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. 2010 income tax However, there are situations in which the payee is a person other than the one to whom you actually make a payment. 2010 income tax U. 2010 income tax S. 2010 income tax agent of foreign person. 2010 income tax   If you make a payment to a U. 2010 income tax S. 2010 income tax person and you have actual knowledge that the U. 2010 income tax S. 2010 income tax person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. 2010 income tax However, if the U. 2010 income tax S. 2010 income tax person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. 2010 income tax   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. 2010 income tax S. 2010 income tax person and not as a payment to a foreign person. 2010 income tax You may be required to report the payment on Form 1099 and, if applicable, backup withhold. 2010 income tax Disregarded entities. 2010 income tax   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. 2010 income tax The payee of a payment made to a disregarded entity is the owner of the entity. 2010 income tax   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. 2010 income tax   If the owner is a U. 2010 income tax S. 2010 income tax person, you do not apply NRA withholding. 2010 income tax However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. 2010 income tax You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. 2010 income tax Flow-Through Entities The payees of payments (other than income effectively connected with a U. 2010 income tax S. 2010 income tax trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. 2010 income tax This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 2010 income tax Income that is, or is deemed to be, effectively connected with the conduct of a U. 2010 income tax S. 2010 income tax trade or business of a flow-through entity is treated as paid to the entity. 2010 income tax All of the following are flow-through entities. 2010 income tax A foreign partnership (other than a withholding foreign partnership). 2010 income tax A foreign simple or foreign grantor trust (other than a withholding foreign trust). 2010 income tax A fiscally transparent entity receiving income for which treaty benefits are claimed. 2010 income tax See Fiscally transparent entity , later. 2010 income tax In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. 2010 income tax You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. 2010 income tax You must determine whether the owners or beneficiaries of a flow-through entity are U. 2010 income tax S. 2010 income tax or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. 2010 income tax You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. 2010 income tax If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. 2010 income tax See Documentation and Presumption Rules , later. 2010 income tax Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. 2010 income tax Foreign partnerships. 2010 income tax    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. 2010 income tax If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. 2010 income tax However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 2010 income tax If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. 2010 income tax Example 1. 2010 income tax A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. 2010 income tax S. 2010 income tax citizen. 2010 income tax You make a payment of U. 2010 income tax S. 2010 income tax source interest to the partnership. 2010 income tax It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. 2010 income tax S. 2010 income tax citizen. 2010 income tax The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. 2010 income tax You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. 2010 income tax Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. 2010 income tax Report the payment to the U. 2010 income tax S. 2010 income tax citizen on Form 1099-INT. 2010 income tax Example 2. 2010 income tax A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. 2010 income tax The second partnership has two partners, both nonresident alien individuals. 2010 income tax You make a payment of U. 2010 income tax S. 2010 income tax source interest to the first partnership. 2010 income tax It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. 2010 income tax In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. 2010 income tax The Forms W-8IMY from the partnerships have complete withholding statements associated with them. 2010 income tax Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. 2010 income tax Example 3. 2010 income tax You make a payment of U. 2010 income tax S. 2010 income tax source dividends to a withholding foreign partnership. 2010 income tax The partnership has two partners, both foreign corporations. 2010 income tax You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. 2010 income tax You must treat the partnership as the payee of the dividends. 2010 income tax Foreign simple and grantor trust. 2010 income tax   A trust is foreign unless it meets both of the following tests. 2010 income tax A court within the United States is able to exercise primary supervision over the administration of the trust. 2010 income tax One or more U. 2010 income tax S. 2010 income tax persons have the authority to control all substantial decisions of the trust. 2010 income tax   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. 2010 income tax A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. 2010 income tax   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. 2010 income tax The payees of a payment made to a foreign grantor trust are the owners of the trust. 2010 income tax However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 2010 income tax If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. 2010 income tax Example. 2010 income tax A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. 2010 income tax S. 2010 income tax citizen. 2010 income tax You make a payment of interest to the foreign trust. 2010 income tax It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. 2010 income tax S. 2010 income tax citizen. 2010 income tax The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. 2010 income tax You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. 2010 income tax Report the payment to the nonresident aliens on Forms 1042-S. 2010 income tax Report the payment to the U. 2010 income tax S. 2010 income tax citizen on Form 1099-INT. 2010 income tax Fiscally transparent entity. 2010 income tax   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. 2010 income tax The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. 2010 income tax ). 2010 income tax The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. 2010 income tax An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. 2010 income tax Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. 2010 income tax   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. 2010 income tax Example. 2010 income tax Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. 2010 income tax A has two interest holders, B and C. 2010 income tax B is a corporation organized under the laws of country Y. 2010 income tax C is a corporation organized under the laws of country Z. 2010 income tax Both countries Y and Z have an income tax treaty in force with the United States. 2010 income tax A receives royalty income from U. 2010 income tax S. 2010 income tax sources that is not effectively connected with the conduct of a trade or business in the United States. 2010 income tax For U. 2010 income tax S. 2010 income tax income tax purposes, A is treated as a partnership. 2010 income tax Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. 2010 income tax The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. 2010 income tax Accordingly, A is fiscally transparent in its jurisdiction, country X. 2010 income tax B and C are not fiscally transparent under the laws of their respective countries of incorporation. 2010 income tax Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. 2010 income tax Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. 2010 income tax S. 2010 income tax source royalty income for purposes of the U. 2010 income tax S. 2010 income tax -Y income tax treaty. 2010 income tax Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. 2010 income tax Therefore, A is not treated as fiscally transparent under the laws of country Z. 2010 income tax Accordingly, C is not treated as deriving its share of the U. 2010 income tax S. 2010 income tax source royalty income for purposes of the U. 2010 income tax S. 2010 income tax -Z income tax treaty. 2010 income tax Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. 2010 income tax This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 2010 income tax You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. 2010 income tax An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. 2010 income tax A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. 2010 income tax In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. 2010 income tax You must determine whether the customers or account holders of a foreign intermediary are U. 2010 income tax S. 2010 income tax or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. 2010 income tax You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. 2010 income tax If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. 2010 income tax See Documentation and Presumption Rules , later. 2010 income tax Nonqualified intermediary. 2010 income tax   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. 2010 income tax The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. 2010 income tax Example. 2010 income tax You make a payment of interest to a foreign bank that is a nonqualified intermediary. 2010 income tax The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. 2010 income tax S. 2010 income tax person for whom the bank is collecting the payments. 2010 income tax The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. 2010 income tax The account holders are the payees of the interest payment. 2010 income tax You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. 2010 income tax S. 2010 income tax person on Form 1099-INT. 2010 income tax Qualified intermediary. 2010 income tax   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. 2010 income tax S. 2010 income tax intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. 2010 income tax You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. 2010 income tax In this situation, the QI is required to withhold the tax. 2010 income tax You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. 2010 income tax   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. 2010 income tax If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. 2010 income tax S. 2010 income tax person. 2010 income tax Branches of financial institutions. 2010 income tax   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. 2010 income tax The countries with approved KYC rules are listed on IRS. 2010 income tax gov. 2010 income tax QI withholding agreement. 2010 income tax   Foreign financial institutions and foreign branches of U. 2010 income tax S. 2010 income tax financial institutions can enter into an agreement with the IRS to be a qualified intermediary. 2010 income tax   A QI is entitled to certain simplified withholding and reporting rules. 2010 income tax In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. 2010 income tax   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. 2010 income tax These forms, and the procedures required to obtain a QI withholding agreement are available at www. 2010 income tax irs. 2010 income tax gov/Businesses/Corporations/Qualified-Intermediaries-(QI). 2010 income tax Documentation. 2010 income tax   A QI is not required to forward documentation obtained from foreign account holders to the U. 2010 income tax S. 2010 income tax withholding agent from whom the QI receives a payment of U. 2010 income tax S. 2010 income tax source income. 2010 income tax The QI maintains such documentation at its location and provides the U. 2010 income tax S. 2010 income tax withholding agent with withholding rate pools. 2010 income tax A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. 2010 income tax   A QI is required to provide the U. 2010 income tax S. 2010 income tax withholding agent with information regarding U. 2010 income tax S. 2010 income tax persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. 2010 income tax   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. 2010 income tax This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. 2010 income tax Form 1042-S reporting. 2010 income tax   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. 2010 income tax Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). 2010 income tax Collective refund procedures. 2010 income tax   A QI may seek a refund on behalf of its direct account holders. 2010 income tax The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. 2010 income tax U. 2010 income tax S. 2010 income tax branches of foreign banks and foreign insurance companies. 2010 income tax   Special rules apply to a U. 2010 income tax S. 2010 income tax branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. 2010 income tax If you agree to treat the branch as a U. 2010 income tax S. 2010 income tax person, you may treat the branch as a U. 2010 income tax S. 2010 income tax payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. 2010 income tax S. 2010 income tax branch on which the agreement is evidenced. 2010 income tax If you treat the branch as a U. 2010 income tax S. 2010 income tax payee, you are not required to withhold. 2010 income tax Even though you agree to treat the branch as a U. 2010 income tax S. 2010 income tax person, you must report the payment on Form 1042-S. 2010 income tax   A financial institution organized in a U. 2010 income tax S. 2010 income tax possession is treated as a U. 2010 income tax S. 2010 income tax branch. 2010 income tax The special rules discussed in this section apply to a possessions financial institution. 2010 income tax   If you are paying a U. 2010 income tax S. 2010 income tax branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. 2010 income tax S. 2010 income tax person for amounts subject to NRA withholding. 2010 income tax Consequently, amounts not subject to NRA withholding that are paid to a U. 2010 income tax S. 2010 income tax branch are not subject to Form 1099 reporting or backup withholding. 2010 income tax   Alternatively, a U. 2010 income tax S. 2010 income tax branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. 2010 income tax In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. 2010 income tax See Nonqualified Intermediaries under  Documentation, later. 2010 income tax   If the U. 2010 income tax S. 2010 income tax branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. 2010 income tax Withholding foreign partnership and foreign trust. 2010 income tax   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. 2010 income tax A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. 2010 income tax   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. 2010 income tax A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. 2010 income tax You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. 2010 income tax WP and WT withholding agreements. 2010 income tax   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. 2010 income tax Also see the following items. 2010 income tax Revenue Procedure 2004-21. 2010 income tax Revenue Procedure 2005-77. 2010 income tax Employer identification number (EIN). 2010 income tax   A completed Form SS-4 must be submitted with the application for being a WP or WT. 2010 income tax The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. 2010 income tax Documentation. 2010 income tax   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. 2010 income tax The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. 2010 income tax The Form W-8IMY must contain the WP-EIN or WT-EIN. 2010 income tax Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. 2010 income tax A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. 2010 income tax S. 2010 income tax person. 2010 income tax It also includes a foreign branch of a U. 2010 income tax S. 2010 income tax financial institution if the foreign branch is a qualified intermediary. 2010 income tax In most cases, the U. 2010 income tax S. 2010 income tax branch of a foreign corporation or partnership is treated as a foreign person. 2010 income tax Nonresident alien. 2010 income tax   A nonresident alien is an individual who is not a U. 2010 income tax S. 2010 income tax citizen or a resident alien. 2010 income tax A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. 2010 income tax Married to U. 2010 income tax S. 2010 income tax citizen or resident alien. 2010 income tax   Nonresident alien individuals married to U. 2010 income tax S. 2010 income tax citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. 2010 income tax However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. 2010 income tax Wages paid to these individuals are subject to graduated withholding. 2010 income tax See Wages Paid to Employees—Graduated Withholding . 2010 income tax Resident alien. 2010 income tax   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. 2010 income tax Green card test. 2010 income tax An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. 2010 income tax This is known as the green card test because these aliens hold immigrant visas (also known as green cards). 2010 income tax Substantial presence test. 2010 income tax An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. 2010 income tax Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. 2010 income tax   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. 2010 income tax This exception is for a limited period of time. 2010 income tax   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. 2010 income tax Note. 2010 income tax   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. 2010 income tax For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). 2010 income tax Resident of a U. 2010 income tax S. 2010 income tax possession. 2010 income tax   A bona fide resident of Puerto Rico, the U. 2010 income tax S. 2010 income tax Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. 2010 income tax S. 2010 income tax citizen or a U. 2010 income tax S. 2010 income tax national is treated as a nonresident alien for the withholding rules explained here. 2010 income tax A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. 2010 income tax   For more information, see Publication 570, Tax Guide for Individuals With Income From U. 2010 income tax S. 2010 income tax Possessions. 2010 income tax Foreign corporations. 2010 income tax   A foreign corporation is one that does not fit the definition of a domestic corporation. 2010 income tax A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. 2010 income tax Guam or Northern Mariana Islands corporations. 2010 income tax   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). 2010 income tax Note. 2010 income tax   The provisions discussed below under U. 2010 income tax S. 2010 income tax Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. 2010 income tax U. 2010 income tax S. 2010 income tax Virgin Islands and American Samoa corporations. 2010 income tax   A corporation created or organized in, or under the laws of, the U. 2010 income tax S. 2010 income tax Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. 2010 income tax S. 2010 income tax Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. 2010 income tax S. 2010 income tax Virgin Islands, American Samoa, Guam, the CNMI, or the United States. 2010 income tax Foreign private foundations. 2010 income tax   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. 2010 income tax Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. 2010 income tax Other foreign organizations, associations, and charitable institutions. 2010 income tax   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. 2010 income tax In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. 2010 income tax   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. 2010 income tax   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. 2010 income tax U. 2010 income tax S. 2010 income tax branches of foreign persons. 2010 income tax   In most cases, a payment to a U. 2010 income tax S. 2010 income tax branch of a foreign person is a payment made to the foreign person. 2010 income tax However, you may treat payments to U. 2010 income tax S. 2010 income tax branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. 2010 income tax S. 2010 income tax regulatory supervision as payments made to a U. 2010 income tax S. 2010 income tax person, if you and the U. 2010 income tax S. 2010 income tax branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. 2010 income tax For this purpose, a financial institution organized under the laws of a U. 2010 income tax S. 2010 income tax possession is treated as a U. 2010 income tax S. 2010 income tax branch. 2010 income tax Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. 2010 income tax The payee is a U. 2010 income tax S. 2010 income tax person. 2010 income tax The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. 2010 income tax In most cases, you must get the documentation before you make the payment. 2010 income tax The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. 2010 income tax See Standards of Knowledge , later. 2010 income tax If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. 2010 income tax For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. 2010 income tax The specific types of documentation are discussed in this section. 2010 income tax However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. 2010 income tax As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. 2010 income tax Section 1446 withholding. 2010 income tax   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. 2010 income tax In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. 2010 income tax This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. 2010 income tax Joint owners. 2010 income tax    If you make a payment to joint owners, you need to get documentation from each owner. 2010 income tax Form W-9. 2010 income tax   In most cases, you can treat the payee as a U. 2010 income tax S. 2010 income tax person if the payee gives you a Form W-9. 2010 income tax The Form W-9 can be used only by a U. 2010 income tax S. 2010 income tax person and must contain the payee's taxpayer identification number (TIN). 2010 income tax If there is more than one owner, you may treat the total amount as paid to a U. 2010 income tax S. 2010 income tax person if any one of the owners gives you a Form W-9. 2010 income tax See U. 2010 income tax S. 2010 income tax Taxpayer Identification Numbers , later. 2010 income tax U. 2010 income tax S. 2010 income tax persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. 2010 income tax Form W-8. 2010 income tax   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. 2010 income tax Until further notice, you can rely upon Forms W-8 that contain a P. 2010 income tax O. 2010 income tax box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. 2010 income tax S. 2010 income tax person and that a street address is available. 2010 income tax You may rely on Forms W-8 for which there is a U. 2010 income tax S. 2010 income tax mailing address provided you received the form prior to December 31, 2001. 2010 income tax   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. 2010 income tax You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. 2010 income tax S. 2010 income tax possession. 2010 income tax Other documentation. 2010 income tax   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. 2010 income tax The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. 2010 income tax These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. 2010 income tax Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. 2010 income tax Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. 2010 income tax   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. 2010 income tax   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. 2010 income tax For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. 2010 income tax Claiming treaty benefits. 2010 income tax   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. 2010 income tax S. 2010 income tax TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. 2010 income tax   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. 2010 income tax   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. 2010 income tax See Fiscally transparent entity discussed earlier under Flow-Through Entities. 2010 income tax   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. 2010 income tax For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. 2010 income tax   The exemptions from, or reduced rates of, U. 2010 income tax S. 2010 income tax tax vary under each treaty. 2010 income tax You must check the provisions of the tax treaty that apply. 2010 income tax Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. 2010 income tax   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. 2010 income tax You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. 2010 income tax Exceptions to TIN requirement. 2010 income tax   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. 2010 income tax Income from marketable securities (discussed next). 2010 income tax Unexpected payments to an individual (discussed under U. 2010 income tax S. 2010 income tax Taxpayer Identification Numbers ). 2010 income tax Marketable securities. 2010 income tax   A Form W-8BEN provided to claim treaty benefits does not need a U. 2010 income tax S. 2010 income tax TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. 2010 income tax For this purpose, income from a marketable security consists of the following items. 2010 income tax Dividends and interest from stocks and debt obligations that are actively traded. 2010 income tax Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). 2010 income tax Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. 2010 income tax Income related to loans of any of the above securities. 2010 income tax Offshore accounts. 2010 income tax   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. 2010 income tax   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. 2010 income tax However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. 2010 income tax An offshore account is an account maintained at an office or branch of a U. 2010 income tax S. 2010 income tax or foreign bank or other financial institution at any location outside the United States. 2010 income tax   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. 2010 income tax This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. 2010 income tax In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. 2010 income tax Documentary evidence. 2010 income tax   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. 2010 income tax To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. 2010 income tax Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. 2010 income tax Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. 2010 income tax In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. 2010 income tax Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. 2010 income tax   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. 2010 income tax (See Effectively Connected Income , later. 2010 income tax )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. 2010 income tax   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. 2010 income tax S. 2010 income tax trade or business is subject to withholding under section 1446. 2010 income tax If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. 2010 income tax    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. 2010 income tax Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. 2010 income tax   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. 2010 income tax S. 2010 income tax possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. 2010 income tax   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. 2010 income tax   See Foreign Governments and Certain Other Foreign Organizations , later. 2010 income tax Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. 2010 income tax The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. 2010 income tax The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. 2010 income tax Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. 2010 income tax S. 2010 income tax Branches for United States Tax Withholding. 2010 income tax   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. 2010 income tax S. 2010 income tax branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. 2010 income tax S. 2010 income tax branch of a foreign bank or insurance company and either is agreeing to be treated as a U. 2010 income tax S. 2010 income tax person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. 2010 income tax For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. 2010 income tax 1446-5. 2010 income tax Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. 2010 income tax A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. 2010 income tax The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. 2010 income tax The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. 2010 income tax Responsibilities. 2010 income tax   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. 2010 income tax However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. 2010 income tax Instead, it provides you with a withholding statement that contains withholding rate pool information. 2010 income tax A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. 2010 income tax A qualified intermediary is required to provide you with information regarding U. 2010 income tax S. 2010 income tax persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. 2010 income tax S. 2010 income tax person unless it has assumed Form 1099 reporting and backup withholding responsibility. 2010 income tax For the alternative procedure for providing rate pool information for U. 2010 income tax S. 2010 income tax non-exempt persons, see the Form W-8IMY instructions. 2010 income tax   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. 2010 income tax   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. 2010 income tax Primary responsibility not assumed. 2010 income tax   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. 2010 income tax Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. 2010 income tax S. 2010 income tax person subject to Form 1099 reporting and/or backup withholding. 2010 income tax The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 2010 income tax Primary NRA withholding responsibility assumed. 2010 income tax   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. 2010 income tax S. 2010 income tax person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. 2010 income tax The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 2010 income tax Primary NRA and Form 1099 responsibility assumed. 2010 income tax   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. 2010 income tax It is not necessary to associate the payment with withholding rate pools. 2010 income tax Example. 2010 income tax You make a payment of dividends to a QI. 2010 income tax It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. 2010 income tax S. 2010 income tax individual who provides it with a Form W-9. 2010 income tax Each customer is entitled to 20% of the dividend payment. 2010 income tax The QI does not assume any primary withholding responsibility. 2010 income tax The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. 2010 income tax S. 2010 income tax individual. 2010 income tax You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. 2010 income tax The part of the payment allocable to the U. 2010 income tax S. 2010 income tax individual (20%) is reportable on Form 1099-DIV. 2010 income tax Smaller partnerships and trusts. 2010 income tax   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. 2010 income tax It is a foreign partnership or foreign simple or grantor trust. 2010 income tax It is a direct account holder of the QI. 2010 income tax It does not have any partner, beneficiary, or owner that is a U. 2010 income tax S. 2010 income tax person or a pass- through partner, beneficiary, or owner. 2010 income tax   For information on these rules, see section 4A. 2010 income tax 01 of the QI agreement. 2010 income tax This is found in Appendix 3 of Revenue Procedure 2003-64. 2010 income tax Also see Revenue Procedure 2004-21. 2010 income tax Related partnerships and trusts. 2010 income tax    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. 2010 income tax It is a foreign partnership or foreign simple or grantor trust. 2010 income tax It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. 2010 income tax For information on these rules, see section 4A. 2010 income tax 02 of the QI agreement. 2010 income tax This is found in Appendix 3 of Revenue Procedure 2003-64. 2010 income tax Also see Revenue Procedure 2005-77. 2010 income tax Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. 2010 income tax S. 2010 income tax branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. 2010 income tax S. 2010 income tax branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. 2010 income tax The NQI, flow-through entity, or U. 2010 income tax S. 2010 income tax branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. 2010 income tax A withholding statement must be updated to keep the information accurate prior to each payment. 2010 income tax Withholding statement. 2010 income tax   In most cases, a withholding statement must contain the following information. 2010 income tax The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. 2010 income tax The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. 2010 income tax The status of the person for whom the documentation has been provided, such as whether the person is a U. 2010 income tax S. 2010 income tax exempt recipient (U. 2010 income tax S. 2010 income tax person exempt from Form 1099 reporting), U. 2010 income tax S. 2010 income tax non-exempt recipient (U. 2010 income tax S. 2010 income tax person subject to Form 1099 reporting), or a foreign person. 2010 income tax For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. 2010 income tax S. 2010 income tax branch. 2010 income tax The type of recipient the person is, based on the recipient codes used on Form 1042-S. 2010 income tax Information allocating each payment, by income type, to each payee (including U. 2010 income tax S. 2010 income tax exempt and U. 2010 income tax S. 2010 income tax non-exempt recipients) for whom documentation has been provided. 2010 income tax The rate of withholding that applies to each foreign person to whom a payment is allocated. 2010 income tax A foreign payee's country of residence. 2010 income tax If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. 2010 income tax ). 2010 income tax In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. 2010 income tax The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. 2010 income tax S. 2010 income tax branch from which the payee will directly receive a payment. 2010 income tax Any other information a withholding agent requests to fulfill its reporting and withholding obligations. 2010 income tax Alternative procedure. 2010 income tax   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. 2010 income tax S. 2010 income tax exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. 2010 income tax To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. 2010 income tax You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. 2010 income tax    This alternative procedure cannot be used for payments to U. 2010 income tax S. 2010 income tax non-exempt recipients. 2010 income tax Therefore, an NQI must always provide you with allocation information for all U. 2010 income tax S. 2010 income tax non-exempt recipients prior to a payment being made. 2010 income tax Pooled withholding information. 2010 income tax   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. 2010 income tax A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. 2010 income tax For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). 2010 income tax The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. 2010 income tax Failure to provide allocation information. 2010 income tax   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. 2010 income tax You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . 2010 income tax An NQI is deemed to have f