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Do state taxes online free Publication 583 - Introductory Material Table of Contents Introduction Introduction Table 1. Do state taxes online free What New Business Owners Need To Know About Federal Taxes   (Note: This table is intended to help you, as a new business owner, learn what you need to know about your federal tax responsibilities. Do state taxes online free To use it, ask yourself each question in the left column, then see the related discussion in the right column. Do state taxes online free ) What Must I Know? Where To Find the Answer Which form of business will I use? See Forms of Business. Do state taxes online free Will I need an employer identification number (EIN)? See Identification Numbers. Do state taxes online free Do I have to start my tax year in January, or may I start it in any other month? See Tax Year. Do state taxes online free What method can I use to account for my income and expenses? See Accounting Method. Do state taxes online free What kinds of federal taxes will I have to pay? How should I pay my taxes? See Business Taxes. Do state taxes online free What must I do if I have employees? See Employment Taxes. Do state taxes online free Which forms must I file? See Table 2 and Information Returns. Do state taxes online free Are there penalties if I do not pay my taxes or file my returns? See Penalties. Do state taxes online free What business expenses can I deduct on my federal income tax return? See Business Expenses. Do state taxes online free What records must I keep? How long must I keep them? See Recordkeeping. Do state taxes online free This publication provides basic federal tax information for people who are starting a business. Do state taxes online free It also provides information on keeping records and illustrates a recordkeeping system. Do state taxes online free Throughout this publication we refer to other IRS publications and forms where you will find more information. Do state taxes online free In addition, you may want to contact other government agencies, such as the Small Business Administration (SBA). Do state taxes online free See How To Get More Information later. Do state taxes online free Comments and suggestions. Do state taxes online free   We welcome your comments about this publication and your suggestions for future editions. Do state taxes online free   You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. Do state taxes online free NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Do state taxes online free Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Do state taxes online free   You can email us at taxforms@irs. Do state taxes online free gov. Do state taxes online free Please put “Publications Comment” on the subject line. Do state taxes online free You can also send us comments from www. Do state taxes online free irs. Do state taxes online free gov/formspubs, select “Comment on Tax Forms and Publications” under “Information about. Do state taxes online free ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Do state taxes online free Ordering forms and publications. Do state taxes online free Visit www. Do state taxes online free irs. Do state taxes online free gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. Do state taxes online free Internal Revenue Service 1201 N. Do state taxes online free Mitsubishi Motorway Bloomington, IL 61705–6613 Tax questions. Do state taxes online free   If you have a tax question, check the information available on IRS. Do state taxes online free gov or call 1-800-829-1040. Do state taxes online free We cannot answer tax questions sent to either of the above addresses. Do state taxes online free Future Developments. Do state taxes online free   The IRS has created a page on IRS. Do state taxes online free gov for information about Publication 583 at www. Do state taxes online free irs. Do state taxes online free gov/pub583. Do state taxes online free Information about any future developments affecting Publication 583 (such as legislation enacted after we release it) will be posted on that page. Do state taxes online free Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Office of the Attorney General

Website: Office of the Attorney General

Address: Office of the Attorney General
Consumer Protection Division
Government Center South, 5th Floor
302 W. Washington St.

Indianapolis, IN 46204

Phone Number: 317-232-6330

Toll-free: 1-800-382-5516 (Consumer Hotline)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Department of Financial Institutions

Website: Department of Financial Institutions

Address: Department of Financial Institutions
30 S. Meridian St., Suite 300
Indianapolis, IN 46204

Phone Number: 317-232-3955

Toll-free: 1-800-382-4880 (IN)

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
Consumer Services Division
311 W. Washington St., Suite 300
Indianapolis, IN 46204-2787

Phone Number: 317-232-2395

Toll-free: 1-800-622-4461 (IN)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Office of the Secretary of State

Website: Office of the Secretary of State

Address: Office of the Secretary of State
Securities Division
302 W. Washington St., Room E111
Indianapolis, IN 46204

Phone Number: 317-232-6681

Toll-free: 1-800-223-8791 (IN)

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Utility Regulatory Commission

Website: Utility Regulatory Commission

Address: Utility Regulatory Commission
Consumer Assistance Section
101 W. Washington St., Suite 1500E
Indianapolis, IN 46204

Phone Number: 317-232-2712

Toll-free: 1-800-851-4268 (IN)

TTY: 317-232-8556

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The Do State Taxes Online Free

Do state taxes online free Publication 15-A - Main Content Table of Contents 1. Do state taxes online free Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Do state taxes online free Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Do state taxes online free Employees of Exempt OrganizationsSocial security and Medicare taxes. Do state taxes online free FUTA tax. Do state taxes online free 4. Do state taxes online free Religious Exemptions and Special Rules for MinistersForm W-2. Do state taxes online free Self-employed. Do state taxes online free Employees. Do state taxes online free 5. Do state taxes online free Wages and Other CompensationRelocating for Temporary Work Assignments Employee Achievement Awards Scholarship and Fellowship Payments Outplacement Services Withholding for Idle Time Back Pay Supplemental Unemployment Benefits Golden Parachute Payments Interest-Free and Below-Market-Interest-Rate Loans Leave Sharing Plans Nonqualified Deferred Compensation Plans Tax-Sheltered Annuities Contributions to a Simplified Employee Pension (SEP) SIMPLE Retirement Plans 6. Do state taxes online free Sick Pay ReportingSick Pay Payments That Are Not Sick Pay Sick Pay Plan Third-Party Payers of Sick Pay Social Security, Medicare, and FUTA Taxes on Sick Pay Income Tax Withholding on Sick Pay Depositing and Reporting Example of Figuring and Reporting Sick Pay 7. Do state taxes online free Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Do state taxes online free Pensions and AnnuitiesFederal Income Tax Withholding 9. Do state taxes online free Alternative Methods for Figuring WithholdingTerm of continuous employment. Do state taxes online free Formula Tables for Percentage Method Withholding (for Automated Payroll Systems) Wage Bracket Percentage Method Tables (for Automated Payroll Systems) Combined Federal Income Tax, Employee Social Security Tax, and Employee Medicare Tax Withholding Tables 10. Do state taxes online free Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Do state taxes online free Who Are Employees? Before you can know how to treat payments that you make to workers for services, you must first know the business relationship that exists between you and the person performing the services. Do state taxes online free The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Do state taxes online free This discussion explains these four categories. Do state taxes online free A later discussion, Employee or Independent Contractor in section 2, points out the differences between an independent contractor and an employee and gives examples from various types of occupations. Do state taxes online free If an individual who works for you is not an employee under the common-law rules (see section 2), you generally do not have to withhold federal income tax from that individual's pay. Do state taxes online free However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Do state taxes online free See Publication 15 (Circular E) for information on backup withholding. Do state taxes online free Independent Contractors People such as doctors, veterinarians, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. Do state taxes online free However, whether such people are employees or independent contractors depends on the facts in each case. Do state taxes online free The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Do state taxes online free Common-Law Employees Under common-law rules, anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. Do state taxes online free This is so even when you give the employee freedom of action. Do state taxes online free What matters is that you have the right to control the details of how the services are performed. Do state taxes online free For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. Do state taxes online free If you have an employer-employee relationship, it makes no difference how it is labeled. Do state taxes online free The substance of the relationship, not the label, governs the worker's status. Do state taxes online free It does not matter whether the individual is employed full time or part time. Do state taxes online free For employment tax purposes, no distinction is made between classes of employees. Do state taxes online free Superintendents, managers, and other supervisory personnel are all employees. Do state taxes online free An officer of a corporation is generally an employee; however, an officer who performs no services or only minor services, and neither receives nor is entitled to receive any pay, is not considered an employee. Do state taxes online free A director of a corporation is not an employee with respect to services performed as a director. Do state taxes online free You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. Do state taxes online free However, the wages of certain employees may be exempt from one or more of these taxes. Do state taxes online free See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Do state taxes online free Leased employees. Do state taxes online free   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Do state taxes online free For example, a temporary staffing service may provide the services of secretaries, nurses, and other similarly trained workers to its clients on a temporary basis. Do state taxes online free   The staffing service enters into contracts with the clients under which the clients specify the services to be provided and a fee is paid to the staffing service for each individual furnished. Do state taxes online free The staffing service has the right to control and direct the worker's services for the client, including the right to discharge or reassign the worker. Do state taxes online free The staffing service hires the workers, controls the payment of their wages, provides them with unemployment insurance and other benefits, and is the employer for employment tax purposes. Do state taxes online free For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. Do state taxes online free Additional information. Do state taxes online free   For more information about the treatment of special types of employment, the treatment of special types of payments, and similar subjects, see Publication 15 (Circular E) or Publication 51 (Circular A), Agricultural Employer's Tax Guide. Do state taxes online free Statutory Employees If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute, (also known as “statutory employees”) for certain employment tax purposes. Do state taxes online free This would happen if they fall within any one of the following four categories and meet the three conditions described next under Social security and Medicare taxes . Do state taxes online free A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission. Do state taxes online free A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company. Do state taxes online free An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. Do state taxes online free A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. Do state taxes online free The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Do state taxes online free The work performed for you must be the salesperson's principal business activity. Do state taxes online free See Salesperson in section 2. Do state taxes online free Social security and Medicare taxes. Do state taxes online free   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Do state taxes online free The service contract states or implies that substantially all the services are to be performed personally by them. Do state taxes online free They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation, such as a car or truck). Do state taxes online free The services are performed on a continuing basis for the same payer. Do state taxes online free Federal unemployment (FUTA) tax. Do state taxes online free   For FUTA tax (the unemployment tax paid under the Federal Unemployment Tax Act), the term “employee” means the same as it does for social security and Medicare taxes, except that it does not include statutory employees defined above in categories 2 and 3. Do state taxes online free Any individual who is a statutory employee described above under category 1 or 4 is also an employee for FUTA tax purposes and subject to FUTA tax. Do state taxes online free Income tax. Do state taxes online free   Do not withhold federal income tax from the wages of statutory employees. Do state taxes online free Reporting payments to statutory employees. Do state taxes online free   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Do state taxes online free Show your payments to the employee as “other compensation” in box 1. Do state taxes online free Also, show social security wages in box 3, social security tax withheld in box 4, Medicare wages in box 5, and Medicare tax withheld in box 6. Do state taxes online free The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Do state taxes online free He or she reports earnings as a statutory employee on line 1 of Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Do state taxes online free A statutory employee's business expenses are deductible on Schedule C (Form 1040) or C-EZ (Form 1040) and are not subject to the reduction by 2% of his or her adjusted gross income that applies to common-law employees. Do state taxes online free H-2A agricultural workers. Do state taxes online free   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Do state taxes online free Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Do state taxes online free Direct sellers and licensed real estate agents are treated as self-employed for all federal tax purposes, including income and employment taxes, if: Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and Their services are performed under a written contract providing that they will not be treated as employees for federal tax purposes. Do state taxes online free Direct sellers. Do state taxes online free   Direct sellers include persons falling within any of the following three groups. Do state taxes online free Persons engaged in selling (or soliciting the sale of) consumer products in the home or place of business other than in a permanent retail establishment. Do state taxes online free Persons engaged in selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis prescribed by regulations, for resale in the home or at a place of business other than in a permanent retail establishment. Do state taxes online free Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution). Do state taxes online free   Direct selling includes activities of individuals who attempt to increase direct sales activities of their direct sellers and who earn income based on the productivity of their direct sellers. Do state taxes online free Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Do state taxes online free Licensed real estate agents. Do state taxes online free   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Do state taxes online free Companion sitters. Do state taxes online free   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Do state taxes online free A person engaged in the trade or business of putting the sitters in touch with individuals who wish to employ them (that is, a companion sitting placement service) will not be treated as the employer of the sitters if that person does not receive or pay the salary or wages of the sitters and is compensated by the sitters or the persons who employ them on a fee basis. Do state taxes online free Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Do state taxes online free Misclassification of Employees Consequences of treating an employee as an independent contractor. Do state taxes online free   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you are liable for employment taxes for that worker and the relief provision, discussed next, will not apply. Do state taxes online free See section 2 in Publication 15 (Circular E) for more information. Do state taxes online free Relief provision. Do state taxes online free   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Do state taxes online free To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Do state taxes online free You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Do state taxes online free Technical service specialists. Do state taxes online free   This relief provision does not apply for a technical services specialist you provide to another business under an arrangement between you and the other business. Do state taxes online free A technical service specialist is an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work. Do state taxes online free   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. Do state taxes online free The common-law rules control whether the specialist is treated as an employee or an independent contractor. Do state taxes online free However, if you directly contract with a technical service specialist to provide services for your business and not for another business, you may still be entitled to the relief provision. Do state taxes online free Test proctors and room supervisors. Do state taxes online free   The consistent treatment requirement does not apply to services performed after December 31, 2006, by an individual as a test proctor or room supervisor assisting in the administration of college entrance or placement examinations if the individual: Is performing the services for a section 501(c) organization exempt from tax under section 501(a) of the code, and Is not otherwise treated as an employee of the organization for employment taxes. Do state taxes online free Voluntary Classification Settlement Program (VCSP). Do state taxes online free   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Do state taxes online free To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Do state taxes online free For more information, visit IRS. Do state taxes online free gov and enter “VCSP” in the search box. Do state taxes online free 2. Do state taxes online free Employee or Independent Contractor? An employer must generally withhold federal income taxes, withhold and pay over social security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Do state taxes online free An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Do state taxes online free Common-Law Rules To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. Do state taxes online free In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Do state taxes online free Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Do state taxes online free These facts are discussed next. Do state taxes online free Behavioral control. Do state taxes online free   Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: Instructions that the business gives to the worker. Do state taxes online free   An employee is generally subject to the business' instructions about when, where, and how to work. Do state taxes online free All of the following are examples of types of instructions about how to do work. Do state taxes online free When and where to do the work. Do state taxes online free What tools or equipment to use. Do state taxes online free What workers to hire or to assist with the work. Do state taxes online free Where to purchase supplies and services. Do state taxes online free What work must be performed by a specified  individual. Do state taxes online free What order or sequence to follow. Do state taxes online free   The amount of instruction needed varies among different jobs. Do state taxes online free Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. Do state taxes online free A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Do state taxes online free The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. Do state taxes online free Training that the business gives to the worker. Do state taxes online free   An employee may be trained to perform services in a particular manner. Do state taxes online free Independent contractors ordinarily use their own methods. Do state taxes online free Financial control. Do state taxes online free   Facts that show whether the business has a right to control the business aspects of the worker's job include: The extent to which the worker has unreimbursed business expenses. Do state taxes online free   Independent contractors are more likely to have unreimbursed expenses than are employees. Do state taxes online free Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Do state taxes online free However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Do state taxes online free The extent of the worker's investment. Do state taxes online free   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Do state taxes online free However, a significant investment is not necessary for independent contractor status. Do state taxes online free The extent to which the worker makes his or her services available to the relevant market. Do state taxes online free   An independent contractor is generally free to seek out business opportunities. Do state taxes online free Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Do state taxes online free How the business pays the worker. Do state taxes online free   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Do state taxes online free This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Do state taxes online free An independent contractor is often paid a flat fee or on a time and materials basis for the job. Do state taxes online free However, it is common in some professions, such as law, to pay independent contractors hourly. Do state taxes online free The extent to which the worker can realize a profit or loss. Do state taxes online free   An independent contractor can make a profit or loss. Do state taxes online free Type of relationship. Do state taxes online free   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Do state taxes online free Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Do state taxes online free The permanency of the relationship. Do state taxes online free If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship. Do state taxes online free The extent to which services performed by the worker are a key aspect of the regular business of the company. Do state taxes online free If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. Do state taxes online free For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. Do state taxes online free This would indicate an employer-employee relationship. Do state taxes online free IRS help. Do state taxes online free   If you want the IRS to determine whether or not a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. Do state taxes online free Industry Examples The following examples may help you properly classify your workers. Do state taxes online free Building and Construction Industry Example 1. Do state taxes online free Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Do state taxes online free She did not advance funds to help him carry on the work. Do state taxes online free She makes direct payments to the suppliers for all necessary materials. Do state taxes online free She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Do state taxes online free She pays them an hourly rate and exercises almost constant supervision over the work. Do state taxes online free Jerry is not free to transfer his assistants to other jobs. Do state taxes online free He may not work on other jobs while working for Wilma. Do state taxes online free He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Do state taxes online free He and his assistants perform personal services for hourly wages. Do state taxes online free Jerry Jones and his assistants are employees of Wilma White. Do state taxes online free Example 2. Do state taxes online free Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Do state taxes online free He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Do state taxes online free The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Do state taxes online free He does not have a place of business or hold himself out to perform similar services for others. Do state taxes online free Either party can end the services at any time. Do state taxes online free Milton Manning is an employee of the corporation. Do state taxes online free Example 3. Do state taxes online free Wallace Black agreed with the Sawdust Co. Do state taxes online free to supply the construction labor for a group of houses. Do state taxes online free The company agreed to pay all construction costs. Do state taxes online free However, he supplies all the tools and equipment. Do state taxes online free He performs personal services as a carpenter and mechanic for an hourly wage. Do state taxes online free He also acts as superintendent and foreman and engages other individuals to assist him. Do state taxes online free The company has the right to select, approve, or discharge any helper. Do state taxes online free A company representative makes frequent inspections of the construction site. Do state taxes online free When a house is finished, Wallace is paid a certain percentage of its costs. Do state taxes online free He is not responsible for faults, defects of construction, or wasteful operation. Do state taxes online free At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Do state taxes online free The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Do state taxes online free Wallace Black and his assistants are employees of the Sawdust Co. Do state taxes online free Example 4. Do state taxes online free Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Do state taxes online free A signed contract established a flat amount for the services rendered by Bill Plum. Do state taxes online free Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Do state taxes online free He hires his own roofers who are treated as employees for federal employment tax purposes. Do state taxes online free If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Do state taxes online free Bill Plum, doing business as Plum Roofing, is an independent contractor. Do state taxes online free Example 5. Do state taxes online free Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Do state taxes online free She is to receive $1,280 every 2 weeks for the next 10 weeks. Do state taxes online free This is not considered payment by the hour. Do state taxes online free Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Do state taxes online free She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Do state taxes online free Vera is an independent contractor. Do state taxes online free Trucking Industry Example. Do state taxes online free Rose Trucking contracts to deliver material for Forest, Inc. Do state taxes online free , at $140 per ton. Do state taxes online free Rose Trucking is not paid for any articles that are not delivered. Do state taxes online free At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Do state taxes online free All operating expenses, including insurance coverage, are paid by Jan Rose. Do state taxes online free All equipment is owned or rented by Jan and she is responsible for all maintenance. Do state taxes online free None of the drivers are provided by Forest, Inc. Do state taxes online free Jan Rose, operating as Rose Trucking, is an independent contractor. Do state taxes online free Computer Industry Example. Do state taxes online free Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Do state taxes online free , downsizes. Do state taxes online free Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Do state taxes online free It is not clear how long that it will take to complete the project, and Steve is not guaranteed any minimum payment for the hours spent on the program. Do state taxes online free Megabyte provides Steve with no instructions beyond the specifications for the product itself. Do state taxes online free Steve and Megabyte have a written contract, which provides that Steve is considered to be an independent contractor, is required to pay federal and state taxes, and receives no benefits from Megabyte. Do state taxes online free Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Do state taxes online free Steve works at home and is not expected or allowed to attend meetings of the software development group. Do state taxes online free Steve is an independent contractor. Do state taxes online free Automobile Industry Example 1. Do state taxes online free Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Do state taxes online free She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Do state taxes online free She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Do state taxes online free Lists of prospective customers belong to the dealer. Do state taxes online free She is required to develop leads and report results to the sales manager. Do state taxes online free Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Do state taxes online free She is paid a commission and is eligible for prizes and bonuses offered by Bob. Do state taxes online free Bob also pays the cost of health insurance and group-term life insurance for Donna. Do state taxes online free Donna is an employee of Bob Blue. Do state taxes online free Example 2. Do state taxes online free Sam Sparks performs auto repair services in the repair department of an auto sales company. Do state taxes online free He works regular hours and is paid on a percentage basis. Do state taxes online free He has no investment in the repair department. Do state taxes online free The sales company supplies all facilities, repair parts, and supplies; issues instructions on the amounts to be charged, parts to be used, and the time for completion of each job; and checks all estimates and repair orders. Do state taxes online free Sam is an employee of the sales company. Do state taxes online free Example 3. Do state taxes online free An auto sales agency furnishes space for Helen Bach to perform auto repair services. Do state taxes online free She provides her own tools, equipment, and supplies. Do state taxes online free She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. Do state taxes online free She hires and discharges her own helpers, determines her own and her helpers' working hours, quotes prices for repair work, makes all necessary adjustments, assumes all losses from uncollectible accounts, and receives, as compensation for her services, a large percentage of the gross collections from the auto repair shop. Do state taxes online free Helen is an independent contractor and the helpers are her employees. Do state taxes online free Attorney Example. Do state taxes online free Donna Yuma is a sole practitioner who rents office space and pays for the following items: telephone, computer, on-line legal research linkup, fax machine, and photocopier. Do state taxes online free Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Do state taxes online free Donna has a part-time receptionist who also does the bookkeeping. Do state taxes online free She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Do state taxes online free For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Do state taxes online free Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Do state taxes online free The bills include charges for long distance calls, on-line research time, fax charges, photocopies, postage, and travel, costs for which the corporations have agreed to reimburse her. Do state taxes online free Donna is an independent contractor. Do state taxes online free Taxicab Driver Example. Do state taxes online free Tom Spruce rents a cab from Taft Cab Co. Do state taxes online free for $150 per day. Do state taxes online free He pays the costs of maintaining and operating the cab. Do state taxes online free Tom Spruce keeps all fares that he receives from customers. Do state taxes online free Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. Do state taxes online free Tom Spruce is an independent contractor. Do state taxes online free Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Do state taxes online free If a salesperson who works for you does not meet the tests for a common-law employee, discussed earlier in this section, you do not have to withhold federal income tax from his or her pay (see Statutory Employees in section 1). Do state taxes online free However, even if a salesperson is not an employee under the usual common-law rules for income tax withholding, his or her pay may still be subject to social security, Medicare, and FUTA taxes as a statutory employee. Do state taxes online free To determine whether a salesperson is an employee for social security, Medicare, and FUTA tax purposes, the salesperson must meet all eight elements of the statutory employee test. Do state taxes online free A salesperson is a statutory employee for social security, Medicare, and FUTA tax purposes if he or she: Works full time for one person or company except, possibly, for sideline sales activities on behalf of some other person, Sells on behalf of, and turns his or her orders over to, the person or company for which he or she works, Sells to wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments, Sells merchandise for resale, or supplies for use in the customer's business, Agrees to do substantially all of this work personally, Has no substantial investment in the facilities used to do the work, other than in facilities for transportation, Maintains a continuing relationship with the person or company for which he or she works, and Is not an employee under common-law rules. Do state taxes online free 3. Do state taxes online free Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Do state taxes online free Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. Do state taxes online free However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Do state taxes online free Section 501(c)(3) organizations. Do state taxes online free   Nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code include any community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Do state taxes online free These organizations are usually corporations and are exempt from federal income tax under section 501(a). Do state taxes online free Social security and Medicare taxes. Do state taxes online free   Wages paid to employees of section 501(c)(3) organizations are subject to social security and Medicare taxes unless one of the following situations applies. Do state taxes online free The organization pays an employee less than $100 in a calendar year. Do state taxes online free The organization is a church or church-controlled organization opposed for religious reasons to the payment of social security and Medicare taxes and has filed Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes, to elect exemption from social security and Medicare taxes. Do state taxes online free The organization must have filed for exemption before the first date on which a quarterly employment tax return (Form 941) or annual employment tax return (Form 944) would otherwise be due. Do state taxes online free   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes must pay self-employment tax if the employee is paid $108. Do state taxes online free 28 or more in a year. Do state taxes online free However, an employee who is a member of a qualified religious sect can apply for an exemption from the self-employment tax by filing Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Do state taxes online free See Members of recognized religious sects opposed to insurance in section 4. Do state taxes online free FUTA tax. Do state taxes online free   An organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from FUTA tax. Do state taxes online free This exemption cannot be waived. Do state taxes online free Do not file Form 940 to report wages paid by these organizations or pay the tax. Do state taxes online free Note. Do state taxes online free An organization wholly owned by a state or its political subdivision should contact the appropriate state official for information about reporting and getting social security and Medicare coverage for its employees. Do state taxes online free Other than section 501(c)(3) organizations. Do state taxes online free   Nonprofit organizations that are not section 501(c)(3) organizations may also be exempt from federal income tax under section 501(a) or section 521. Do state taxes online free However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. Do state taxes online free Two special rules for social security, Medicare, and FUTA taxes apply. Do state taxes online free If an employee is paid less than $100 during a calendar year, his or her wages are not subject to social security and Medicare taxes. Do state taxes online free If an employee is paid less than $50 in a calendar quarter, his or her wages are not subject to FUTA tax for the quarter. Do state taxes online free The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Do state taxes online free 4. Do state taxes online free Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Do state taxes online free An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. Do state taxes online free For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Do state taxes online free Ministers. Do state taxes online free   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Do state taxes online free They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances and sacraments according to the prescribed tenets and practices of that religious organization. Do state taxes online free   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Do state taxes online free The common-law rules discussed in section 1 and section 2 should be applied to determine whether a minister is your employee or is self-employed. Do state taxes online free Whether the minister is an employee or self-employed, the earnings of a minister are not subject to federal income, social security, and Medicare tax withholding. Do state taxes online free However, even if the minister is a common law employee, the earnings as reported on the minister's Form 1040 are subject to self-employment tax and federal income tax. Do state taxes online free You do not withhold these taxes from wages earned by a minister, but if the minister is your employee, you may agree with the minister to voluntarily withhold tax to cover the minister's liability for self-employment tax and federal income tax. Do state taxes online free For more information, see Publication 517. Do state taxes online free Form W-2. Do state taxes online free   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Do state taxes online free Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Do state taxes online free Do not include a parsonage allowance (excludable housing allowance) in this amount. Do state taxes online free You may report a designated parsonage or rental allowance (housing allowance) and a utilities allowance, or the rental value of housing provided in a separate statement or in box 14 on Form W-2. Do state taxes online free Do not show on Form W-2, Form 941, or Form 944 any amount as social security or Medicare wages, or any withholding for social security or Medicare taxes. Do state taxes online free If you withheld federal income tax from the minister under a voluntary agreement, this amount should be shown in box 2 on Form W-2 as federal income tax withheld. Do state taxes online free For more information on ministers, see Publication 517. Do state taxes online free Exemptions for ministers and others. Do state taxes online free   Certain ordained ministers, Christian Science practitioners, and members of religious orders who have not taken a vow of poverty may apply to exempt their earnings from self-employment tax on religious grounds. Do state taxes online free The application must be based on conscientious opposition because of personal considerations to public insurance that makes payments in the event of death, disability, old age, or retirement, or that makes payments toward the cost of, or provides services for, medical care, including social security and Medicare benefits. Do state taxes online free The exemption applies only to qualified services performed for the religious organization. Do state taxes online free See Revenue Procedure 91-20, 1991-1 C. Do state taxes online free B. Do state taxes online free 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Do state taxes online free   To apply for the exemption, the employee should file Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. Do state taxes online free See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Do state taxes online free Members of recognized religious sects opposed to insurance. Do state taxes online free   If you belong to a recognized religious sect or to a division of such sect that is opposed to insurance, you may qualify for an exemption from the self-employment tax. Do state taxes online free To qualify, you must be conscientiously opposed to accepting the benefits of any public or private insurance that makes payments because of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care (including social security and Medicare benefits). Do state taxes online free If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Do state taxes online free Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Do state taxes online free In addition, your religious sect (or division) must have existed since December 31, 1950. Do state taxes online free Self-employed. Do state taxes online free   If you are self-employed and a member of a recognized religious sect opposed to insurance, you can apply for exemption by filing Form 4029 to waive all social security and Medicare benefits. Do state taxes online free Employees. Do state taxes online free   The social security and Medicare tax exemption available to the self-employed who are members of a recognized religious sect opposed to insurance is also available to their employees who are members of such a sect. Do state taxes online free This applies to partnerships only if each partner is a member of the sect. Do state taxes online free This exemption for employees applies only if both the employee and the employer are members of such a sect, and the employer has an exemption. Do state taxes online free To get the exemption, the employee must file Form 4029. Do state taxes online free   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes can also apply for an exemption on Form 4029. Do state taxes online free 5. Do state taxes online free Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Do state taxes online free Publication 15-B discusses fringe benefits. Do state taxes online free The following topics supplement those discussions. Do state taxes online free Relocating for Temporary Work Assignments If an employee is given a temporary work assignment away from his or her regular place of work, certain travel expenses reimbursed or paid directly by the employer in accordance with an accountable plan (see section 5 in Publication 15 (Circular E)) may be excludable from the employee's wages. Do state taxes online free Generally, a temporary work assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Do state taxes online free If the employee's new work assignment is indefinite, any living expenses reimbursed or paid by the employer (other than qualified moving expenses) must be included in the employee's wages as compensation. Do state taxes online free For the travel expenses to be excludable: The new work location must be outside of the city or general area of the employee's regular work place or post of duty, The travel expenses must otherwise qualify as deductible by the employee, and The expenses must be for the period during which the employee is at the temporary work location. Do state taxes online free If you reimburse or pay any personal expenses of an employee during his or her temporary work assignment, such as expenses for home leave for family members or for vacations, these amounts must be included in the employee's wages. Do state taxes online free See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Do state taxes online free These rules generally apply to temporary work assignments both inside and outside the U. Do state taxes online free S. Do state taxes online free Employee Achievement Awards Do not withhold federal income, social security, or Medicare taxes on the fair market value of an employee achievement award if it is excludable from your employee's gross income. Do state taxes online free To be excludable from your employee's gross income, the award must be tangible personal property (not cash, gift certificates, or securities) given to an employee for length of service or safety achievement, awarded as part of a meaningful presentation, and awarded under circumstances that do not indicate that the payment is disguised compensation. Do state taxes online free Excludable employee achievement awards also are not subject to FUTA tax. Do state taxes online free Limits. Do state taxes online free   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Do state taxes online free A higher limit of $1,600 applies to qualified plan awards. Do state taxes online free Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Do state taxes online free An award cannot be treated as a qualified plan award if the average cost per recipient of all awards under all of your qualified plans is more than $400. Do state taxes online free   If during the year an employee receives awards not made under a qualified plan and also receives awards under a qualified plan, the exclusion for the total cost of all awards to that employee cannot be more than $1,600. Do state taxes online free The $400 and $1,600 limits cannot be added together to exclude more than $1,600 for the cost of awards to any one employee during the year. Do state taxes online free Scholarship and Fellowship Payments Only amounts that you pay as a qualified scholarship to a candidate for a degree may be excluded from the recipient's gross income. Do state taxes online free A qualified scholarship is any amount granted as a scholarship or fellowship that is used for: Tuition and fees required to enroll in, or to attend, an educational institution, or Fees, books, supplies, and equipment that are required for courses at the educational institution. Do state taxes online free The exclusion from income does not apply to the portion of any amount received that represents payment for teaching, research, or other services required as a condition of receiving the scholarship or tuition reduction. Do state taxes online free These amounts are reportable on Form W-2. Do state taxes online free However, the exclusion will still apply for any amount received under two specific programs—the National Health Service Corps Scholarship Program and the Armed Forces Health Professions Scholarship and Financial Assistance Program—despite any service condition attached to those amounts. Do state taxes online free Any amounts that you pay for room and board are not excludable from the recipient's gross income. Do state taxes online free A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Do state taxes online free For more information, see Publication 970, Tax Benefits for Education. Do state taxes online free Outplacement Services If you provide outplacement services to your employees to help them find new employment (such as career counseling, resume assistance, or skills assessment), the value of these benefits may be income to them and subject to all withholding taxes. Do state taxes online free However, the value of these services will not be subject to any employment taxes if: You derive a substantial business benefit from providing the services (such as improved employee morale or business image) separate from the benefit that you would receive from the mere payment of additional compensation, and The employee would be able to deduct the cost of the services as employee business expenses if he or she had paid for them. Do state taxes online free However, if you receive no additional benefit from providing the services, or if the services are not provided on the basis of employee need, then the value of the services is treated as wages and is subject to federal income tax withholding and social security and Medicare taxes. Do state taxes online free Similarly, if an employee receives the outplacement services in exchange for reduced severance pay (or other taxable compensation), then the amount the severance pay is reduced is treated as wages for employment tax purposes. Do state taxes online free Withholding for Idle Time Payments made under a voluntary guarantee to employees for idle time (any time during which an employee performs no services) are wages for the purposes of social security, Medicare, and FUTA taxes, and federal income tax withholding. Do state taxes online free Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Do state taxes online free If back pay was awarded by a court or government agency to enforce a federal or state statute protecting an employee's right to employment or wages, special rules apply for reporting those wages to the Social Security Administration. Do state taxes online free These rules also apply to litigation actions and settlement agreements or agency directives that are resolved out of court and not under a court decree or order. Do state taxes online free Examples of pertinent statutes include, but are not limited to, the National Labor Relations Act, Fair Labor Standards Act, Equal Pay Act, and Age Discrimination in Employment Act. Do state taxes online free See Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration, and Form SSA-131, Employer Report of Special Wage Payments, for details. Do state taxes online free Supplemental Unemployment Benefits If you pay, under a plan, supplemental unemployment benefits to a former employee, all or part of the payments may be taxable and subject to federal income tax withholding, depending on how the plan is funded. Do state taxes online free Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Do state taxes online free You should withhold federal income tax on the taxable part of the payments made, under a plan, to an employee who is involuntarily separated because of a reduction in force, discontinuance of a plant or operation, or other similar condition. Do state taxes online free It does not matter whether the separation is temporary or permanent. Do state taxes online free There are special rules that apply in determining whether benefits qualify as supplemental unemployment benefits that are excluded from wages for social security, Medicare, and FUTA tax purposes. Do state taxes online free To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Do state taxes online free Benefits are paid only to unemployed former employees who are laid off by the employer. Do state taxes online free Eligibility for benefits depends on meeting prescribed conditions after termination. Do state taxes online free The amount of weekly benefits payable is based upon state unemployment benefits, other compensation allowable under state law, and the amount of regular weekly pay. Do state taxes online free The right to benefits does not accrue until a prescribed period after termination. Do state taxes online free Benefits are not attributable to the performance of particular services. Do state taxes online free No employee has any right to the benefits until qualified and eligible to receive benefits. Do state taxes online free Benefits may not be paid in a lump sum. Do state taxes online free Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Do state taxes online free Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. Do state taxes online free Under the agreement, the corporation agrees to pay certain amounts to its key personnel in the event of a change in ownership or control of the corporation. Do state taxes online free Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Do state taxes online free See Regulations section 1. Do state taxes online free 280G-1 for more information. Do state taxes online free No deduction is allowed to the corporation for any excess parachute payment. Do state taxes online free To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. Do state taxes online free A parachute payment for purposes of section 280G is any payment that meets all of the following. Do state taxes online free The payment is in the nature of compensation. Do state taxes online free The payment is to, or for the benefit of, a disqualified individual. Do state taxes online free A disqualified individual is anyone who at any time during the 12-month period prior to and ending on the date of the change in ownership or control of the corporation (the disqualified individual determination period) was an employee or independent contractor and was, in regard to that corporation, a shareholder, an officer, or highly compensated individual. Do state taxes online free The payment is contingent on a change in ownership of the corporation, the effective control of the corporation, or the ownership of a substantial portion of the assets of the corporation. Do state taxes online free The payment has an aggregate present value of at least three times the individual's base amount. Do state taxes online free The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. Do state taxes online free An excess parachute payment amount is the excess of any parachute payment over the base amount. Do state taxes online free For more information, see Regulations section 1. Do state taxes online free 280G-1. Do state taxes online free The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Do state taxes online free If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Do state taxes online free Example. Do state taxes online free An officer of a corporation receives a golden parachute payment of $400,000. Do state taxes online free This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Do state taxes online free The excess parachute payment is $300,000 ($400,000 minus $100,000). Do state taxes online free The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Do state taxes online free Reporting golden parachute payments. Do state taxes online free   Golden parachute payments to employees must be reported on Form W-2. Do state taxes online free See the General Instructions for Forms W-2 and W-3 for details. Do state taxes online free For nonemployee reporting of these payments, see Box 7. Do state taxes online free Nonemployee Compensation in the Instructions for Form 1099-MISC. Do state taxes online free Exempt payments. Do state taxes online free   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Do state taxes online free See section 280G(b)(5) and (6) for more information. Do state taxes online free Interest-Free and Below-Market-Interest-Rate Loans In general, if an employer lends an employee more than $10,000 at an interest rate less than the current applicable federal rate (AFR), the difference between the interest paid and the interest that would be paid under the AFR is considered additional compensation to the employee. Do state taxes online free This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Do state taxes online free This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Do state taxes online free Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Do state taxes online free The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Do state taxes online free You can get these rates by calling 1-800-829-4933 or by visiting IRS. Do state taxes online free gov. Do state taxes online free For more information, see section 7872 and its related regulations. Do state taxes online free Leave Sharing Plans If you establish a leave sharing plan for your employees that allows them to transfer leave to other employees for medical emergencies, the amounts paid to the recipients of the leave are considered wages. Do state taxes online free These amounts are includible in the gross income of the recipients and are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Do state taxes online free Do not include these amounts in the income of the transferors. Do state taxes online free These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Do state taxes online free Nonqualified Deferred Compensation Plans Income Tax and Reporting Section 409A provides that all amounts deferred under a nonqualified deferred compensation (NQDC) plan for all tax years are currently includible in gross income (to the extent not subject to a substantial risk of forfeiture and not previously included in gross income) and subject to additional taxes, unless certain requirements are met pertaining to, among other things, elections to defer compensation and distributions under a NQDC plan. Do state taxes online free Section 409A also includes rules that apply to certain trusts or similar arrangements associated with NQDC plans if the trusts or arrangements are located outside of the United States, are restricted to the provision of benefits in connection with a decline in the financial health of the plan sponsor, or contributions are made to the trust during certain periods such as when a qualified plan of the service recipient is underfunded. Do state taxes online free Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Do state taxes online free Other changes to the Internal Revenue Code provide that the deferrals under a NQDC plan must be reported separately on Form W-2 or Form 1099-MISC, whichever applies. Do state taxes online free Specific rules for reporting are provided in the instructions to the forms. Do state taxes online free The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Do state taxes online free The provisions do not prevent the inclusion of amounts in income or wages under other provisions of the Internal Revenue Code or common law principles, such as when amounts are actually or constructively received or irrevocably contributed to a separate fund. Do state taxes online free For more information about nonqualified deferred compensation plans, see Regulations sections 1. Do state taxes online free 409A-1 through 1. Do state taxes online free 409A-6. Do state taxes online free Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Do state taxes online free Notice 2008-113, 2008-51 I. Do state taxes online free R. Do state taxes online free B. Do state taxes online free 1305, is available at www. Do state taxes online free irs. Do state taxes online free gov/irb/2008-51_IRB/ar12. Do state taxes online free html. Do state taxes online free Also see Notice 2010-6, 2010-3 I. Do state taxes online free R. Do state taxes online free B. Do state taxes online free 275, available at www. Do state taxes online free irs. Do state taxes online free gov/irb/2010-03_IRB/ar08. Do state taxes online free html and Notice 2010-80, 2010-51 I. Do state taxes online free R. Do state taxes online free B. Do state taxes online free 853, available at www. Do state taxes online free irs. Do state taxes online free gov/irb/2010-51_IRB/ar08. Do state taxes online free html. Do state taxes online free Social security, Medicare, and FUTA taxes. Do state taxes online free   Employer contributions to nonqualified deferred compensation (NQDC) plans, as defined in the applicable regulations, are treated as wages subject to social security, Medicare, and FUTA taxes when the services are performed or the employee no longer has a substantial risk of forfeiting the right to the deferred compensation, whichever is later. Do state taxes online free   Amounts deferred are subject to social security, Medicare, and FUTA taxes at that time unless the amount that is deferred cannot be reasonably ascertained; for example, if benefits are based on final pay. Do state taxes online free If the value of the future benefit is based on any factors that are not yet reasonably ascertainable, you may choose to estimate the value of the future benefit and withhold and pay social security, Medicare, and FUTA taxes on that amount. Do state taxes online free You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Do state taxes online free If taxes are not paid before the amounts become reasonably ascertainable, when the amounts become reasonably ascertainable they are subject to social security, Medicare, and FUTA taxes on the amounts deferred plus the income attributable to those amounts deferred. Do state taxes online free For more information, see Regulations sections 31. Do state taxes online free 3121(v)(2)-1 and 31. Do state taxes online free 3306(r)(2)-1. Do state taxes online free Tax-Sheltered Annuities Employer payments made by a public educational institution or a tax-exempt organization to purchase a tax-sheltered annuity for an employee (annual deferrals) are included in the employee's social security and Medicare wages, if the payments are made because of a salary reduction agreement. Do state taxes online free However, they are not included in box 1 on Form W-2 in the year the deferrals are made and are not subject to federal income tax withholding. Do state taxes online free See Regulations section 31. Do state taxes online free 3121(a)(5)-2 for the definition of a salary reduction agreement. Do state taxes online free Contributions to a Simplified Employee Pension (SEP) An employer's SEP contributions to an employee's individual retirement arrangement (IRA) are excluded from the employee's gross income. Do state taxes online free These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Do state taxes online free However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. Do state taxes online free See Publication 560 for more information about SEPs. Do state taxes online free Salary reduction simplified employee pensions (SARSEP) repealed. Do state taxes online free   You may not establish a SARSEP after 1996. Do state taxes online free However, SARSEPs established before January 1, 1997, may continue to receive contributions. Do state taxes online free SIMPLE Retirement Plans Employer and employee contributions to a savings incentive match plan for employees (SIMPLE) retirement account (subject to limitations) are excludable from the employee's income and are exempt from federal income tax withholding. Do state taxes online free An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Do state taxes online free However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Do state taxes online free For more information about SIMPLE retirement plans, see Publication 560. Do state taxes online free 6. Do state taxes online free Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Do state taxes online free Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Do state taxes online free gov in December 2014. Do state taxes online free Special rules apply to the reporting of sick pay payments to employees. Do state taxes online free How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. Do state taxes online free Sick pay is usually subject to social security, Medicare, and FUTA taxes. Do state taxes online free For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Do state taxes online free Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Do state taxes online free Sick Pay Sick pay generally means any amount paid under a plan because of an employee's temporary absence from work due to injury, sickness, or disability. Do state taxes online free It may be paid by either the employer or a third party, such as an insurance company. Do state taxes online free Sick pay includes both short- and long-term benefits. Do state taxes online free It is often expressed as a percentage of the employee's regular wages. Do state taxes online free Payments That Are Not Sick Pay Sick pay does not include the following payments. Do state taxes online free Disability retirement payments. Do state taxes online free Disability retirement payments are not sick pay and are not discussed in this section. Do state taxes online free Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Do state taxes online free See section 8. Do state taxes online free Workers' compensation. Do state taxes online free Payments because of a work-related injury or sickness that are made under a workers' compensation law are not sick pay and are not subject to employment taxes. Do state taxes online free But see Payments in the nature of workers' compensation—public employees next. Do state taxes online free Payments in the nature of workers' compensation—public employees. Do state taxes online free State and local government employees, such as police officers and firefighters, sometimes receive payments due to an injury in the line of duty under a statute that is not the general workers' compensation law of a state. Do state taxes online free If the statute limits benefits to work-related injuries or sickness and does not base payments on the employee's age, length of service, or prior contributions, the statute is “in the nature of” a workers' compensation law. Do state taxes online free Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Do state taxes online free For more information, see Regulations section 31. Do state taxes online free 3121(a)(2)-1. Do state taxes online free Medical expense payments. Do state taxes online free Payments under a definite plan or system for medical and hospitalization expenses, or for insurance covering these expenses, are not sick pay and are not subject to employment taxes. Do state taxes online free Payments unrelated to absence from work. Do state taxes online free Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Do state taxes online free These include payments for: Permanent loss of a member or function of the body, Permanent loss of the use of a member or function of the body, or Permanent disfigurement of the body. Do state taxes online free Example. Do state taxes online free Donald was injured in a car accident and lost an eye. Do state taxes online free Under a policy paid for by Donald's employer, Delta Insurance Co. Do state taxes online free paid Donald $20,000 as compensation for the loss of his eye. Do state taxes online free Because the payment was determined by the type of injury and was unrelated to Donald's absence from work, it is not sick pay and is not subject to federal employment taxes. Do state taxes online free Sick Pay Plan A sick pay plan is a plan or system established by an employer under which sick pay is available to employees generally or to a class or classes of employees. Do state taxes online free This does not include a situation in which benefits are provided on a discretionary or occasional basis with merely an intention to aid particular employees in time of need. Do state taxes online free You have a sick pay plan or system if the plan is in writing or is otherwise made known to employees, such as by a bulletin board notice or your long and established practice. Do state taxes online free Some indications that you have a sick pay plan or system include references to the plan or system in the contract of employment, employer contributions to a plan, or segregated accounts for the payment of benefits. Do state taxes online free Definition of employer. Do state taxes online free   The employer for whom the employee normally works, a term used in the following discussion, is either the employer for whom the employee was working at the time that the employee became sick or disabled or the last employer for whom the employee worked before becoming sick or disabled, if that employer made contributions to the sick pay plan on behalf of the sick or disabled employee. Do state taxes online free Note. Do state taxes online free Contributions to a sick pay plan through a cafeteria plan (by direct employer contributions or salary reduction) are employer contributions unless they are after-tax employee contributions (that is, included in taxable wages). Do state taxes online free Third-Party Payers of Sick Pay Employer's agent. Do state taxes online free   An employer's agent is a third party that bears no insurance risk and is reimbursed on a cost-plus-fee basis for payment of sick pay and similar amounts. Do state taxes online free A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Do state taxes online free For example, if a third party provides administrative services only, the third party is your agent. Do state taxes online free If the third party is paid an insurance premium and is not reimbursed on a cost-plus-fee basis, the third party is not your agent. Do state taxes online free Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Do state taxes online free   A third party that makes payments of sick pay as your agent is not considered the employer and generally has no responsibility for employment taxes. Do state taxes online free This responsibility remains with you. Do state taxes online free However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. Do state taxes online free In this situation, the third-party agent should use its own name and EIN (rather than your name and EIN) for the responsibilities that it has assumed. Do state taxes online free Third party not employer's agent. Do state taxes online free   A third party that makes payments of sick pay other than as an agent of the employer is liable for federal income tax withholding (if requested by the employee) and the employee part of the social security and Medicare taxes. Do state taxes online free   The third party is also liable for the employer part of the social security and Medicare taxes, and the FUTA tax, unless the third party transfers this liability to the employer for whom the employee normally works. Do state taxes online free This liability is transferred if the third party takes the following steps. Do state taxes online free Withholds the employee social security and Medicare taxes from the sick pay payments. Do state taxes online free Makes timely deposits of the employee social security and Medicare taxes. Do state taxes online free Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Do state taxes online free The third party must notify the employer within the time required for the third party's deposit of the employee part of the social security and Medicare taxes. Do state taxes online free For instance, if the third party is a monthly schedule depositor, it must notify the employer by the 15th day of the month following the month in which the sick pay payment is made because that is the day by which the deposit is required to be made. Do state taxes online free The third party should notify the employer as soon as information on payments is available so that an employer required to make electronic deposits can make them timely. Do state taxes online free For multi-employer plans, see the special rule discussed next. Do state taxes online free Multi-employer plan timing rule. Do state taxes online free   A special rule applies to sick pay payments made to employees by a third-party insurer under an insurance contract with a multi-employer plan established under a collectively bargained agreement. Do state taxes online free If the third-party insurer making the payments complies wi