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Free military turbotax 2. Free military turbotax   American Opportunity Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible StudentException. Free military turbotax Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Refundable Part of Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Free military turbotax They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3 ). Free military turbotax This chapter explains: Who can claim the American opportunity credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Free military turbotax What is the tax benefit of the American opportunity credit. Free military turbotax   For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. Free military turbotax   A tax credit reduces the amount of income tax you may have to pay. Free military turbotax Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Free military turbotax Forty percent of the American opportunity credit may be refundable. Free military turbotax This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you. Free military turbotax   Your allowable American opportunity credit may be limited by the amount of your income. Free military turbotax Also, the nonrefundable part of the credit may be limited by the amount of your tax. Free military turbotax Overview of the American opportunity credit. Free military turbotax   See Table 2-1, Overview of the American Opportunity Credit , for the basics of this credit. Free military turbotax The details are discussed in this chapter. Free military turbotax Can you claim more than one education credit this year. Free military turbotax   For each student, you can elect for any year only one of the credits. Free military turbotax For example, if you elect to take the American opportunity credit for a child on your 2013 tax return, you cannot use that same child's qualified education expenses to figure the lifetime learning credit for 2013. Free military turbotax   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity credit on a per-student, per-year basis. Free military turbotax If you pay qualified education expenses for a student (or students) for whom you do not claim the American opportunity credit, you can use the adjusted qualified education expenses of that student (or those students) in figuring your lifetime learning credit. Free military turbotax This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Free military turbotax Differences between the American opportunity and lifetime learning credits. Free military turbotax   There are several differences between these two credits. Free military turbotax For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope Scholarship Credit for that student. Free military turbotax However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Free military turbotax The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Free military turbotax If you claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or the lifetime learning credit. Free military turbotax If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. Free military turbotax Table 2-1. Free military turbotax Overview of the American Opportunity Credit Maximum credit Up to $2,500 credit per eligible student Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable; the rest is nonrefundable Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) Hope Scholarship Credit was claimed) Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period that begins during the tax year Felony drug conviction As of the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return. Free military turbotax Who Can Claim the Credit Generally, you can claim the American opportunity credit if all three of the following requirements are met. Free military turbotax You pay qualified education expenses of higher education. Free military turbotax You pay the education expenses for an eligible student. Free military turbotax The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Free military turbotax Student qualifications. Free military turbotax   Generally, you can take the American opportunity credit for a student only if all of the following four requirements are met. Free military turbotax As of the beginning of 2013, the student had not completed the first four years of postsecondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution. Free military turbotax For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations. Free military turbotax Neither the American opportunity credit nor the Hope Scholarship Credit has been claimed (by you or anyone else) for this student for any four tax years before 2013. Free military turbotax If the American opportunity credit (and Hope Scholarship Credit) has been claimed for this student for any three or fewer tax years before 2013, this requirement is met. Free military turbotax For at least one academic period beginning (or treated as beginning) in 2013, the student both: Was enrolled in a program that leads to a degree, certificate, or other recognized educational credential; and Carried at least one-half the normal full-time workload for his or her course of study. Free military turbotax The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Free military turbotax However, the standard may not be lower than any of those established by the U. Free military turbotax S. Free military turbotax Department of Education under the Higher Education Act of 1965. Free military turbotax For purposes of whether the student satisfies this third requirement for 2013, treat an academic period beginning in the first three months of 2014 as if it began in 2013 if qualified education expenses for the student were paid in 2013 for that academic period. Free military turbotax See Prepaid expenses, later. Free military turbotax As of the end of 2013, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance. Free military turbotax Example 1. Free military turbotax Sharon was eligible for the Hope Scholarship Credit for 2007 and 2008 and for the American opportunity credit for 2010 and 2012. Free military turbotax Her parents claimed the Hope Scholarship Credit for Sharon on their tax returns for 2007 and 2008 and claimed the American opportunity credit for Sharon on their 2010 tax return. Free military turbotax Sharon claimed the American opportunity credit on her 2012 tax return. Free military turbotax The American opportunity credit and Hope Scholarship Credit have been claimed for Sharon for four tax years before 2013. Free military turbotax Therefore, the American opportunity credit cannot be claimed by Sharon for 2013. Free military turbotax If Sharon were to file Form 8863 for 2013, she would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit. Free military turbotax Example 2. Free military turbotax Wilbert was eligible for the American opportunity credit for 2009, 2010, 2011, and 2013. Free military turbotax His parents claimed the American opportunity credit for Wilbert on their tax returns for 2009, 2010, and 2011. Free military turbotax No one claimed an American opportunity credit or Hope Scholarship Credit for Wilbert for any other tax year. Free military turbotax The American opportunity credit and Hope Scholarship Credit have been claimed for Wilbert for only three tax years before 2013. Free military turbotax Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. Free military turbotax If Wilbert were to file Form 8863 for 2013, he would check “No” for Part III, line 23. Free military turbotax If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit. Free military turbotax Example 3. Free military turbotax Glenda enrolls on a full-time basis in a degree program for the 2014 Spring semester, which begins in January 2014. Free military turbotax Glenda pays her tuition for the 2014 Spring semester in December 2013. Free military turbotax Because the tuition Glenda paid in 2013 relates to an academic period that begins in the first 3 months of 2014, her eligibility to claim an American opportunity credit in 2013 is determined as if the 2014 Spring semester began in 2013. Free military turbotax If the requirements above are not met for any student, you cannot take the American opportunity credit for that student. Free military turbotax You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Free military turbotax Note. Free military turbotax Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. Free military turbotax “Qualified education expenses” are defined later under Qualified Education Expenses . Free military turbotax “Eligible students” are defined later under Who Is an Eligible Student . Free military turbotax A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Free military turbotax You may find Figure 2-1, Can You Claim the American Opportunity Credit for 2013 , later, helpful in determining if you can claim an American opportunity credit on your tax return. Free military turbotax This image is too large to be displayed in the current screen. Free military turbotax Please click the link to view the image. Free military turbotax Figure 2-1 Can you claim the American opportunity credit for 2012? Who Cannot Claim the Credit You cannot claim the American opportunity credit for 2013 if any of the following apply. Free military turbotax Your filing status is married filing separately. Free military turbotax You are listed as a dependent on another person's tax return (such as your parents'). Free military turbotax See Who Can Claim a Dependent's Expenses , later. Free military turbotax Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). Free military turbotax MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Free military turbotax You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Free military turbotax More information on nonresident aliens can be found in Publication 519, U. Free military turbotax S. Free military turbotax Tax Guide for Aliens. Free military turbotax What Expenses Qualify The American opportunity credit is based on adjusted qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Free military turbotax Generally, the credit is allowed for adjusted qualified education expenses paid in 2013 for an academic period beginning in 2013 or beginning in the first three months of 2014. Free military turbotax For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning January 2014, you can use that $1,500 in figuring your 2013 credit. Free military turbotax Academic period. Free military turbotax   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Free military turbotax In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Free military turbotax Paid with borrowed funds. Free military turbotax   You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. Free military turbotax Use the expenses to figure the American opportunity credit for the year in which the expenses are paid, not the year in which the loan is repaid. Free military turbotax Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Free military turbotax Student withdraws from class(es). Free military turbotax   You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws. Free military turbotax Qualified Education Expenses For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Free military turbotax Eligible educational institution. Free military turbotax   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Free military turbotax S. Free military turbotax Department of Education. Free military turbotax It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free military turbotax The educational institution should be able to tell you if it is an eligible educational institution. Free military turbotax   Certain educational institutions located outside the United States also participate in the U. Free military turbotax S. Free military turbotax Department of Education's Federal Student Aid (FSA) programs. Free military turbotax Related expenses. Free military turbotax   Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Free military turbotax   However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution. Free military turbotax Prepaid expenses. Free military turbotax   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Free military turbotax See Academic period, earlier. Free military turbotax For example, if you pay $2,000 in December 2013, for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Free military turbotax    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Free military turbotax   In the following examples, assume that each student is an eligible student at an eligible educational institution. Free military turbotax Example 1. Free military turbotax Jefferson is a sophomore in University V's degree program in dentistry. Free military turbotax This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Free military turbotax Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense. Free military turbotax Example 2. Free military turbotax Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Free military turbotax The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Free military turbotax William bought his books from a friend; Grace bought hers at College W's bookstore. Free military turbotax Both are qualified education expenses for the American opportunity credit. Free military turbotax Example 3. Free military turbotax When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Free military turbotax This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. Free military turbotax No portion of the fee covers personal expenses. Free military turbotax Although labeled as a student activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense. Free military turbotax No Double Benefit Allowed You cannot do any of the following. Free military turbotax Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an American opportunity credit based on those same expenses. Free military turbotax Claim an American opportunity credit in the same year that you are claiming a tuition and fees deduction for the same student. Free military turbotax Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. Free military turbotax Figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP) using the same expenses you used to figure the American opportunity credit. Free military turbotax See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Free military turbotax Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Free military turbotax See Adjustments to Qualified Education Expenses, next. Free military turbotax Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Free military turbotax The result is the amount of adjusted qualified education expenses for each student. Free military turbotax Tax-free educational assistance. Free military turbotax   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Free military turbotax See Academic period, earlier. Free military turbotax   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Free military turbotax This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Free military turbotax   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Free military turbotax If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Free military turbotax   Tax-free educational assistance includes: The tax-free parts of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions). Free military turbotax Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Free military turbotax Generally, any scholarship or fellowship is treated as tax free. Free military turbotax However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Free military turbotax The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free military turbotax The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free military turbotax You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Free military turbotax For examples, see Coordination with Pell grants and other scholarships, later. Free military turbotax Refunds. Free military turbotax   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Free military turbotax Some tax-free educational assistance received after 2013 may be treated as a refund. Free military turbotax See Tax-free educational assistance, earlier. Free military turbotax Refunds received in 2013. Free military turbotax   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Free military turbotax Refunds received after 2013 but before your income tax return is filed. Free military turbotax   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Free military turbotax Refunds received after 2013 and after your income tax return is filed. Free military turbotax   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Free military turbotax See Credit recapture, next. Free military turbotax Credit recapture. Free military turbotax    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Free military turbotax You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Free military turbotax You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you claimed the refigured credit(s). Free military turbotax Include that amount as an additional tax for the year the refund or tax-free assistance was received. Free military turbotax Example. Free military turbotax   You paid $7,000 tuition and fees in August 2013, and your child began college in September 2013. Free military turbotax You filed your 2013 tax return on February 17, 2014, and claimed an American opportunity credit of $2,500. Free military turbotax After you filed your return, you received a refund of $4,000. Free military turbotax You must refigure your 2013 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. Free military turbotax The refigured credit is $2,250. Free military turbotax The increase to your tax liability is also $250. Free military turbotax Include the difference of $250 as additional tax on your 2014 tax return. Free military turbotax See the instructions for your 2014 income tax return to determine where to include this tax. Free military turbotax If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Free military turbotax Amounts that do not reduce qualified education expenses. Free military turbotax   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Free military turbotax   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Free military turbotax The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free military turbotax The use of the money is not restricted. Free military turbotax Example 1. Free military turbotax Joan paid $3,000 for tuition and $5,000 for room and board at University X. Free military turbotax The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. Free military turbotax To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. Free military turbotax The terms of the scholarship state that it can be used to pay any of Joan's college expenses. Free military turbotax University X applies the $2,000 scholarship against Joan's $8,000 total bill, and Joan pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Free military turbotax Joan does not report any portion of the scholarship as income on her tax return. Free military turbotax In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. Free military turbotax The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Free military turbotax Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship). Free military turbotax Example 2. Free military turbotax The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. Free military turbotax Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Free military turbotax Joan is treated as having paid $3,000 in qualified education expenses. Free military turbotax Coordination with Pell grants and other scholarships. Free military turbotax   In some cases, you may be able to reduce your tax liability by including scholarships in income. Free military turbotax If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Free military turbotax The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Free military turbotax Example 1—No scholarship. Free military turbotax Bill Pass, age 28 and unmarried, enrolled full-time in 2013 as a first-year student at a local college to earn a degree in law enforcement. Free military turbotax This was his first year of postsecondary education. Free military turbotax During 2013, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2013 semester. Free military turbotax He and the college meet all the requirements for the American opportunity credit. Free military turbotax Bill's AGI and his MAGI, for purposes of figuring his credit, are $30,000. Free military turbotax Bill takes the standard deduction of $5,950 and personal exemption of $3,800, reducing his AGI to taxable income of $20,250. Free military turbotax His income tax liability, before credits, is $2,599 and Bill claims no credits other than the American opportunity credit. Free military turbotax He figures his American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500 and tax after credits of $99. Free military turbotax Example 2—Scholarship excluded from income. Free military turbotax The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. Free military turbotax Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. Free military turbotax If Bill excludes the scholarship from income, he will be deemed (for purposes of computing his education credit) to have used the scholarship to pay for tuition, required fees, and course materials. Free military turbotax His adjusted qualified education expenses will be zero and he will not have an education credit. Free military turbotax Therefore, Bill's tax after credits would be $2,599. Free military turbotax Example 3—Scholarship partially included in income. Free military turbotax The facts are the same as in Example 2—Scholarship excluded from income. Free military turbotax If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have used that amount to pay for room and board. Free military turbotax The remaining $1,600 of the $5,600 scholarship will reduce his qualified education expenses and his adjusted qualified education expenses will be $4,000. Free military turbotax Bill's AGI will increase to $34,000, his taxable income will increase to $24,250, and his tax before credits will increase to $3,199. Free military turbotax Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity tax credit of $2,500 and his tax after credits would be $699. Free military turbotax Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Free military turbotax This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Free military turbotax Sports, games, hobbies, and noncredit courses. Free military turbotax   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Free military turbotax However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. Free military turbotax Comprehensive or bundled fees. Free military turbotax   Some eligible educational institutions combine all of their fees for an academic period into one amount. Free military turbotax If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed earlier, contact the institution. Free military turbotax The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. Free military turbotax See Figuring the Credit , later, for more information about Form 1098-T. Free military turbotax Who Is an Eligible Student To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. Free military turbotax This is a student who meets all of the following requirements. Free military turbotax The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. Free military turbotax This includes any tax year(s) in which you claimed the Hope Scholarship Credit for the same student. Free military turbotax The student had not completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2013. Free military turbotax For at least one academic period beginning in 2013, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Free military turbotax The student has not been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2013. Free military turbotax These requirements are also shown in Figure 2-2, Who is an Eligible Student for the American Opportunity Credit , later. Free military turbotax Completion of first 4 years. Free military turbotax   A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework completed by the student before 2013. Free military turbotax This student generally would not be an eligible student for purposes of the American opportunity credit. Free military turbotax Exception. Free military turbotax   Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed 4 years of postsecondary education. Free military turbotax Enrolled at least half-time. Free military turbotax   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Free military turbotax   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Free military turbotax However, the standard may not be lower than any of those established by the U. Free military turbotax S. Free military turbotax Department of Education under the Higher Education Act of 1965. Free military turbotax Please click here for the text description of the image. Free military turbotax Figure 2-2 Example 1. Free military turbotax Mack graduated from high school in June 2012. Free military turbotax In September, he enrolled in an undergraduate degree program at College U, and attended full-time for both the 2012 fall and 2013 spring semesters. Free military turbotax For the 2013 fall semester, Mack was enrolled less than half-time. Free military turbotax Because Mack was enrolled in an undergraduate degree program on at least a half-time basis for at least one academic period that began during 2012 and at least one academic period that began during 2013, he is an eligible student for tax years 2012 and 2013 (including the 2013 fall semester when he enrolled at College U on less than a half-time basis). Free military turbotax Example 2. Free military turbotax After taking classes at College V on a part-time basis for a few years, Shelly became a full-time student for the 2013 spring semester. Free military turbotax College V classified Shelly as a second-semester senior (fourth year) for the 2013 spring semester and as a first-semester graduate student (fifth year) for the 2013 fall semester. Free military turbotax Because College V did not classify Shelly as having completed the first 4 years of postsecondary education as of the beginning of 2013, Shelly is an eligible student for tax year 2013. Free military turbotax Therefore, the qualified education expenses paid for the 2013 spring semester and the 2013 fall semester are taken into account in calculating the American opportunity credit for 2013. Free military turbotax Example 3. Free military turbotax During the 2012 fall semester, Larry was a high school student who took classes on a half-time basis at College X. Free military turbotax Larry was not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. Free military turbotax Because Larry was not enrolled in a degree program at College X during 2012, Larry was not an eligible student for tax year 2012. Free military turbotax Example 4. Free military turbotax The facts are the same as in Example 3. Free military turbotax During the 2013 spring semester, Larry again attended College X but not as part of a degree program. Free military turbotax Larry graduated from high school in June 2013. Free military turbotax For the 2013 fall semester, Larry enrolled as a full-time student in College X as part of a degree program, and College X awarded Larry credit for his prior coursework at College X. Free military turbotax Because Larry was enrolled in a degree program at College X for the 2013 fall term on at least a half-time basis, Larry is an eligible student for all of tax year 2013. Free military turbotax Therefore, the qualified education expenses paid for classes taken at College X during both the 2013 spring semester (during which Larry was not enrolled in a degree program) and the 2013 fall semester are taken into account in computing any American opportunity credit. Free military turbotax Example 5. Free military turbotax Dee graduated from high school in June 2012. Free military turbotax In January 2013, Dee enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a travel agent. Free military turbotax Dee completed the program in December 2013, and was awarded a certificate. Free military turbotax In January 2014, she enrolled in a 1-year postsecondary certificate program on a full-time basis to obtain a certificate as a computer programmer. Free military turbotax Dee is an eligible student for both tax years 2013 and 2014 because she meets the degree requirement, the work load requirement, and the year of study requirement for those years. Free military turbotax Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim an American opportunity credit for your dependent's expenses for that year. Free military turbotax For you to claim an American opportunity credit for your dependent's expenses, you must also claim an exemption for your dependent. Free military turbotax You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Free military turbotax IF you. Free military turbotax . Free military turbotax . Free military turbotax THEN only. Free military turbotax . Free military turbotax . Free military turbotax claim an exemption on  your tax return for a  dependent who is an  eligible student you can claim the American opportunity credit based on that dependent's expenses. Free military turbotax The dependent cannot claim the credit. Free military turbotax do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the American opportunity credit. Free military turbotax You cannot claim the credit based on this dependent's expenses. Free military turbotax Expenses paid by dependent. Free military turbotax   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Free military turbotax Include these expenses when figuring the amount of your American opportunity credit. Free military turbotax    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Free military turbotax Expenses paid by you. Free military turbotax   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the American opportunity credit. Free military turbotax If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the American opportunity credit. Free military turbotax Expenses paid by others. Free military turbotax   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Free military turbotax In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Free military turbotax If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Free military turbotax Example. Free military turbotax In 2013, Ms. Free military turbotax Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Free military turbotax For purposes of claiming an American opportunity credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Free military turbotax Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim an American opportunity credit. Free military turbotax If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim an American opportunity credit. Free military turbotax If anyone else claims an exemption for Todd, Todd cannot claim an American opportunity credit. Free military turbotax Tuition reduction. Free military turbotax    When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Free military turbotax If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Free military turbotax For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free military turbotax Figuring the Credit The amount of the American opportunity credit (per eligible student) is the sum of: 100% of the first $2,000 of qualified education expenses you paid for the eligible student, and 25% of the next $2,000 of qualified education expenses you paid for that student. Free military turbotax The maximum amount of American opportunity credit you can claim in 2013 is $2,500 multiplied by the number of eligible students. Free military turbotax You can claim the full $2,500 for each eligible student for whom you paid at least $4,000 of adjusted qualified education expenses. Free military turbotax However, the credit may be reduced based on your MAGI. Free military turbotax See Effect of the Amount of Your Income on the Amount of Your Credit , later. Free military turbotax Example. Free military turbotax Jack and Kay Ford are married and file a joint tax return. Free military turbotax For 2013, they claim an exemption for their dependent daughter on their tax return. Free military turbotax Their MAGI is $70,000. Free military turbotax Their daughter is in her junior (third) year of studies at the local university. Free military turbotax Jack and Kay paid qualified education expenses of $4,300 in 2013. Free military turbotax Jack and Kay, their daughter, and the local university meet all of the requirements for the American opportunity credit. Free military turbotax Jack and Kay can claim a $2,500 American opportunity credit in 2013. Free military turbotax This is 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. Free military turbotax Form 1098-T. Free military turbotax   To help you figure your American opportunity credit, the student should receive Form 1098-T, Tuition Statement. Free military turbotax Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Free military turbotax An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Free military turbotax However, the amounts in boxes 1 and 2 of Form 1098-T might be different than what you paid. Free military turbotax When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Free military turbotax   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Free military turbotax    The eligible educational institution may ask for a completed Form W-9S, Request for Student's or Borrower's Taxpayer Identification Number and Certification, or similar statement to obtain the student's name, address, and taxpayer identification number. Free military turbotax Effect of the Amount of Your Income on the Amount of Your Credit The amount of your American opportunity credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). Free military turbotax You cannot claim an American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). Free military turbotax Modified adjusted gross income (MAGI). Free military turbotax   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Free military turbotax MAGI when using Form 1040A. Free military turbotax   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Free military turbotax MAGI when using Form 1040. Free military turbotax   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Free military turbotax You can use Worksheet 2-1, next, to figure your MAGI. Free military turbotax    Worksheet 2-1. Free military turbotax MAGI for the American Opportunity Credit 1. Free military turbotax Enter your adjusted gross income  (Form 1040, line 38)   1. Free military turbotax   2. Free military turbotax Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Free military turbotax       3. Free military turbotax Enter your foreign housing deduction (Form 2555, line 50)   3. Free military turbotax       4. Free military turbotax Enter the amount of income from Puerto Rico you are excluding   4. Free military turbotax       5. Free military turbotax Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Free military turbotax       6. Free military turbotax Add the amounts on lines 2, 3, 4, and 5   6. Free military turbotax   7. Free military turbotax Add the amounts on lines 1 and 6. Free military turbotax  This is your modified adjusted  gross income. Free military turbotax Enter here and  on Form 8863, line 3   7. Free military turbotax   Phaseout. Free military turbotax   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 2-7, of Form 8863, Part I. Free military turbotax The same method is shown in the following example. Free military turbotax Example. Free military turbotax You are filing a joint return and your MAGI is $165,000. Free military turbotax In 2013, you paid $5,000 of qualified education expenses. Free military turbotax You figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses). Free military turbotax Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($2,500) by a fraction. Free military turbotax The numerator of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. Free military turbotax The denominator is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). Free military turbotax The result is the amount of your phased out (reduced) American opportunity credit ($1,875). Free military turbotax      $2,500 × $180,000 − $165,000  $20,000 = $1,875   Refundable Part of Credit Forty percent of the American opportunity credit is refundable for most taxpayers. Free military turbotax However, if you were under age 24 at the end of 2013 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Free military turbotax Instead, your allowed credit (figured on Form 8863, Part II) will be used to reduce your tax as a nonrefundable credit only. Free military turbotax You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you. Free military turbotax You were: Under age 18 at the end of 2013, or Age 18 at the end of 2013 and your earned income (defined below) was less than one-half of your support (defined below), or Over age 18 and under age 24 at the end of 2013 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below). Free military turbotax At least one of your parents was alive at the end of 2013. Free military turbotax You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2013. Free military turbotax Earned income. Free military turbotax   Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Free military turbotax Earned income includes the part of any scholarship or fellowship that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship. Free military turbotax Earned income does not include that part of the compensation for personal services rendered to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. Free military turbotax   If you are a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of your share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). Free military turbotax However, if capital is not an income-producing factor and your personal services produced the business income, the 30% limit does not apply. Free military turbotax Support. Free military turbotax   Your support includes food, shelter, clothing, medical and dental care, education, and the like. Free military turbotax Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. Free military turbotax If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. Free military turbotax However, a scholarship received by you is not considered support if you are a full-time student. Free military turbotax See Publication 501 for details. Free military turbotax Full-time student. Free military turbotax   You are a full-time student for 2013 if during any part of any 5 calendar months during the year you were enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency. Free military turbotax Claiming the Credit You claim the American opportunity credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Free military turbotax Enter the nonrefundable part of the credit on Form 1040, line 49, or on Form 1040A, line 31. Free military turbotax Enter the refundable part of the credit on Form 1040, line 66, or on Form 1040A, line 40. Free military turbotax A filled-in Form 8863 is shown at the end of this publication. Free military turbotax Note. Free military turbotax In Appendix A. Free military turbotax at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Free military turbotax Prev  Up  Next   Home   More Online Publications
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Free military turbotax Publication 51 - Main Content Table of Contents 1. Free military turbotax Taxpayer Identification NumbersWhen you receive your EIN. Free military turbotax Registering for SSNVS. Free military turbotax 2. Free military turbotax Who Are Employees?Crew Leaders Business Owned and Operated by Spouses 3. Free military turbotax Wages and Other Compensation 4. Free military turbotax Social Security and Medicare TaxesThe $150 Test or the $2,500 Test Social Security and Medicare Tax Withholding 5. Free military turbotax Federal Income Tax WithholdingImplementation of lock-in letter. Free military turbotax Seasonal employees and employees not currently performing services. Free military turbotax Termination and re-hire of employees. Free military turbotax How To Figure Federal Income Tax Withholding 6. Free military turbotax Required Notice to Employees About Earned Income Credit (EIC) 7. Free military turbotax Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties Employers of Both Farm and Nonfarm Workers 8. Free military turbotax Form 943 9. Free military turbotax Reporting Adjustments on Form 943Current Year Adjustments Prior Year Adjustments 10. Free military turbotax Federal Unemployment (FUTA) Tax 11. Free military turbotax Reconciling Wage Reporting Forms 13. Free military turbotax Federal Income Tax Withholding MethodsWage Bracket Method Percentage Method Alternative Methods of Federal Income Tax Withholding How To Get Tax Help 1. Free military turbotax Taxpayer Identification Numbers If you are required to withhold any federal income, social security, or Medicare taxes, you will need an employer identification number (EIN) for yourself. Free military turbotax Also, you will need the SSN of each employee and the name of each employee as shown on the employee's social security card. Free military turbotax Employer identification number (EIN). Free military turbotax   An employer identification number (EIN) is a nine-digit number that the IRS issues. Free military turbotax The digits are arranged as follows: 00-0000000. Free military turbotax It is used to identify the tax accounts of employers and certain others who have no employees. Free military turbotax Use your EIN on all of the items that you send to the IRS and SSA. Free military turbotax   If you do not have an EIN, you may apply for one online. Free military turbotax Visit IRS. Free military turbotax gov and click on the Apply for an EIN Online link under Tools. Free military turbotax You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Free military turbotax Do not use a SSN in place of an EIN. Free military turbotax   If you do not have an EIN by the time a return is due, write “Applied For” and the date you applied for it in the space shown for the number. Free military turbotax If you took over another employer's business, do not use that employer's EIN. Free military turbotax   You should have only one EIN. Free military turbotax If you have more than one, and are not sure which one to use, call the toll-free Business and Specialty Tax Line at 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Free military turbotax Provide the EINs that you have, the name and address to which each number was assigned, and the address of your principal place of business. Free military turbotax The IRS will tell you which EIN to use. Free military turbotax   For more information, see Publication 1635 or Publication 583. Free military turbotax When you receive your EIN. Free military turbotax   If you are a new employer that indicated a federal tax obligation when requesting an EIN, you will be pre-enrolled in the Electronic Federal Tax Payment System (EFTPS). Free military turbotax You will receive information in your Employer Identification Number (EIN) Package about Express Enrollment and an additional mailing containing your EFTPS personal identification number (PIN) and instructions for activating your PIN. Free military turbotax Call the toll-free number located in your “How to Activate Your Enrollment” brochure to activate your enrollment and begin making your employment tax deposits. Free military turbotax If you outsource any of your payroll and related tax duties to a third party payer, such as a payroll service provider or reporting agent, be sure to tell them about your EFTPS enrollment. Free military turbotax Social security number (SSN). Free military turbotax   An employee's social security number (SSN) consists of nine digits arranged as follows: 000-00-0000. Free military turbotax You must obtain each employee's name and SSN as shown on the employee's social security card because you must enter them on Form W-2. Free military turbotax Do not accept a social security card that says “Not valid for employment. Free military turbotax ” A social security number issued with this legend does not permit employment. Free military turbotax You may, but are not required to, photocopy the social security card if the employee provides it. Free military turbotax If you do not show the employee's correct name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Free military turbotax See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs. Free military turbotax Applying for a social security card. Free military turbotax   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation to SSA. Free military turbotax You can get Form SS-5 at SSA offices, by calling 1-800-772-1213 or 1-800-325-0778 (TTY), or from the SSA website at www. Free military turbotax socialsecurity. Free military turbotax gov/online/ss-5. Free military turbotax html. Free military turbotax The employee must complete and sign Form SS-5; it cannot be filed by the employer. Free military turbotax You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. Free military turbotax Applying for a social security number. Free military turbotax   If you file Form W-2 on paper and your employee has applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Free military turbotax If you are filing electronically, enter all zeros (000-00-0000) in the social security number field. Free military turbotax When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. Free military turbotax Furnish Copies B, C, and 2 of Form W-2c to the employee. Free military turbotax Up to 25 Forms W-2c per Form W-3c, Transmittal of Corrected Wage and Tax Statements, may be filed per session over the Internet, with no limit on the number of sessions. Free military turbotax For more information, visit SSA's Employer W-2 Filing Instructions & Information webpage at www. Free military turbotax socialsecurity. Free military turbotax gov/employer. Free military turbotax Advise your employee to correct the SSN on his or her original Form W-2. Free military turbotax Correctly record the employee's name and SSN. Free military turbotax   Record the name and number of each employee as they are shown on the employee's social security card. Free military turbotax If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. Free military turbotax Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. Free military turbotax   If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported on the most recently filed Form W-2. Free military turbotax It is not necessary to correct other years if the previous name and SSN were used for years before the most recent Form W-2. Free military turbotax IRS individual taxpayer identification numbers (ITINs) for aliens. Free military turbotax   Do not accept an ITIN in place of an SSN for employee identification or for work. Free military turbotax An ITIN is issued for use by resident and nonresident aliens who need identification for tax purposes, but who are not eligible for U. Free military turbotax S. Free military turbotax employment. Free military turbotax The ITIN is a nine-digit number formatted like an SSN (for example, NNN-NN-NNNN). Free military turbotax However, it begins with the number “9” and has either a “7” or “8” as the fourth digit (for example, 9NN-7N-NNNN or 9NN-8N-NNNN). Free military turbotax    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Free military turbotax If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier in this section. Free military turbotax Do not use an ITIN in place of an SSN on Form W-2. Free military turbotax Verification of social security numbers. Free military turbotax   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 employee names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive results the next business day. Free military turbotax Visit www. Free military turbotax socialsecurity. Free military turbotax gov/employer/ssnv. Free military turbotax htm for more information. Free military turbotax Registering for SSNVS. Free military turbotax   You must register online and receive authorization from your employer to use SSNVS. Free military turbotax To register, visit SSA's website at www. Free military turbotax socialsecurity. Free military turbotax gov/employer and click on the Business Services Online link. Free military turbotax Follow the registration instructions to obtain a user identification (ID) and password. Free military turbotax You will need to provide the following information about yourself and your company. Free military turbotax Name. Free military turbotax SSN. Free military turbotax Date of birth. Free military turbotax Type of employer. Free military turbotax EIN. Free military turbotax Company name, address, and telephone number. Free military turbotax Email address. Free military turbotax When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Free military turbotax You must enter the activation code online to use SSNVS. Free military turbotax 2. Free military turbotax Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Free military turbotax See Publication 15-A for details on statutory employees and nonemployees. Free military turbotax Employee status under common law. Free military turbotax   Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. Free military turbotax This is so even when you give the employee freedom of action. Free military turbotax What matters is that you have the right to control the details of how the services are performed. Free military turbotax See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Free military turbotax If an employer-employee relationship exists, it does not matter what it is called. Free military turbotax The employee may be called an agent or independent contractor. Free military turbotax It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Free military turbotax You are responsible for withholding and paying employment taxes for your employees. Free military turbotax You are also required to file employment tax returns. Free military turbotax These requirements do not apply to amounts that you pay to independent contractors. Free military turbotax The rules discussed in this publication apply only to workers who are your employees. Free military turbotax In general, you are an employer of farmworkers if your employees: Raise or harvest agricultural or horticultural products on your farm (including the raising and feeding of livestock); Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and equipment; Provide services relating to salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor); Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity); or Do work for you related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. Free military turbotax For this purpose, the term “farm” includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, as well as plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards. Free military turbotax Farmwork does not include reselling activities that do not involve any substantial activity of raising agricultural or horticultural commodities, such as a retail store or a greenhouse used primarily for display or storage. Free military turbotax The table in section 12, How Do Employment Taxes Apply to Farmwork , distinguishes between farm and nonfarm activities, and also addresses rules that apply in special situations. Free military turbotax Crew Leaders If you are a crew leader, you are an employer of farmworkers. Free military turbotax A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. Free military turbotax If there is no written agreement between you and the farm operator stating that you are his or her employee and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader. Free military turbotax For FUTA tax rules, see section 10. Free military turbotax Business Owned and Operated by Spouses If you and your spouse jointly own and operate a farm or nonfarm business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Free military turbotax See Publication 541, Partnerships, for more details. Free military turbotax The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Free military turbotax Exception—Qualified joint venture. Free military turbotax   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. Free military turbotax A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). Free military turbotax   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. Free military turbotax Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Free military turbotax   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Free military turbotax If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. Free military turbotax Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Free military turbotax However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. Free military turbotax    Note. Free military turbotax If your spouse is your employee, not your partner, you must pay social security and Medicare taxes for him or her. Free military turbotax   For more information on qualified joint ventures, visit IRS. Free military turbotax gov and enter “qualified joint venture” in the search box. Free military turbotax Exception—Community income. Free military turbotax   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Free military turbotax S. Free military turbotax possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Free military turbotax You may still make an election to be taxed as a qualified joint venture instead of a partnership. Free military turbotax See Exception—Qualified joint venture , earlier in this section. Free military turbotax 3. Free military turbotax Wages and Other Compensation Cash wages that you pay to employees for farmwork are generally subject to social security tax and Medicare tax. Free military turbotax You may also be required to withhold, deposit, and report Additional Medicare Tax. Free military turbotax See section 4 for more information. Free military turbotax If the wages are subject to social security and Medicare taxes, they are also subject to federal income tax withholding. Free military turbotax You may also be liable for FUTA tax, which is not withheld by you or paid by the employee. Free military turbotax FUTA tax is discussed in section 10. Free military turbotax Cash wages include checks, money orders, etc. Free military turbotax Do not count as cash wages the value of food, lodging, and other noncash items. Free military turbotax For more information on what payments are considered taxable wages, see Publication 15 (Circular E). Free military turbotax Commodity wages. Free military turbotax   Commodity wages are not cash and are not subject to social security and Medicare taxes or federal income tax withholding. Free military turbotax However, noncash payments, including commodity wages, are treated as cash wages (see above) if the substance of the transaction is a cash payment. Free military turbotax These noncash payments are subject to social security and Medicare taxes and federal income tax withholding. Free military turbotax Other compensation. Free military turbotax   Publications 15-A and 15-B discuss other forms of compensation that may be taxable. Free military turbotax Family members. Free military turbotax   Generally, the wages that you pay to family members who are your employees are subject to social security and Medicare taxes, federal income tax withholding, and FUTA tax. Free military turbotax However, certain exemptions may apply for your child, spouse, or parent. Free military turbotax See the table, How Do Employment Taxes Apply to Farmwork , in section 12. Free military turbotax Household employees. Free military turbotax   The wages of an employee who performs household services, such as a maid, babysitter, gardener, or cook, in your home are not subject to social security and Medicare taxes if you pay that employee cash wages of less than $1,900 in 2014. Free military turbotax   Social security and Medicare taxes do not apply to cash wages for housework in your private home if it was done by your spouse or your child under age 21. Free military turbotax Nor do the taxes apply to housework done by your parent unless: You have a child living in your home who is under age 18 or has a physical or mental condition that requires care by an adult for at least 4 continuous weeks in a calendar quarter, and You are a widow or widower, or divorced and not remarried, or have a spouse in the home who, because of a physical or mental condition, cannot care for your child for at least 4 continuous weeks in the quarter. Free military turbotax   For more information, see Publication 926, Household Employer's Tax Guide. Free military turbotax    Wages for household work may not be a deductible farm expense. Free military turbotax See Publication 225, Farmer's Tax Guide. Free military turbotax Share farmers. Free military turbotax   You do not have to withhold or pay social security and Medicare taxes on amounts paid to share farmers under share-farming arrangements. Free military turbotax Compensation paid to H-2A visa holders. Free military turbotax   Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2 but do not report it as social security wages (box 3) or Medicare wages (box 5) on Form W-2 because compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes. Free military turbotax On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Free military turbotax   An employer is not required to withhold federal income tax from compensation it pays an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. Free military turbotax In that case, the worker must give the employer a completed Form W-4. Free military turbotax Federal income tax withheld should be reported in box 2 of Form W-2. Free military turbotax These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. Free military turbotax For rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. Free military turbotax 4. Free military turbotax Social Security and Medicare Taxes Generally, you must withhold social security and Medicare taxes on all cash wage payments that you make to your employees. Free military turbotax You may also be required to withhold Additional Medicare Tax. Free military turbotax For more information, see Additional Medicare Tax withholding , later. Free military turbotax The $150 Test or the $2,500 Test All cash wages that you pay to an employee during the year for farmwork are subject to social security and Medicare taxes and federal income tax withholding if either of the two tests below is met. Free military turbotax You pay cash wages to an employee of $150 or more in a year for farmwork (count all cash wages paid on a time, piecework, or other basis). Free military turbotax The $150 test applies separately to each farmworker that you employ. Free military turbotax If you employ a family of workers, each member is treated separately. Free military turbotax Do not count wages paid by other employers. Free military turbotax The total that you pay for farmwork (cash and noncash) to all your employees is $2,500 or more during the year. Free military turbotax Exceptions. Free military turbotax   The $150 and $2,500 tests do not apply to wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes, or federal income tax withholding, even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker: Is employed in agriculture as a hand-harvest laborer, Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment, Commutes daily from his or her permanent home to the farm, and Had been employed in agriculture less than 13 weeks in the preceding calendar year. Free military turbotax   Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes. Free military turbotax Social Security and Medicare Tax Withholding The social security tax rate is 6. Free military turbotax 2%, for both the employee and employer, on the first $117,000 paid to each employee. Free military turbotax You must withhold at this rate from each employee and pay a matching amount. Free military turbotax The Medicare tax rate is 1. Free military turbotax 45% each for the employee and employer on all wages. Free military turbotax You must withhold at this rate from each employee and pay a matching amount. Free military turbotax There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. Free military turbotax Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. Free military turbotax For details, see Publication 15-A. Free military turbotax Additional Medicare Tax withholding. Free military turbotax   In addition to withholding Medicare tax at 1. Free military turbotax 45%, you must withhold a 0. Free military turbotax 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Free military turbotax You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Free military turbotax Additional Medicare Tax is only imposed on the employee. Free military turbotax There is no employer share of Additional Medicare Tax. Free military turbotax All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. Free military turbotax   For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E). Free military turbotax For more information on Additional Medicare Tax, visit IRS. Free military turbotax gov and enter “Additional Medicare Tax” in the search box. Free military turbotax Employee share paid by employer. Free military turbotax   If you would rather pay a household or agricultural employee's share of the social security and Medicare taxes without withholding them from his or her wages, you may do so. Free military turbotax If you do not withhold the taxes, however, you must still pay them. Free military turbotax Any employee social security and Medicare taxes that you pay is additional income to the employee. Free military turbotax Include it in box 1 of the employee's Form W-2, but do not count it as social security and Medicare wages and do not include it in boxes 3 and 5. Free military turbotax Also, do not count the additional income as wages for FUTA tax purposes. Free military turbotax Different rules apply to employer payments of social security and Medicare taxes for non-household and non-agricultural employees. Free military turbotax See section 7 of Publication 15-A. Free military turbotax Withholding social security and Medicare taxes on nonresident alien employees. Free military turbotax   In general, if you pay wages to nonresident alien employees, you must withhold social security and Medicare taxes as you would for a U. Free military turbotax S. Free military turbotax citizen or resident alien. Free military turbotax However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Free military turbotax Also see Compensation paid to H-2A visa holders in section 3. Free military turbotax Religious exemption. Free military turbotax    An exemption from social security and Medicare taxes is available to members of a recognized religious sect opposed to public insurance. Free military turbotax This exemption is available only if both the employee and the employer are members of the sect. Free military turbotax   For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Free military turbotax 5. Free military turbotax Federal Income Tax Withholding Farmers and crew leaders must withhold federal income tax from the wages of farmworkers if the wages are subject to social security and Medicare taxes. Free military turbotax The amount to withhold is figured on gross wages before taking out social security and Medicare taxes, union dues, insurance, etc. Free military turbotax You may use one of several methods to determine the amount of federal income tax withholding. Free military turbotax They are discussed in section 13. Free military turbotax Form W-4. Free military turbotax   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Free military turbotax Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. Free military turbotax Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Free military turbotax irs. Free military turbotax gov/individuals for help in determining how many withholding allowances to claim on their Form W-4. Free military turbotax   Ask each new employee to give you a signed Form W-4 when starting work. Free military turbotax Make the form effective with the first wage payment. Free military turbotax If a new employee does not give you a completed Form W-4, withhold tax as if he or she is single, with no withholding allowances. Free military turbotax Forms in Spanish. Free military turbotax   You can provide Formulario W-4(SP) in place of Form W-4 to your Spanish-speaking employees. Free military turbotax For more information, see Publicación 17(SP). Free military turbotax Effective date of Form W-4. Free military turbotax   A Form W-4 remains in effect until the employee gives you a new one. Free military turbotax When you receive a new Form W-4, do not adjust withholding for pay periods before the effective date of the new form. Free military turbotax Do not adjust withholding retroactively. Free military turbotax If an employee gives you a replacement Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. Free military turbotax For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. Free military turbotax A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Free military turbotax Completing Form W-4. Free military turbotax   The amount of federal income tax withholding is based on marital status and withholding allowances. Free military turbotax Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Free military turbotax However, the employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. Free military turbotax   Employees may claim fewer withholding allowances than they are entitled to claim. Free military turbotax They may do this to ensure that they have enough withholding or to offset other sources of taxable income that are not subject to withholding. Free military turbotax   See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Free military turbotax Along with Form W-4, you may wish to order Publication 505 for use by your employees. Free military turbotax    Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Free military turbotax If an employee wants additional withholding, he or she should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. Free military turbotax Exemption from federal income tax withholding. Free military turbotax   Generally, an employee may claim exemption from federal income tax withholding because he or she had no federal income tax liability last year and expects none this year. Free military turbotax See the Form W-4 instructions for more information. Free military turbotax However, the wages are still subject to social security and Medicare taxes. Free military turbotax   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Free military turbotax To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. Free military turbotax If the employee does not give you a new Form W-4 by February 15, withhold tax based on the last valid Form W-4 you have for the employee that did not claim an exemption from withholding or, if one does not exist, withhold as if he or she is single with zero withholding allowances. Free military turbotax If the employee provides a new Form W-4 claiming an exemption from withholding on February 16 or later, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. Free military turbotax Withholding income taxes on the wages of nonresident alien employees. Free military turbotax   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Free military turbotax However, see Publication 515 for exceptions to this general rule. Free military turbotax Also see Compensation paid to H-2A visa workers in section 3. Free military turbotax Withholding adjustment for nonresident alien employees. Free military turbotax   A special procedure applies for figuring the amount of income tax to withhold from wages of nonresident alien employees performing services within the United States for wages paid in 2014. Free military turbotax This procedure requires a special chart to be used with the withholding tables to determine the amount to withhold from the wages of the nonresident alien employee. Free military turbotax See Withholding adjustment for nonresident alien employees in section 9 of Publication 15 (Circular E). Free military turbotax Nonresident alien employee's Form W-4. Free military turbotax   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding; Request withholding as if they are single, regardless of their actual marital status; Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or Korea, he or she may claim more than one allowance); and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. Free military turbotax   If you maintain an electronic Form W-4 system, you should provide a field for nonresident alien employees to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Free military turbotax    A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. Free military turbotax Form 8233. Free military turbotax   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. Free military turbotax See Publication 515 for details. Free military turbotax IRS review of requested Forms W-4. Free military turbotax   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Free military turbotax You may also be directed to send certain Forms W-4 to the IRS. Free military turbotax You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. Free military turbotax Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. Free military turbotax The IRS may also require you to submit copies of Form W-4 to the IRS as directed by a revenue procedure or notice published in the Internal Revenue Bulletin. Free military turbotax When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Free military turbotax   After submitting a copy of the requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). Free military turbotax However, if the IRS later notifies you in writing that the employee is not entitled to claim a complete exemption from withholding or more than the maximum number of withholding allowances specified by the IRS in the written notice, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the notice (commonly referred to as a “lock-in letter”). Free military turbotax Initial lock-in letter. Free military turbotax   The IRS uses information reported on Form W-2 to identify employees with withholding compliance problems. Free military turbotax In some cases, where a serious under-withholding problem is found to exist for a particular employee, the IRS may issue a lock-in letter to the employer specifying the maximum number of withholding allowances and marital status permitted for a specific employee. Free military turbotax You will also receive a copy for the employee that identifies the maximum number of withholding allowances permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate number of withholding allowances. Free military turbotax If the employee is employed by you as of the date of the notice, you must furnish the employee copy to the employee within 10 business days of receipt. Free military turbotax You may follow any reasonable business practice to furnish the employee copy to the employee. Free military turbotax Implementation of lock-in letter. Free military turbotax   When you receive the notice specifying the maximum number of withholding allowances and marital status permitted, you may not withhold immediately on the basis of the notice. Free military turbotax You must begin withholding tax on the basis of the notice for any wages paid after the date specified in the notice. Free military turbotax The delay between your receipt of the notice and the date to begin the withholding on the basis of the notice permits the employee to contact the IRS. Free military turbotax Seasonal employees and employees not currently performing services. Free military turbotax   If you receive a notice for an employee who is not currently performing services for you, you are still required to furnish the employee copy to the employee and withhold based on the notice if any of the following apply. Free military turbotax You are paying wages for the employee's prior services and the wages are subject to income tax withholding on or after the date specified in the notice. Free military turbotax You reasonably expect the employee to resume services within 12 months of the date of the notice. Free military turbotax The employee is on a bona fide leave of absence that does not exceed 12 months or the employee has a right to reemployment after the leave of absence. Free military turbotax Termination and re-hire of employees. Free military turbotax   If you are required to furnish and withhold based on the notice and the employment relationship is terminated after the date of the notice, you must continue to withhold based on the notice if you continue to pay any wages subject to income tax withholding. Free military turbotax You must also withhold based on the notice or modification notice (explained next) if the employee resumes the employment relationship with you within 12 months after the termination of the employment relationship. Free military turbotax Modification notice. Free military turbotax   After issuing the notice specifying the maximum number of withholding allowances and marital status permitted, the IRS may issue a subsequent notice (modification notice) that modifies the original notice. Free military turbotax The modification notice may change the marital status and/or the number of withholding allowances permitted. Free military turbotax You must withhold federal income tax based on the effective date specified in the modification notice. Free military turbotax New Form W-4 after IRS notice. Free military turbotax   After the IRS issues a notice or modification notice, if the employee provides you with a new Form W-4 claiming complete exemption from withholding or claims a marital status, a number of withholding allowances, and any additional withholding that results in less withholding than would result under the IRS notice or modification notice, you must disregard the new Form W-4. Free military turbotax You are required to withhold on the basis of the notice or modification notice unless the IRS subsequently notifies you to withhold based on the new Form W-4. Free military turbotax If the employee wants to put a new Form W-4 into effect that results in less withholding than required, the employee must contact the IRS. Free military turbotax   If, after you receive an IRS notice or modification notice, your employee provides you with a new Form W-4 that does not claim exemption from federal income tax withholding and claims a marital status, a number of withholding allowances, and any additional withholding that results in more withholding than would result under the notice or modification notice, you must withhold tax on the basis of that new Form W-4. Free military turbotax Otherwise, disregard any subsequent Forms W-4 provided by the employee and withhold based on the IRS notice or modification notice. Free military turbotax Substitute Forms W-4. Free military turbotax   You are encouraged to have your employees use the official version of Form W-4 to claim withholding allowances or exemption from withholding. Free military turbotax Call the IRS at 1-800-TAX-FORM (1-800-829-3676) or visit IRS. Free military turbotax gov to obtain copies of Form W-4. Free military turbotax   You may use a substitute version of Form W-4 to meet your business needs. Free military turbotax However, your substitute Form W-4 must contain language that is identical to the official Form W-4 and your form must meet all current IRS rules for substitute forms. Free military turbotax At the time that you provide your substitute form to the employee, you must provide him or her with all tables, instructions, and worksheets from the current Form W-4. Free military turbotax   You cannot accept a substitute Form W-4 developed by an employee, and the employee submitting such form will be treated as failing to furnish a Form W-4. Free military turbotax However, continue to use any valid Forms W-4 developed by your employees that you accepted before October 11, 2007. Free military turbotax Invalid Forms W-4. Free military turbotax   Any unauthorized change or addition to Form W-4 makes it invalid. Free military turbotax This includes taking out any language by which the employee certifies that the form is correct. Free military turbotax A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way that it is false. Free military turbotax An employee who submits a false Form W-4 may be subject to a $500 penalty. Free military turbotax You may treat a Form W-4 as invalid if the employee wrote “exempt” on line 7 and also entered a number on line 5 or an amount on line 6. Free military turbotax   When you get an invalid Form W-4, do not use it to figure federal income tax withholding. Free military turbotax Tell the employee that it is invalid and ask for another one. Free military turbotax If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. Free military turbotax However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before. Free military turbotax   For additional information about these rules, see Treasury Decision 9337, 2007-35 I. Free military turbotax R. Free military turbotax B. Free military turbotax 455, available at www. Free military turbotax irs. Free military turbotax gov/irb/2007-35_IRB/ar10. Free military turbotax html. Free military turbotax Amounts exempt from levy on wages, salary, and other income. Free military turbotax   If you receive a Notice of Levy on Wages, Salary, and Other Income—Forms 668-W(ACS), 668-W(c)(DO), or 668-W(ICS), you must withhold amounts as described in the instructions for these forms. Free military turbotax Publication 1494, Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income—Forms 668-W(ACS), 668-W(c)(DO), and 668-W(ICS), shows the exempt amount. Free military turbotax If a levy issued in a prior year is still in effect and the taxpayer submits a new Statement of Exemptions and Filing Status, use the current year Publication 1494 to compute the exempt amount. Free military turbotax How To Figure Federal Income Tax Withholding There are several ways to figure federal income tax withholding. Free military turbotax Wage bracket tables. Free military turbotax See section 13 for directions on how to use the tables. Free military turbotax Percentage method. Free military turbotax See section 13 for directions on how to use the percentage method. Free military turbotax Alternative formula tables for percentage method withholding. Free military turbotax See Publication 15-A. Free military turbotax Wage bracket percentage method withholding tables. Free military turbotax See Publication 15-A. Free military turbotax Other alternative methods. Free military turbotax See Publication 15-A. Free military turbotax Employers with automated payroll systems will find the two alternative formula tables and the two alternative wage bracket percentage method tables in Publication 15-A useful. Free military turbotax If an employee wants additional federal tax withheld, have the employee show the extra amount on Form W-4. Free military turbotax Supplemental wages. Free military turbotax   Supplemental wages are wage payments to an employee that are not regular wages. Free military turbotax They include, but are not limited to, bonuses, commissions, overtime pay, accumulated sick leave, severance pay, awards, prizes, back pay and retroactive pay increases for current employees, and payments for nondeductible moving expenses. Free military turbotax Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Free military turbotax   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total was a single payment for a regular payroll period. Free military turbotax   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold federal income tax from your employee's regular wages. Free military turbotax If you withheld federal income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Free military turbotax Withhold a flat 25% (no other percentage allowed). Free military turbotax If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Free military turbotax If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. Free military turbotax Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Free military turbotax Subtract the tax withheld from the regular wages. Free military turbotax Withhold the remaining tax from the supplemental wages. Free military turbotax If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and previous supplemental wage payments, and withhold the remaining tax from the current payment of supplemental wages. Free military turbotax If you did not withhold federal income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b above. Free military turbotax This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Free military turbotax    Separate rules apply to any supplemental wages exceeding $1 million that you pay to an individual during the year. Free military turbotax See section 7 in Publication 15 (Circular E) for details. Free military turbotax   Regardless of the method that you use to withhold federal income tax on supplemental wages, they are generally subject to social security, Medicare, and FUTA taxes. Free military turbotax 6. Free military turbotax Required Notice to Employees About Earned Income Credit (EIC) You must notify employees who have no federal income tax withheld that they may be able to claim a tax refund because of the EIC. Free military turbotax Although you do not have to notify employees who claim exemption from withholding on Form W-4 about the EIC, you are encouraged to notify any employees whose wages for 2013 were less than $46,227 ($51,567 if married filing jointly) that they may be eligible to claim the credit for 2013. Free military turbotax This is because eligible employees may get a refund of the amount of EIC that is more than the tax that they owe. Free military turbotax You will meet the notification requirement if you issue to the employee Form W-2 with the EIC notice on the back of Copy B, or a substitute Form W-2 with the same statement. Free military turbotax You may also meet the requirement by providing Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), or your own statement that contains the same wording. Free military turbotax If a substitute Form W-2 is given to the employee on time but does not have the required statement, you must notify the employee within 1 week of the date that the substitute Form W-2 is given. Free military turbotax If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement by the date that Form W-2 is required to be given. Free military turbotax If Form W-2 is not required, you must notify the employee by February 7, 2014. Free military turbotax 7. Free military turbotax Depositing Taxes Generally, you must deposit both the employer and employee shares of social security and Medicare taxes and federal income tax withheld. Free military turbotax You must use electronic funds transfer to make all federal tax deposits. Free military turbotax See How To Deposit , later in this section. Free military turbotax The credit against employment taxes for COBRA premium assistance payments is treated as a deposit of taxes on the first day of your return period. Free military turbotax For more information, see COBRA premium assistance credit under Introduction. Free military turbotax Payment with return. Free military turbotax   You may make payments with Forms 943 or 945 instead of depositing if one of the following applies. Free military turbotax You report less than a $2,500 tax liability for the year (Form 943, line 11; Form 945, line 3) and you pay in full with a return that is filed on time. Free military turbotax However, if you are unsure that you will report less than $2,500, deposit under the rules explained in this section so that you will not be subject to failure-to-deposit penalties. Free military turbotax You are a monthly schedule depositor and make a payment in accordance with the Accuracy of Deposits Rule discussed later in this section. Free military turbotax This payment may be $2,500 or more. Free military turbotax Only monthly schedule depositors, defined later, are allowed to make an Accuracy of Deposits Rule payment with the return. Free military turbotax Semiweekly schedule depositors must timely deposit the amount. Free military turbotax See Accuracy of Deposits Rule and How To Deposit, later in this section. Free military turbotax When To Deposit If you employ both farm and nonfarm workers, do not combine the taxes reportable on Forms 941 or 944 with Form 943 to decide whether to make a deposit. Free military turbotax See Employers of Both Farm and Nonfarm Workers, later in this section. Free military turbotax The rules for determining when to deposit Form 943 taxes are discussed below. Free military turbotax See section 10 for the separate rules that apply to FUTA tax. Free military turbotax Under these rules, you are classified as either a monthly schedule depositor or a semiweekly schedule depositor. Free military turbotax The terms “monthly schedule depositor” and “semiweekly schedule depositor” do not refer to how often your business pays its employees or how often you are required to make deposits. Free military turbotax The terms identify which set of rules you must follow when you incur a tax liability (for example, when you have a payday). Free military turbotax The deposit schedule that you must use for a calendar year is determined from the tax liability reported on your Form 943, line 9, for the lookback period, discussed next. Free military turbotax If you reported $50,000 or less of Form 943 taxes for the lookback period, you are a monthly schedule depositor. Free military turbotax If you reported more than $50,000 of Form 943 taxes for the lookback period, you are a semiweekly schedule depositor. Free military turbotax Lookback period. Free military turbotax   The lookback period is the second calendar year preceding the current calendar year. Free military turbotax For example, the lookback period for 2014 is 2012. Free military turbotax Example of deposit schedule based on lookback period. Free military turbotax Rose Co. Free military turbotax reported taxes on Form 943 as follows. Free military turbotax 2012 — $48,000 2013 — $60,000 Rose Co. Free military turbotax is a monthly schedule depositor for 2014 because its taxes for the lookback period ($48,000 for calendar year 2012) were not more than $50,000. Free military turbotax However, for 2015, Rose Co. Free military turbotax is a semiweekly schedule depositor because the total taxes before adjustment for its lookback period ($60,000 for calendar year 2013) exceeded $50,000. Free military turbotax Adjustments to lookback period taxes. Free military turbotax   To determine your taxes for the lookback period, use only the tax that you reported on the original return (Form 943, line 9). Free military turbotax Do not include adjustments shown on Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund. Free military turbotax Example of adjustments. Free military turbotax An employer originally reported total tax of $45,000 for the lookback period in 2012. Free military turbotax The employer discovered during March 2014 that the tax reported for the lookback period was understated by $10,000 and corrected this error by filing Form 943-X. Free military turbotax The total tax reported in the lookback period is still $45,000. Free military turbotax The $10,000 adjustment is also not treated as part of the 2014 taxes. Free military turbotax Deposit period. Free military turbotax   The term “deposit period” refers to the period during which tax liabilities are accumulated for each required deposit due date. Free military turbotax For monthly schedule depositors, the deposit period is a calendar month. Free military turbotax The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday. Free military turbotax Monthly Deposit Schedule If the tax liability reported on Form 943, line 9, for the lookback period is $50,000 or less, you are a monthly schedule depositor for the current year. Free military turbotax You must deposit Form 943 taxes on payments made during a calendar month by the 15th day of the following month. Free military turbotax Monthly schedule example. Free military turbotax   Red Co. Free military turbotax is a seasonal employer and a monthly schedule depositor. Free military turbotax It pays wages each Friday. Free military turbotax It paid wages during August 2014, but did not pay any wages during September. Free military turbotax Red Co. Free military turbotax must deposit the combined tax liabilities for the August paydays by September 15. Free military turbotax Red Co. Free military turbotax does not have a deposit requirement for September (that is, due by October 15, 2014) because no wages were paid in September; therefore, it did not have a tax liability for September. Free military turbotax New employers. Free military turbotax   For agricultural employers, your tax liability for any year in the lookback period before the date you started or acquired your business is considered to be zero. Free military turbotax Therefore, you are a monthly schedule depositor for the first and second calendar years of your agricultural business (but see the $100,000 Next-Day Deposit Rule , later in this section). Free military turbotax Semiweekly Deposit Schedule You are a semiweekly schedule depositor for a calendar year if the tax liability on Form 943, line 9, during your lookback period was more than $50,000. Free military turbotax Under the semiweekly deposit schedule, deposit Form 943 taxes for payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. Free military turbotax Deposit amounts accumulated for payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. Free military turbotax Semiweekly depositors are not required to deposit twice a week if their payments were in the same semiweekly period unless the $100,000 Next-Day Deposit Rule (discussed later in this section) applies. Free military turbotax For example, if you made a payment on both Wednesday and Friday and incurred taxes of $10,000 for each pay date, deposit the $20,000 by the following Wednesday. Free military turbotax If you made no additional payments on Saturday through Tuesday, no deposit is due on Friday. Free military turbotax Semiweekly schedule depositors must complete Form 943-A, Agricultural Employer's Record of Federal Tax Liability, and submit it with Form 943. Free military turbotax Semiweekly Deposit Schedule IF the payday falls on a. Free military turbotax . Free military turbotax . Free military turbotax THEN deposit taxes by the following. Free military turbotax . Free military turbotax . Free military turbotax Wednesday, Thursday, and/or Friday Wednesday Saturday, Sunday, Monday, and/or Tuesday Friday Semiweekly schedule example. Free military turbotax   Green, Inc. Free military turbotax , is a semiweekly schedule depositor and pays wages once each month on the last Friday of the month. Free military turbotax Green, Inc. Free military turbotax , will deposit only once a month, but the deposit will be made under the semiweekly deposit schedule as follows. Free military turbotax Green, Inc. Free military turbotax 's tax liability for the April 25, 2014 (Friday), wage payment must be deposited by April 30, 2014 (Wednesday). Free military turbotax Semiweekly deposit period spanning two quarters. Free military turbotax   If you have more than one pay date during a semiweekly period and the pay dates fall in different calendar quarters, you will need to make separate deposits for the separate liabilities. Free military turbotax For example, if you have a pay date on Monday, March 31, 2014 (first quarter), and another pay date on Tuesday, April 1, 2014 (second quarter), two separate deposits will be required even though the pay dates fall within the same semiweekly period. Free military turbotax Both deposits will be due Friday, April 4, 2014 (3 business days from the end of the semiweekly deposit period). Free military turbotax Deposits on Business Days Only If a deposit is required to be made on a day that is not a business day, the deposit is considered timely if it is made by the close of the next business day. Free military turbotax A business day is any day other than a Saturday, Sunday, or legal holiday. Free military turbotax For example, if a deposit is required to be made on Friday and Friday is a legal holiday, the deposit is considered timely if it is made by the following Monday (if Monday is a business day). Free military turbotax Semiweekly schedule depositors   will always have 3 business days to make a deposit. Free military turbotax That is, if any of the 3 weekdays after the end of a semiweekly period is a legal holiday, you will have an additional day for each day that is a legal holiday to make the deposit. Free military turbotax For example, if a semiweekly schedule depositor accumulated taxes on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday (this allows 3 business days to make the deposit). Free military turbotax Legal holiday. Free military turbotax   The term “legal holiday” means any legal holiday in the District of Columbia. Free military turbotax Legal holidays for 2014 are listed below. Free military turbotax January 1— New Year's Day January 20— Birthday of Martin Luther King, Jr. Free military turbotax February 17— Washington's Birthday April 16— District of Columbia Emancipation Day May 26— Memorial Day July 4— Independence Day September 1— Labor Day October 13— Columbus Day November 11— Veterans' Day November 27— Thanksgiving Day December 25— Christmas Day $100,000 Next-Day Deposit Rule If you accumulate $100,000 or more of Form 943 taxes (that is, taxes reported on Form 943, line 11) on any day during a deposit period, you must deposit the tax by the close of the next business day, whether you are a monthly or a semiweekly schedule depositor. Free military turbotax For purposes of the $100,000 rule, do not continue accumulating a tax liability after the end of a deposit period. Free military turbotax For example, if a semiweekly schedule depositor has accumulated a liability of $95,000 on a Tuesday (of a Saturday-through-Tuesday deposit period) and accumulated a $10,000 liability on Wednesday, the $100,000 next-day deposit rule does not apply because the $10,000 is accumulated in the next deposit period. Free military turbotax Thus, $95,000 must be deposited by Friday and $10,000 must be deposited by the following Wednesday. Free military turbotax However, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. Free military turbotax For example, Fir Co. Free military turbotax is a semiweekly schedule depositor. Free military turbotax On Monday, Fir Co. Free military turbotax accumulates taxes of $110,000 and must deposit this amount on Tuesday, the next business day. Free military turbotax On Tuesday, Fir Co. Free military turbotax accumulates additional taxes of $30,000. Free military turbotax Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. Free military turbotax does not have to deposit the $30,000 until Friday (following the semiweekly deposit schedule). Free military turbotax If you are a monthly schedule depositor and you accumulate a $100,000 tax liability on any day, you become a semiweekly schedule depositor on the next day and remain so for at least the rest of the calendar year and for the following calendar year. Free military turbotax Example of the $100,000 next-day deposit rule. Free military turbotax   Elm, Inc. Free military turbotax , started its business on May 1, 2014. Free military turbotax Because Elm, Inc. Free military turbotax , is a new employer, the taxes for its lookback period are considered to be zero; therefore, Elm, Inc. Free military turbotax , is a monthly schedule depositor. Free military turbotax On May 8, Elm, Inc. Free military turbotax , paid wages for the first time and accumulated taxes of $50,000. Free military turbotax On May 9 (Friday), Elm, Inc. Free military turbotax , paid wages and accumulated taxes of $60,000, for a total of $110,000. Free military turbotax Because Elm, Inc. Free military turbotax , accumulated $110,000 on May 9, it must deposit $110,000 by May 12 (Monday), the next business day. Free military turbotax Elm, Inc. Free military turbotax , became a semiweekly schedule depositor on May 10. Free military turbotax It will be a semiweekly schedule depositor for the remainder of 2014 and for 2015. Free military turbotax Accuracy of Deposits Rule You are required to deposit 100% of your tax liability on or before the deposit due date. Free military turbotax However, penalties will not be applied for depositing less than 100% if both of the following conditions are met. Free military turbotax Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited. Free military turbotax The deposit shortfall is paid or deposited by the shortfall makeup date as described below. Free military turbotax Makeup Date for Deposit Shortfall:    Monthly Schedule Depositor—Deposit the shortfall or pay it with your return by the due date of your Form 943. Free military turbotax You may pay the shortfall with your Form 943 even if the amount is $2,500 or more. Free military turbotax Semiweekly Schedule Depositor—Deposit by the earlier of (a) the first Wednesday or Friday (whichever comes first) that falls on or after the 15th of the month following the month in which the shortfall occurred, or (b) the due date for Form 943. Free military turbotax For example, if a semiweekly schedule depositor has a deposit shortfall during February 2014, the shortfall makeup date is March 19, 2014 (Wednesday). Free military turbotax How To Deposit You must deposit employment taxes by electronic funds transfer. Free military turbotax See Payment with return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited. Free military turbotax Electronic deposit requirement. Free military turbotax   You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Free military turbotax Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). Free military turbotax If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. Free military turbotax   EFTPS is a free service provided by the Department of Treasury. Free military turbotax To get more information or to enroll in EFTPS, call 1-800-555-4477 (business), 1-800-316-6541 (individual), or 1-800-733-4829 (TDD). Free military turbotax You can also visit the EFTPS website at www. Free military turbotax eftps. Free military turbotax gov. Free military turbotax Additional information about EFTPS is also available in Publication 966. Free military turbotax New employers that have a federal tax obligation will be pre-enrolled in EFTPS. Free military turbotax Call the toll-free number located in your Employer Identification Number (EIN) Package to activate your enrollment and begin making your tax deposit payments. Free military turbotax See When you receive your EIN in section 1 for more information. Free military turbotax Deposit record. Free military turbotax   For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. Free military turbotax The number can be used as a receipt or to trace the payment. Free military turbotax Depositing on time. Free military turbotax   For deposits made by EFTPS to be on time, you must initiate the deposit by 8 p. Free military turbotax m. Free military turbotax Eastern time the day before the date a deposit is due. Free military turbotax If you use a third party to make a deposit on your behalf, they may have different cutoff times. Free military turbotax Same-day payment option. Free military turbotax   If you fail to initiate a deposit transaction on EFTPS by 8 p. Free military turbotax m. Free military turbotax Eastern time the day before the date a deposit is due, you can still make your deposit on time by using the Federal Tax Application (FTA). Free military turbotax To use the same-day payment method, you will need to make arrangements with your financial institution ahead of time. Free military turbotax Please check with your financial institution regarding availability, deadlines, and costs. Free military turbotax Your financial institution may charge you a fee for payments made this way. Free military turbotax To learn more about the information you will need to provide to your financial institution to make a same-day wire payment, visit www. Free military turbotax eftps. Free military turbotax gov to download the Same-Day Payment Worksheet. Free military turbotax Deposit Penalties Penalties may apply if you do not make required deposits on time or if you make deposits for less than the required amount. Free military turbotax The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. Free military turbotax IRS may also waive deposit penalties if you inadvertently fail to deposit in the first quarter that a deposit is due, or the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return. Free military turbotax For amounts not properly deposited or not deposited on time, the penalty rates are shown next. Free military turbotax Penalty Charged for. Free military turbotax . Free military turbotax . Free military turbotax 2% Deposits made 1 to 5 days late. Free military turbotax 5% Deposits made 6 to 15 days late. Free military turbotax 10% Deposits made 16 or more days late. Free military turbotax Also applies to amounts paid within 10 days of the date of the first notice the IRS sent asking for the tax due. Free military turbotax 10% Amounts (that should have been deposited) paid directly to the IRS or paid with your tax return. Free military turbotax See Payment with return , earlier in this section, for exceptions. Free military turbotax 15% Amounts still unpaid more than 10 days after the date of the first notice that the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier. Free military turbotax Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. Free military turbotax Order in which deposits are applied. Free military turbotax   Deposits generally are applied to the most recent tax liability within the year. Free military turbotax If you receive a failure-to-deposit penalty notice, you may designate how your deposits are to be applied in order to minimize the amount of the penalty, if you do so within 90 days of the date of the notice. Free military turbotax Follow the instructions on the penalty notice that you received. Free military turbotax For examples on how the IRS will apply deposits and more information on designating deposits, see Revenue Procedure 2001-58. Free military turbotax You can find Revenue Procedure 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www. Free military turbotax irs. Free military turbotax gov/pub/irs-irbs/irb01-50. Free military turbotax pdf. Free military turbotax Example. Free military turbotax Cedar, Inc. Free military turbotax , is required to make a deposit of $1,000 on July 15 and $1,500 on August 15. Free military turbotax It does not make the deposit on July 15. Free military turbotax On August 15, Cedar, Inc. Free military turbotax , deposits $2,000. Free military turbotax Under the deposits rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the August 15 deposit and the remaining $500 is applied to the July deposit. Free military turbotax Accordingly, $500 of the July 15 liability remains undeposited. Free military turbotax The penalty on this underdeposit will apply as explained above. Free military turbotax Trust fund recovery penalty. Free military turbotax   If federal income, social security, or Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Free military turbotax The penalty is the full amount of the unpaid trust fund tax. Free military turbotax This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business. Free military turbotax   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. Free military turbotax   A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. Free military turbotax A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds. Free military turbotax    Willfully means voluntarily, consciously, and intentionally. Free military turbotax A responsible person acts willfully if the person knows that the required actions of collecting, accounting for or paying over trust fund taxes are not taking place, or recklessly disregards obvious and known risks to the government's right to receive trust fund taxes. Free military turbotax “Average” failure-to-deposit penalty. Free military turbotax   IRS may assess an “averaged” failure-to-deposit penalty of 2% to 10% if you are a monthly schedule depositor and did not properly complete Form 943, line 17, when your tax liability shown on Form 943, line 11, was $2,500 or more. Free military turbotax IRS may also assess this penalty of 2% to 10% if you are a semiweekly schedule depositor and your tax liability shown on Form 943, line 11, was $2,500 or more and you did any of the following. Free military turbotax Completed Form 943, line 17, instead of Form 943-A. Free military turbotax Failed to attach a properly completed Form 943-A. Free military turbotax Completed Form 943-A incorrectly, for example, by entering tax deposits instead of tax liabilities in the numbered spaces. Free military turbotax   IRS figures the penalty by allocating your tax liability on Form 943, line 11, equally throughout the tax period. Free military turbotax Your deposits and payments may not be counted as timely because IRS does not know the actual dates of your tax liabilities. Free military turbotax   You can avoid the penalty by reviewing your return before filing it. Free military turbotax Follow these steps before filing your Form 943. Free military turbotax If you are a monthly schedule depositor, report your tax liabilities (not your deposits) in the monthly entry spaces on Form 943, line 17. Free military turbotax If you are a semiweekly schedule depositor, report your tax liabilities (not your deposits) on Form 943-A in the lines that represent the dates you paid your employees. Free military turbotax Verify that your total liability shown on Form 943, line 17, or Form 943-A, line M, equals your tax liability shown on Form 943, line 11. Free military turbotax Do not show negative amounts on Form 943, line 17, or Form 943-A. Free military turbotax For prior period errors discovered after December 31, 2008, do not adjust your tax liabilities reported on Form 943, line 17, or on Form 943-A. Free military turbotax Employers of Both Farm and Nonfarm Workers If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers (Form 943 taxes) separately from employment taxes for the nonfarm workers (Form 941 and 944 taxes). Free military turbotax Form 943 taxes and Form 941/944 taxes are not combined for purposes of applying any of the deposit schedule rules. Free military turbotax If a deposit is due, deposi