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Free online state tax filing only 9. Free online state tax filing only   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. Free online state tax filing only Depletion unit. Free online state tax filing only Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Free online state tax filing only The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Free online state tax filing only There are two ways of figuring depletion: cost depletion and percentage depletion. Free online state tax filing only For mineral property, you generally must use the method that gives you the larger deduction. Free online state tax filing only For standing timber, you must use cost depletion. Free online state tax filing only Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. Free online state tax filing only More than one person can have an economic interest in the same mineral deposit or timber. Free online state tax filing only In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Free online state tax filing only You have an economic interest if both the following apply. Free online state tax filing only You have acquired by investment any interest in mineral deposits or standing timber. Free online state tax filing only You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. Free online state tax filing only A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. Free online state tax filing only A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Free online state tax filing only Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Free online state tax filing only Basis adjustment for depletion. Free online state tax filing only   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Free online state tax filing only Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Free online state tax filing only For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Free online state tax filing only You can treat two or more separate interests as one property or as separate properties. Free online state tax filing only See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Free online state tax filing only There are two ways of figuring depletion on mineral property. Free online state tax filing only Cost depletion. Free online state tax filing only Percentage depletion. Free online state tax filing only Generally, you must use the method that gives you the larger deduction. Free online state tax filing only However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Free online state tax filing only See Oil and Gas Wells , later. Free online state tax filing only Cost Depletion To figure cost depletion you must first determine the following. Free online state tax filing only The property's basis for depletion. Free online state tax filing only The total recoverable units of mineral in the property's natural deposit. Free online state tax filing only The number of units of mineral sold during the tax year. Free online state tax filing only Basis for depletion. Free online state tax filing only   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Free online state tax filing only Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Free online state tax filing only The residual value of land and improvements at the end of operations. Free online state tax filing only The cost or value of land acquired for purposes other than mineral production. Free online state tax filing only Adjusted basis. Free online state tax filing only   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. Free online state tax filing only Your adjusted basis can never be less than zero. Free online state tax filing only See Publication 551, Basis of Assets, for more information on adjusted basis. Free online state tax filing only Total recoverable units. Free online state tax filing only   The total recoverable units is the sum of the following. Free online state tax filing only The number of units of mineral remaining at the end of the year (including units recovered but not sold). Free online state tax filing only The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Free online state tax filing only   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. Free online state tax filing only You must include ores and minerals that are developed, in sight, blocked out, or assured. Free online state tax filing only You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Free online state tax filing only But see Elective safe harbor for owners of oil and gas property , later. Free online state tax filing only Number of units sold. Free online state tax filing only   You determine the number of units sold during the tax year based on your method of accounting. Free online state tax filing only Use the following table to make this determination. Free online state tax filing only    IF you  use . Free online state tax filing only . Free online state tax filing only . Free online state tax filing only THEN the units sold during the year are . Free online state tax filing only . Free online state tax filing only . Free online state tax filing only The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Free online state tax filing only An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Free online state tax filing only   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Free online state tax filing only Figuring the cost depletion deduction. Free online state tax filing only   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. Free online state tax filing only Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Free online state tax filing only Rate per unit. Free online state tax filing only 2 Multiply the rate per unit by units sold during the tax year. Free online state tax filing only Cost depletion deduction. Free online state tax filing only You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Free online state tax filing only Elective safe harbor for owners of oil and gas property. Free online state tax filing only   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Free online state tax filing only If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Free online state tax filing only For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Free online state tax filing only irs. Free online state tax filing only gov/pub/irs-irbs/irb04-10. Free online state tax filing only pdf. Free online state tax filing only   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. Free online state tax filing only The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Free online state tax filing only The election, if made, is effective for the tax year in which it is made and all later years. Free online state tax filing only It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Free online state tax filing only Once revoked, it cannot be re-elected for the next 5 years. Free online state tax filing only Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. Free online state tax filing only The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . Free online state tax filing only Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Free online state tax filing only Gross income. Free online state tax filing only   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Free online state tax filing only Any rents or royalties you paid or incurred for the property. Free online state tax filing only The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. Free online state tax filing only A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Free online state tax filing only   Use the following fraction to figure the part of the bonus you must subtract. Free online state tax filing only No. Free online state tax filing only of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. Free online state tax filing only For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Free online state tax filing only Taxable income limit. Free online state tax filing only   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. Free online state tax filing only   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. Free online state tax filing only These deductible items include, but are not limited to, the following. Free online state tax filing only Operating expenses. Free online state tax filing only Certain selling expenses. Free online state tax filing only Administrative and financial overhead. Free online state tax filing only Depreciation. Free online state tax filing only Intangible drilling and development costs. Free online state tax filing only Exploration and development expenditures. Free online state tax filing only Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Free online state tax filing only Losses sustained. Free online state tax filing only   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Free online state tax filing only Do not deduct any net operating loss deduction from the gross income from the property. Free online state tax filing only Corporations do not deduct charitable contributions from the gross income from the property. Free online state tax filing only If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. Free online state tax filing only See section 1. Free online state tax filing only 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Free online state tax filing only Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Free online state tax filing only You are either an independent producer or a royalty owner. Free online state tax filing only The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Free online state tax filing only If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Free online state tax filing only For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. Free online state tax filing only Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. Free online state tax filing only However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Free online state tax filing only For information on figuring the deduction, see Figuring percentage depletion , later. Free online state tax filing only Refiners who cannot claim percentage depletion. Free online state tax filing only   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. Free online state tax filing only The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. Free online state tax filing only Related person. Free online state tax filing only   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. Free online state tax filing only For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Free online state tax filing only A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Free online state tax filing only For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. Free online state tax filing only The value of the outstanding stock of a corporation. Free online state tax filing only The interest in the profits or capital of a partnership. Free online state tax filing only The beneficial interests in an estate or trust. Free online state tax filing only Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Free online state tax filing only Retailers who cannot claim percentage depletion. Free online state tax filing only   You cannot claim percentage depletion if both the following apply. Free online state tax filing only You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Free online state tax filing only Through a retail outlet operated by you or a related person. Free online state tax filing only To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. Free online state tax filing only To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. Free online state tax filing only The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. Free online state tax filing only   For the purpose of determining if this rule applies, do not count the following. Free online state tax filing only Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Free online state tax filing only Bulk sales of aviation fuels to the Department of Defense. Free online state tax filing only Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. Free online state tax filing only Related person. Free online state tax filing only   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Free online state tax filing only Sales through a related person. Free online state tax filing only   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. Free online state tax filing only   You are not considered to be selling through a related person who is a retailer if all the following apply. Free online state tax filing only You do not have a significant ownership interest in the retailer. Free online state tax filing only You sell your production to persons who are not related to either you or the retailer. Free online state tax filing only The retailer does not buy oil or natural gas from your customers or persons related to your customers. Free online state tax filing only There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. Free online state tax filing only Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. Free online state tax filing only Transferees who cannot claim percentage depletion. Free online state tax filing only   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. Free online state tax filing only For a definition of the term “transfer,” see section 1. Free online state tax filing only 613A-7(n) of the regulations. Free online state tax filing only For a definition of the term “interest in proven oil or gas property,” see section 1. Free online state tax filing only 613A-7(p) of the regulations. Free online state tax filing only Figuring percentage depletion. Free online state tax filing only   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. Free online state tax filing only If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. Free online state tax filing only If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. Free online state tax filing only   In addition, there is a limit on the percentage depletion deduction. Free online state tax filing only See Taxable income limit , later. Free online state tax filing only Average daily production. Free online state tax filing only   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. Free online state tax filing only Partial interest. Free online state tax filing only   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. Free online state tax filing only   You have a partial interest in the production from a property if you have a net profits interest in the property. Free online state tax filing only To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. Free online state tax filing only To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Free online state tax filing only Then multiply the total production from the property by your percentage participation to figure your share of the production. Free online state tax filing only Example. Free online state tax filing only Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Free online state tax filing only During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Free online state tax filing only Javier had expenses of $90,000 attributable to the property. Free online state tax filing only The property generated a net profit of $110,000 ($200,000 − $90,000). Free online state tax filing only Pablo received income of $22,000 ($110,000 × . Free online state tax filing only 20) for his net profits interest. Free online state tax filing only Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Free online state tax filing only Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Free online state tax filing only Depletable oil or natural gas quantity. Free online state tax filing only   Generally, your depletable oil quantity is 1,000 barrels. Free online state tax filing only Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. Free online state tax filing only If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. Free online state tax filing only Example. Free online state tax filing only You have both oil and natural gas production. Free online state tax filing only To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Free online state tax filing only Your depletable natural gas quantity is 2. Free online state tax filing only 16 million cubic feet of gas (360 × 6000). Free online state tax filing only You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Free online state tax filing only If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. Free online state tax filing only Also, see Notice 2012-50, available at www. Free online state tax filing only irs. Free online state tax filing only gov/irb/2012–31_IRB/index. Free online state tax filing only html. Free online state tax filing only Business entities and family members. Free online state tax filing only   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. Free online state tax filing only Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). Free online state tax filing only You and your spouse and minor children. Free online state tax filing only A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. Free online state tax filing only Controlled group of corporations. Free online state tax filing only   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Free online state tax filing only They share the depletable quantity. Free online state tax filing only A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. Free online state tax filing only ” Gross income from the property. Free online state tax filing only   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. Free online state tax filing only If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. Free online state tax filing only   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. Free online state tax filing only   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Free online state tax filing only Average daily production exceeds depletable quantities. Free online state tax filing only   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. Free online state tax filing only Figure your average daily production of oil or natural gas for the year. Free online state tax filing only Figure your depletable oil or natural gas quantity for the year. Free online state tax filing only Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Free online state tax filing only Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). Free online state tax filing only This is your depletion allowance for that property for the year. Free online state tax filing only Taxable income limit. Free online state tax filing only   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. Free online state tax filing only 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. Free online state tax filing only For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Free online state tax filing only 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. Free online state tax filing only You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Free online state tax filing only Add it to your depletion allowance (before applying any limits) for the following year. Free online state tax filing only Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Free online state tax filing only (However, see Electing large partnerships must figure depletion allowance , later. Free online state tax filing only ) Each partner or shareholder must decide whether to use cost or percentage depletion. Free online state tax filing only If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. Free online state tax filing only Partner's or shareholder's adjusted basis. Free online state tax filing only   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. Free online state tax filing only The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Free online state tax filing only   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. Free online state tax filing only However, in some cases, it is figured according to the partner's interest in partnership income. Free online state tax filing only   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. Free online state tax filing only Recordkeeping. Free online state tax filing only Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. Free online state tax filing only The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Free online state tax filing only The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. Free online state tax filing only Reporting the deduction. Free online state tax filing only   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). Free online state tax filing only Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Free online state tax filing only The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Free online state tax filing only The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Free online state tax filing only Form 6198, At-Risk Limitations. Free online state tax filing only Form 8582, Passive Activity Loss Limitations. Free online state tax filing only Electing large partnerships must figure depletion allowance. Free online state tax filing only   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Free online state tax filing only The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. Free online state tax filing only Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Free online state tax filing only   An electing large partnership is one that meets both the following requirements. Free online state tax filing only The partnership had 100 or more partners in the preceding year. Free online state tax filing only The partnership chooses to be an electing large partnership. Free online state tax filing only Disqualified persons. Free online state tax filing only   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Free online state tax filing only Disqualified persons must figure it themselves, as explained earlier. Free online state tax filing only   All the following are disqualified persons. Free online state tax filing only Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Free online state tax filing only Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Free online state tax filing only Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. Free online state tax filing only Average daily production is discussed earlier. Free online state tax filing only Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. Free online state tax filing only Natural gas sold under a fixed contract. Free online state tax filing only   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Free online state tax filing only This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. Free online state tax filing only The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Free online state tax filing only Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. Free online state tax filing only Natural gas from geopressured brine. Free online state tax filing only   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Free online state tax filing only This is natural gas that is both the following. Free online state tax filing only Produced from a well you began to drill after September 1978 and before 1984. Free online state tax filing only Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Free online state tax filing only Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Free online state tax filing only Mines and other natural deposits. Free online state tax filing only   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. Free online state tax filing only   The following is a list of the percentage depletion rates for the more common minerals. Free online state tax filing only DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. Free online state tax filing only Corporate deduction for iron ore and coal. Free online state tax filing only   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). Free online state tax filing only Gross income from the property. Free online state tax filing only   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Free online state tax filing only Mining includes all the following. Free online state tax filing only Extracting ores or minerals from the ground. Free online state tax filing only Applying certain treatment processes described later. Free online state tax filing only Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. Free online state tax filing only Excise tax. Free online state tax filing only   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. Free online state tax filing only Extraction. Free online state tax filing only   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. Free online state tax filing only This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. Free online state tax filing only Treatment processes. Free online state tax filing only   The processes included as mining depend on the ore or mineral mined. Free online state tax filing only To qualify as mining, the treatment processes must be applied by the mine owner or operator. Free online state tax filing only For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Free online state tax filing only Transportation of more than 50 miles. Free online state tax filing only   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. Free online state tax filing only    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. Free online state tax filing only Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. Free online state tax filing only For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Free online state tax filing only irs. Free online state tax filing only gov/irb/2013-01_IRB/ar11. Free online state tax filing only html. Free online state tax filing only Disposal of coal or iron ore. Free online state tax filing only   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Free online state tax filing only You disposed of it after holding it for more than 1 year. Free online state tax filing only You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Free online state tax filing only Treat any gain on the disposition as a capital gain. Free online state tax filing only Disposal to related person. Free online state tax filing only   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Free online state tax filing only A related person (as listed in chapter 2 of Publication 544). Free online state tax filing only A person owned or controlled by the same interests that own or control you. Free online state tax filing only Geothermal deposits. Free online state tax filing only   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Free online state tax filing only A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Free online state tax filing only For percentage depletion purposes, a geothermal deposit is not considered a gas well. Free online state tax filing only   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Free online state tax filing only See Gross income from the property , earlier, under Oil and Gas Wells. Free online state tax filing only Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Free online state tax filing only Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Free online state tax filing only A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Free online state tax filing only Bonuses and advanced royalties. Free online state tax filing only   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. Free online state tax filing only If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. Free online state tax filing only Figuring cost depletion. Free online state tax filing only   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. Free online state tax filing only To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. Free online state tax filing only Figuring percentage depletion. Free online state tax filing only   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . Free online state tax filing only Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. Free online state tax filing only However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. Free online state tax filing only Ending the lease. Free online state tax filing only   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. Free online state tax filing only Do this for the year the lease ends or is abandoned. Free online state tax filing only Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Free online state tax filing only   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. Free online state tax filing only Include this amount in income for the year the lease ends. Free online state tax filing only Increase your adjusted basis in the property by the amount you include in income. Free online state tax filing only Delay rentals. Free online state tax filing only   These are payments for deferring development of the property. Free online state tax filing only Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Free online state tax filing only These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Free online state tax filing only Timber You can figure timber depletion only by the cost method. Free online state tax filing only Percentage depletion does not apply to timber. Free online state tax filing only Base your depletion on your cost or other basis in the timber. Free online state tax filing only Your cost does not include the cost of land or any amounts recoverable through depreciation. Free online state tax filing only Depletion takes place when you cut standing timber. Free online state tax filing only You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Free online state tax filing only Figuring cost depletion. Free online state tax filing only   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Free online state tax filing only Timber units. Free online state tax filing only   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Free online state tax filing only You measure the timber using board feet, log scale, cords, or other units. Free online state tax filing only If you later determine that you have more or less units of timber, you must adjust the original estimate. Free online state tax filing only   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Free online state tax filing only Depletion unit. Free online state tax filing only   You figure your depletion unit each year by taking the following steps. Free online state tax filing only Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Free online state tax filing only Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Free online state tax filing only Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Free online state tax filing only Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. Free online state tax filing only Divide the result of (2) by the result of (3). Free online state tax filing only This is your depletion unit. Free online state tax filing only Example. Free online state tax filing only You bought a timber tract for $160,000 and the land was worth as much as the timber. Free online state tax filing only Your basis for the timber is $80,000. Free online state tax filing only Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). Free online state tax filing only If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Free online state tax filing only When to claim depletion. Free online state tax filing only   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). Free online state tax filing only Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. Free online state tax filing only The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Free online state tax filing only Example. Free online state tax filing only The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Free online state tax filing only You would deduct $20,000 of the $40,000 depletion that year. Free online state tax filing only You would add the remaining $20,000 depletion to your closing inventory of timber products. Free online state tax filing only Electing to treat the cutting of timber as a sale or exchange. Free online state tax filing only   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Free online state tax filing only You must make the election on your income tax return for the tax year to which it applies. Free online state tax filing only If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. Free online state tax filing only You generally report the gain as long-term capital gain. Free online state tax filing only The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. Free online state tax filing only For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Free online state tax filing only   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Free online state tax filing only The prior election (and revocation) is disregarded for purposes of making a subsequent election. Free online state tax filing only See Form T (Timber), Forest Activities Schedule, for more information. Free online state tax filing only Form T. Free online state tax filing only   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. 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Contact My Local Office in Puerto Rico

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

 City   Street Address   Days/Hours of Service   Telephone*
 Guaynabo  City View Plaza II Bldg. 48 Carr  165 km.1.2
Guaynabo, PR 00968-8000 

Monday-Friday - 8:30 a.m.- 4:30 p.m.
 

**This office will be open 7:00 a.m. - 6:00 p.m. on 4/14 & 4/15**
 

 Services Provided

 (787) 522-8660

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses

The Taxpayer Advocate Service: Call 787-522-8601 (for English) or 787-522-8600 (for Spanish) in Puerto Rico or 1-877-777-4778 elsewhere, or see  Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see  Tax Topic 104.

 

Page Last Reviewed or Updated: 28-Mar-2014

The Free Online State Tax Filing Only

Free online state tax filing only Publication 15 - Introductory Material Table of Contents Future Developments What's New Reminders Electronic Filing and Payment Forms in Spanish Hiring New Employees Paying Wages, Pensions, or Annuities Information Returns Nonpayroll Income Tax Withholding Recordkeeping Change of Business Address or Responsible Party Private Delivery Services Telephone Help Ordering Employer Tax Forms and Publications Filing Addresses Dishonored Payments Photographs of Missing Children Calendar Introduction Future Developments For the latest information about developments related to Publication 15 (Circular E), such as legislation enacted after it was published, go to www. Free online state tax filing only irs. Free online state tax filing only gov/pub15. Free online state tax filing only What's New Social security and Medicare tax for 2014. Free online state tax filing only  The social security tax rate is 6. Free online state tax filing only 2% each for the employee and employer, unchanged from 2013. Free online state tax filing only The social security wage base limit is $117,000. Free online state tax filing only The Medicare tax rate is 1. Free online state tax filing only 45% each for the employee and employer, unchanged from 2013. Free online state tax filing only There is no wage base limit for Medicare tax. Free online state tax filing only Social security and Medicare taxes apply to the wages of household workers you pay $1,900 or more in cash or an equivalent form of compensation. Free online state tax filing only Social security and Medicare taxes apply to election workers who are paid $1,600 or more in cash or an equivalent form of compensation. Free online state tax filing only 2014 withholdng tables. Free online state tax filing only  This publication includes the 2014 Percentage Method Tables and Wage Bracket Tables for Income Tax Withholding. Free online state tax filing only Withholding allowance. Free online state tax filing only  The 2014 amount for one withholding allowance on an annual basis is $3,950. Free online state tax filing only Voluntary withholding on dividends and other distributions by an Alaska Native Corporation (ANC). Free online state tax filing only  A shareholder of an ANC may now request voluntary income tax withholding on dividends and other distributions paid by an ANC. Free online state tax filing only A shareholder may request voluntary withholding by giving the ANC a completed Form W-4V, Voluntary Withholding Request. Free online state tax filing only For more information see Notice 2013-77, 2013-50 I. Free online state tax filing only R. Free online state tax filing only B. Free online state tax filing only 632, available at www. Free online state tax filing only irs. Free online state tax filing only gov/irb/2013-50_IRB/ar10. Free online state tax filing only html. Free online state tax filing only Change of responsible party. Free online state tax filing only  Beginning January 1, 2014, any entity with an employer identification number (EIN) must file Form 8822-B, Change of Address or Responsible Party — Business, to report the latest change to its responsible party. Free online state tax filing only Form 8822-B must be filed within 60 days of the change. Free online state tax filing only If the change in the identity of your responsible party occurred before 2014, and you have not previously notified the IRS of the change, file Form 8822-B before March 1, 2014, reporting only the most recent change. Free online state tax filing only For a definition of “responsible party,” see the Form 8822-B instructions. Free online state tax filing only Same-sex marriage. Free online state tax filing only  For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. Free online state tax filing only For more information, see Revenue Ruling 2013-17, 2013-38 I. Free online state tax filing only R. Free online state tax filing only B. Free online state tax filing only 201, available at www. Free online state tax filing only irs. Free online state tax filing only gov/irb/2013-38_IRB/ar07. Free online state tax filing only html. Free online state tax filing only Notice 2013-61 provides special administrative procedures for employers to make claims for refunds or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. Free online state tax filing only Notice 2013-61, 2013-44 I. Free online state tax filing only R. Free online state tax filing only B. Free online state tax filing only 432, is available at www. Free online state tax filing only irs. Free online state tax filing only gov/irb/2013-44_IRB/ar10. Free online state tax filing only html. Free online state tax filing only Reminders Additional Medicare Tax withholding. Free online state tax filing only  In addition to withholding Medicare tax at 1. Free online state tax filing only 45%, you must withhold a 0. Free online state tax filing only 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Free online state tax filing only 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 online state tax filing only Additional Medicare Tax is only imposed on the employee. Free online state tax filing only There is no employer share of Additional Medicare Tax. Free online state tax filing only 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 online state tax filing only 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. Free online state tax filing only For more information on Additional Medicare Tax, visit IRS. Free online state tax filing only gov and enter “Additional Medicare Tax” in the search box. Free online state tax filing only Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans. Free online state tax filing only  The work opportunity tax credit is available for eligible unemployed veterans who began work on or after November 22, 2011, and before January 1, 2014. Free online state tax filing only Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. Free online state tax filing only For more information, visit IRS. Free online state tax filing only gov and enter “work opportunity tax credit” in the search box. Free online state tax filing only Outsourcing payroll duties. Free online state tax filing only  Employers are responsible to ensure that tax returns are filed and deposits and payments are made, even if the employer contracts with a third party to perform these acts. Free online state tax filing only The employer remains responsible if the third party fails to perform any required action. Free online state tax filing only If you choose to outsource any of your payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third-party payer such as a payroll service provider or reporting agent, visit IRS. Free online state tax filing only gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. Free online state tax filing only COBRA premium assistance credit. Free online state tax filing only  The credit for COBRA premium assistance payments applies to premiums paid for employees involuntarily terminated between September 1, 2008, and May 31, 2010, and to premiums paid for up to 15 months. Free online state tax filing only See COBRA premium assistance credit under Introduction. Free online state tax filing only Federal tax deposits must be made by electronic funds transfer. Free online state tax filing only  You must use electronic funds transfer to make all federal tax deposits. Free online state tax filing only Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). Free online state tax filing only 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 online state tax filing only Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Free online state tax filing only EFTPS is a free service provided by the Department of Treasury. Free online state tax filing only Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Free online state tax filing only For more information on making federal tax deposits, see How To Deposit in section 11. Free online state tax filing only To get more information about EFTPS or to enroll in EFTPS, visit www. Free online state tax filing only eftps. Free online state tax filing only gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). Free online state tax filing only Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. Free online state tax filing only You must receive written notice from the IRS to file Form 944. Free online state tax filing only  If you have been filing Forms 941, Employer's QUARTERLY Federal Tax Return (or Forms 941-SS, Employer's QUARTERLY Federal Tax Return—American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U. Free online state tax filing only S. Free online state tax filing only Virgin Islands, or Formularios 941-PR, Planilla para la Declaración Federal TRIMESTRAL del Patrono), and believe your employment taxes for the calendar year will be $1,000 or less, and you would like to file Form 944, Employer's ANNUAL Federal Tax Return, instead of Forms 941, you must contact the IRS to request to file Form 944. Free online state tax filing only You must receive written notice from the IRS to file Form 944 instead of Forms 941 before you may file this form. Free online state tax filing only For more information on requesting to file Form 944, visit IRS. Free online state tax filing only gov and enter “file employment taxes annually” in the search box. Free online state tax filing only Employers can request to file Forms 941 instead of Form 944. Free online state tax filing only  If you received notice from the IRS and have been filing Form 944 but would like to file Forms 941 instead, you must contact the IRS to request to file Forms 941. Free online state tax filing only You must receive written notice from the IRS to file Forms 941 instead of Form 944 before you may file these forms. Free online state tax filing only For more information on requesting to file Form 944, visit IRS. Free online state tax filing only gov and enter “file employment taxes annually” in the search box. Free online state tax filing only Aggregate Form 941 filers. Free online state tax filing only  Agents must complete Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, when filing an aggregate Form 941. Free online state tax filing only Aggregate Forms 941 may only be filed by agents approved by the IRS under section 3504 of the Internal Revenue Code. Free online state tax filing only To request approval to act as an agent for an employer, the agent files Form 2678, Employer/Payer Appointment of Agent, with the IRS. Free online state tax filing only Aggregate Form 940 filers. Free online state tax filing only  Agents must complete Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers, when filing an aggregate Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Free online state tax filing only Aggregate Forms 940 can be filed by agents acting on behalf of home care service recipients who receive home care services through a program administered by a federal, state, or local government. Free online state tax filing only To request approval to act as an agent on behalf of home care service recipients, the agent files Form 2678 with the IRS. Free online state tax filing only Electronic Filing and Payment  Now, more than ever before, businesses can enjoy the benefits of filing and paying their federal taxes electronically. Free online state tax filing only Whether you rely on a tax professional or handle your own taxes, the IRS offers you convenient programs to make filing and payment easier. Free online state tax filing only Spend less time and worry about taxes and more time running your business. Free online state tax filing only Use e-file and the Electronic Federal Tax Payment System (EFTPS) to your benefit. Free online state tax filing only For e-file, visit www. Free online state tax filing only irs. Free online state tax filing only gov/efile for additional information. Free online state tax filing only For EFTPS, visit www. Free online state tax filing only eftps. Free online state tax filing only gov or call EFTPS Customer Service at 1-800-555-4477 or 1-800-733-4829 (TDD). Free online state tax filing only For electronic filing of Forms W-2, Wage and Tax Statement, visit www. Free online state tax filing only socialsecurity. Free online state tax filing only gov/employer. Free online state tax filing only If you are filing your tax return or paying your federal taxes electronically, a valid EIN is required. Free online state tax filing only If a valid EIN is not provided, the return or payment will not be processed. Free online state tax filing only This may result in penalties and delays in processing your return or payment. Free online state tax filing only Electronic funds withdrawal (EFW). Free online state tax filing only  If you file Form 940, Form 941, Form 944, or Form 945 electronically, you can e-file and e-pay (electronic funds withdrawal) the balance due in a single step using tax preparation software or through a tax professional. Free online state tax filing only However, do not use EFW to make federal tax deposits. Free online state tax filing only For more information on paying your taxes using EFW, visit the IRS website at www. Free online state tax filing only irs. Free online state tax filing only gov/e-pay. Free online state tax filing only A fee may be charged to file electronically. Free online state tax filing only Credit or debit card payments. Free online state tax filing only  For information on paying your taxes with a credit or debit card, visit the IRS website at www. Free online state tax filing only irs. Free online state tax filing only gov/e-pay. Free online state tax filing only However, do not use credit or debit cards to make federal tax deposits. Free online state tax filing only Forms in Spanish You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, Employee's Withholding Allowance Certificate, to your Spanish-speaking employees. Free online state tax filing only For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Free online state tax filing only For nonemployees, Formulario W-9(SP), Solicitud y Certificación del Número de Identificación del Contribuyente, may be used in place of Form W-9, Request for Taxpayer Identification Number and Certification. Free online state tax filing only Hiring New Employees Eligibility for employment. Free online state tax filing only  You must verify that each new employee is legally eligible to work in the United States. Free online state tax filing only This includes completing the U. Free online state tax filing only S. Free online state tax filing only Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Free online state tax filing only You can get the form from USCIS offices or by calling 1-800-870-3676. Free online state tax filing only Contact the USCIS at 1-800-375-5283, or visit the USCIS website at www. Free online state tax filing only uscis. Free online state tax filing only gov for more information. Free online state tax filing only New hire reporting. Free online state tax filing only  You are required to report any new employee to a designated state new hire registry. Free online state tax filing only A new employee is an employee who has not previously been employed by you or was previously employed by you but has been separated from such prior employment for at least 60 consecutive days. Free online state tax filing only Many states accept a copy of Form W-4 with employer information added. Free online state tax filing only Visit the Office of Child Support Enforcement website at www. Free online state tax filing only acf. Free online state tax filing only hhs. Free online state tax filing only gov/programs/cse/newhire for more information. Free online state tax filing only W-4 request. Free online state tax filing only  Ask each new employee to complete the 2014 Form W-4. Free online state tax filing only See section 9. Free online state tax filing only Name and social security number. Free online state tax filing only  Record each new employee's name and number from his or her social security card. Free online state tax filing only Any employee without a social security card should apply for one. Free online state tax filing only See section 4. Free online state tax filing only Paying Wages, Pensions, or Annuities Correcting Form 941 or Form 944. Free online state tax filing only  If you discover an error on a previously filed Form 941 or Form 944, make the correction using Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, or Form 944-X, Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund. Free online state tax filing only Forms 941-X and 944-X are stand-alone forms, meaning taxpayers can file them when an error is discovered. Free online state tax filing only Forms 941-X and 944-X are used by employers to claim refunds or abatements of employment taxes, rather than Form 843, Claim for Refund and Request for Abatement. Free online state tax filing only See section 13 for more information. Free online state tax filing only Income tax withholding. Free online state tax filing only  Withhold federal income tax from each wage payment or supplemental unemployment compensation plan benefit payment according to the employee's Form W-4 and the correct withholding table. Free online state tax filing only If you have nonresident alien employees, see Withholding income taxes on the wages of nonresident alien employees in section 9. Free online state tax filing only Withhold from periodic pension and annuity payments as if the recipient is married claiming three withholding allowances, unless he or she has provided Form W-4P, Withholding Certificate for Pension or Annuity Payments, either electing no withholding or giving a different number of allowances, marital status, or an additional amount to be withheld. Free online state tax filing only Do not withhold on direct rollovers from qualified plans or governmental section 457(b) plans. Free online state tax filing only See section 9 and Publication 15-A, Employer's Supplemental Tax Guide. Free online state tax filing only Publication 15-A includes information about withholding on pensions and annuities. Free online state tax filing only Zero wage return. Free online state tax filing only  If you have not filed a “final” Form 941 or Form 944, or are not a “seasonal” employer, you must continue to file a Form 941 or Form 944 even for periods during which you paid no wages. Free online state tax filing only The IRS encourages you to file your “Zero Wage” Forms 941 or 944 electronically using IRS e-file at www. Free online state tax filing only irs. Free online state tax filing only gov/efile. Free online state tax filing only Employer Responsibilities Employer Responsibilities: The following list provides a brief summary of your basic responsibilities. Free online state tax filing only Because the individual circumstances for each employer can vary greatly, responsibilities for withholding, depositing, and reporting employment taxes can differ. Free online state tax filing only Each item in this list has a page reference to a more detailed discussion in this publication. Free online state tax filing only   New Employees: Page     Annually (By January 31 of the current year, Page □ Verify work eligibility of new employees 3     for the prior year):   □ Record employees' names and SSNs from     □ File Form 944 if required (pay tax with return if     social security cards 4     not required to deposit) 29 □ Ask employees for Form W-4 3     Annually (see Calendar for due dates):     Each Payday:     □ Remind employees to submit a new Form W-4   □ Withhold federal income tax based on each       if they need to change their withholding 20   employee's Form W-4 20   □ Ask for a new Form W-4 from employees   □ Withhold employee's share of social security       claiming exemption from income tax     and Medicare taxes 23     withholding 20 □ Deposit:     □ Reconcile Forms 941 (or Form 944) with Forms     • Withheld income tax       W-2 and W-3 31   • Withheld and employer social security taxes     □ Furnish each employee a Form W-2 7   • Withheld and employer Medicare taxes 24   □ File Copy A of Forms W-2 and the transmittal     Note:Due date of deposit generally depends       Form W-3 with the SSA 8   on your deposit schedule (monthly or semiweekly)     □ Furnish each other payee a Form 1099 (for example, Form 1099-MISC, Miscellaneous Income) 7   Quarterly (By April 30, July 31, October 31, and January 31):     □ File Forms 1099 and the transmittal Form   □ Deposit FUTA tax if undeposited amount       1096 8   is over $500 35   □ File Form 940 7 □ File Form 941 (pay tax with return if not     □ File Form 945 for any nonpayroll income tax     required to deposit) 29     withholding 8 Information Returns You may be required to file information returns to report certain types of payments made during the year. Free online state tax filing only For example, you must file Form 1099-MISC, Miscellaneous Income, to report payments of $600 or more to persons not treated as employees (for example, independent contractors) for services performed for your trade or business. Free online state tax filing only For details about filing Forms 1099 and for information about required electronic filing, see the General Instructions for Certain Information Returns for general information and the separate, specific instructions for each information return you file (for example, Instructions for Form 1099-MISC). Free online state tax filing only Generally, do not use Forms 1099 to report wages and other compensation you paid to employees; report these on Form W-2. Free online state tax filing only See the General Instructions for Forms W-2 and W-3 for details about filing Form W-2 and for information about required electronic filing. Free online state tax filing only If you file 250 or more Forms 1099, you must file them electronically. Free online state tax filing only If you file 250 or more Forms W-2, you must file them electronically. Free online state tax filing only SSA will not accept Forms W-2 and W-3 filed on magnetic media. Free online state tax filing only Information reporting customer service site. Free online state tax filing only  The IRS operates the Enterprise Computing Center—Martinsburg, a centralized customer service site, to answer questions about reporting on Forms W-2, W-3, 1099, and other information returns. Free online state tax filing only If you have questions related to reporting on information returns, call 1-866-455-7438 (toll free), 304-263-8700 (toll call), or 304-267-3367 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Free online state tax filing only The center can also be reached by email at mccirp@irs. Free online state tax filing only gov. Free online state tax filing only Do not include tax identification numbers (TINs) or attachments in email correspondence because electronic mail is not secure. Free online state tax filing only Nonpayroll Income Tax Withholding Nonpayroll federal income tax withholding (reported on Forms 1099 and Form W-2G) must be reported on Form 945, Annual Return of Withheld Federal Income Tax. Free online state tax filing only Separate deposits are required for payroll (Form 941 or Form 944) and nonpayroll (Form 945) withholding. Free online state tax filing only Nonpayroll items include: Pensions (including distributions from tax-favored retirement plans, for example, section 401(k), section 403(b), and governmental section 457(b) plans) and annuities. Free online state tax filing only Military retirement. Free online state tax filing only Gambling winnings. Free online state tax filing only Indian gaming profits. Free online state tax filing only Certain government payments, such as unemployment compensation, social security, and Tier 1 railroad retirement benefits, subject to voluntary withholding. Free online state tax filing only Payments subject to backup withholding. Free online state tax filing only For details on depositing and reporting nonpayroll income tax withholding, see the Instructions for Form 945. Free online state tax filing only All income tax withholding reported on Form W-2 must be reported on Form 941, Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, Form 944, or Schedule H (Form 1040), Household Employment Taxes. Free online state tax filing only Distributions from nonqualified pension plans and deferred compensation plans. Free online state tax filing only  Because distributions to participants from some nonqualified pension plans and deferred compensation plans (including section 457(b) plans of tax-exempt organizations) are treated as wages and are reported on Form W-2, income tax withheld must be reported on Form 941 or Form 944, not on Form 945. Free online state tax filing only However, distributions from such plans to a beneficiary or estate of a deceased employee are not wages and are reported on Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Free online state tax filing only ; income tax withheld must be reported on Form 945. Free online state tax filing only Backup withholding. Free online state tax filing only  You generally must withhold 28% of certain taxable payments if the payee fails to furnish you with his or her correct taxpayer identification number (TIN). Free online state tax filing only This withholding is referred to as “backup withholding. Free online state tax filing only ” Payments subject to backup withholding include interest, dividends, patronage dividends, rents, royalties, commissions, nonemployee compensation, and certain other payments you make in the course of your trade or business. Free online state tax filing only In addition, transactions by brokers and barter exchanges and certain payments made by fishing boat operators are subject to backup withholding. Free online state tax filing only Backup withholding does not apply to wages, pensions, annuities, IRAs (including simplified employee pension (SEP) and SIMPLE retirement plans), section 404(k) distributions from an employee stock ownership plan (ESOP), medical savings accounts, health savings accounts, long-term-care benefits, or real estate transactions. Free online state tax filing only You can use Form W-9 or Formulario W-9(SP) to request payees to furnish a TIN and to certify the number furnished is correct. Free online state tax filing only You can also use Form W-9 or Formulario W-9(SP) to get certifications from payees that they are not subject to backup withholding or that they are exempt from backup withholding. Free online state tax filing only The Instructions for the Requester of Form W-9 or Formulario W-9(SP) includes a list of types of payees who are exempt from backup withholding. Free online state tax filing only For more information, see Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s). Free online state tax filing only Recordkeeping Keep all records of employment taxes for at least 4 years. Free online state tax filing only These should be available for IRS review. Free online state tax filing only Your records should include the following information. Free online state tax filing only Your EIN. Free online state tax filing only Amounts and dates of all wage, annuity, and pension payments. Free online state tax filing only Amounts of tips reported to you by your employees. Free online state tax filing only Records of allocated tips. Free online state tax filing only The fair market value of in-kind wages paid. Free online state tax filing only Names, addresses, social security numbers, and occupations of employees and recipients. Free online state tax filing only Any employee copies of Forms W-2 and W-2c returned to you as undeliverable. Free online state tax filing only Dates of employment for each employee. Free online state tax filing only Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third party payors made to them. Free online state tax filing only Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4P, W-4(SP), W-4S, and W-4V). Free online state tax filing only Copies of employees' Earned Income Credit Advance Payment Certificates (Forms W-5 and W-5(SP)). Free online state tax filing only Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS. Free online state tax filing only Copies of returns filed and confirmation numbers. Free online state tax filing only Records of fringe benefits and expense reimbursements provided to your employees, including substantiation. Free online state tax filing only Change of Business Address or Responsible Party To notify the IRS of a change in business address or responsible party, file Form 8822-B. Free online state tax filing only Do not mail Form 8822-B with your employment tax return. Free online state tax filing only Private Delivery Services You can use certain private delivery services designated by the IRS to mail tax returns and payments. Free online state tax filing only The list includes only the following: DHL Express (DHL): DHL Same Day Service. Free online state tax filing only Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Free online state tax filing only United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Free online state tax filing only M. Free online state tax filing only , UPS Worldwide Express Plus, and UPS Worldwide Express. Free online state tax filing only For the IRS mailing address to use if you are using a private delivery service, go to IRS. Free online state tax filing only gov and enter “private delivery service” in the search box. Free online state tax filing only Your private delivery service can tell you how to get written proof of the mailing date. Free online state tax filing only   Private delivery services cannot deliver items to P. Free online state tax filing only O. Free online state tax filing only boxes. Free online state tax filing only You must use the U. Free online state tax filing only S. Free online state tax filing only Postal Service to mail any item to an IRS P. Free online state tax filing only O. Free online state tax filing only box address. Free online state tax filing only Telephone Help Tax questions. Free online state tax filing only   You can call the IRS Business and Specialty Tax Line with your employment tax questions at 1-800-829-4933. Free online state tax filing only Help for people with disabilities. Free online state tax filing only  You may call 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability) with any tax question or to order forms and publications. Free online state tax filing only You may also use this number for assistance with unresolved tax problems. Free online state tax filing only Recorded tax information (TeleTax). Free online state tax filing only  The IRS TeleTax service provides recorded tax information on topics that answer many individual and business federal tax questions. Free online state tax filing only You can listen to up to three topics on each call you make. Free online state tax filing only Touch-Tone service is available 24 hours a day, 7 days a week. Free online state tax filing only TeleTax topics are also available on the IRS website at www. Free online state tax filing only irs. Free online state tax filing only gov/taxtopics. Free online state tax filing only Most tax topics listed below are also available in Spanish. Free online state tax filing only For a complete list of TeleTax topics in Spanish, visit the IRS website at www. Free online state tax filing only irs. Free online state tax filing only gov/Spanish/Índice-de-Temas-Tributarios-Año-2013. Free online state tax filing only A list of employment tax topics is provided next. Free online state tax filing only Select, by number, the topic you want to hear and call 1-800-829-4477. Free online state tax filing only For the directory of all topics, select Topic 123. Free online state tax filing only Teletax Topics Topic No. Free online state tax filing only Subject 751 Social Security and Medicare Withholding Rates 752 Form W-2—Where, When, and How to File 753 Form W-4—Employee's Withholding Allowance Certificate 755 Employer Identification Number (EIN)—How to Apply 756 Employment Taxes for Household Employees 757 Form 941 and Form 944—Deposit Requirements 758 Form 941—Employer's QUARTERLY Federal Tax Return and Form 944—Employer's ANNUAL Federal Tax Return 759 Form 940—Employer's Annual Federal Unemployment (FUTA) Tax Return—Filing and Deposit Requirements 760 Reporting and Deposit Requirements for Agricultural Employers 761 Tips—Withholding and Reporting 762 Independent Contractor vs. Free online state tax filing only Employee 763 The “Affordable Care Act” of 2010 Offers Employers New Tax Deductions and Credits Additional employment tax information. Free online state tax filing only  Visit the IRS website at www. Free online state tax filing only irs. Free online state tax filing only gov/businesses and click on the Employment Taxes link under Businesses Topics. Free online state tax filing only Ordering Employer Tax Forms and Publications You can order employer tax forms and publications and information returns online at www. Free online state tax filing only irs. Free online state tax filing only gov/businesses. Free online state tax filing only To order 2013 and 2014 forms, click on the Online Ordering for Information Returns and Employer Returns link. Free online state tax filing only You may also order employer tax forms and publications and information returns by calling 1-800-TAX-FORM (1-800-829-3676). Free online state tax filing only Instead of ordering paper Forms W-2 and W-3, consider filing them electronically using the Social Security Administration's (SSA) free e-file service. Free online state tax filing only Visit the SSA's Employer W-2 Filing Instructions & Information website at www. Free online state tax filing only socialsecurity. Free online state tax filing only gov/employer to register for Business Services Online. Free online state tax filing only You will be able to create Forms W-2 online and submit them to the SSA by typing your wage information into easy-to-use fill-in fields. Free online state tax filing only In addition, you can print out completed copies of Forms W-2 to file with state or local governments, distribute to your employees, and keep for your records. Free online state tax filing only Form W-3 will be created for you based on your Forms W-2. Free online state tax filing only Filing Addresses Generally, your filing address for Forms 940, 941, 943, 944, 945, and CT-1 depends on the location of your residence or principal place of business and whether or not you are including a payment with your return. Free online state tax filing only There are separate filing addresses for these returns if you are a tax-exempt organization or government entity. Free online state tax filing only See the separate instructions for Forms 940, 941, 943, 944, 945, or CT-1 for the filing addresses. Free online state tax filing only Dishonored Payments Any form of payment that is dishonored and returned from a financial institution is subject to a penalty. Free online state tax filing only The penalty is $25 or 2% of the payment, whichever is more. Free online state tax filing only However, the penalty on dishonored payments of $24. Free online state tax filing only 99 or less is an amount equal to the payment. Free online state tax filing only For example, a dishonored payment of $18 is charged a penalty of $18. Free online state tax filing only Photographs of Missing Children The IRS is a proud partner with the National Center for Missing and Exploited Children. Free online state tax filing only Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free online state tax filing only You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free online state tax filing only Calendar The following is a list of important dates. Free online state tax filing only Also see Publication 509, Tax Calendars. Free online state tax filing only   If any date shown below for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, use the next business day. Free online state tax filing only A statewide legal holiday delays a filing due date only if the IRS office where you are required to file is located in that state. Free online state tax filing only However, a statewide legal holiday does not delay the due date of federal tax deposits. Free online state tax filing only See Deposits on Business Days Only in section 11. Free online state tax filing only For any filing due date, you will meet the “file” or “furnish” requirement if the envelope containing the return or form is properly addressed, contains sufficient postage, and is postmarked by the U. Free online state tax filing only S. Free online state tax filing only Postal Service on or before the due date, or sent by an IRS-designated private delivery service on or before the due date. Free online state tax filing only See Private Delivery Services under Reminders for more information. Free online state tax filing only Introduction This publication explains your tax responsibilities as an employer. Free online state tax filing only It explains the requirements for withholding, depositing, reporting, paying, and correcting employment taxes. Free online state tax filing only It explains the forms you must give to your employees, those your employees must give to you, and those you must send to the IRS and SSA. Free online state tax filing only This guide also has tax tables you need to figure the taxes to withhold from each employee for 2014. Free online state tax filing only References to “income tax” in this guide apply only to “federal” income tax. Free online state tax filing only Contact your state or local tax department to determine if their rules are different. Free online state tax filing only Additional employment tax information is available in Publication 15-A. Free online state tax filing only Publication 15-A includes specialized information supplementing the basic employment tax information provided in this publication. Free online state tax filing only Publication 15-B, Employer's Tax Guide to Fringe Benefits, contains information about the employment tax treatment and valuation of various types of noncash compensation. Free online state tax filing only Most employers must withhold (except FUTA), deposit, report, and pay the following employment taxes. Free online state tax filing only Income tax. Free online state tax filing only Social security tax. Free online state tax filing only Medicare tax. Free online state tax filing only FUTA tax. Free online state tax filing only There are exceptions to these requirements. Free online state tax filing only See section 15 for guidance. Free online state tax filing only Railroad retirement taxes are explained in the Instructions for Form CT-1. Free online state tax filing only Comments and suggestions. Free online state tax filing only   We welcome your comments about this publication and your suggestions for future editions. Free online state tax filing only   You can write to us at the following address: Internal Revenue Service Tax Forms & Publications Division 1111 Constitution Ave. Free online state tax filing only NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free online state tax filing only Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free online state tax filing only   You can also send us comments from www. Free online state tax filing only irs. Free online state tax filing only gov/formspubs. Free online state tax filing only Click on More Information and then click on Comment on Tax Forms and Publications. Free online state tax filing only   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. Free online state tax filing only Federal Government employers. Free online state tax filing only   The information in this publication, including the rules for making federal tax deposits, applies to federal agencies. Free online state tax filing only State and local government employers. Free online state tax filing only   Payments to employees for services in the employ of state and local government employers are generally subject to federal income tax withholding but not FUTA tax. Free online state tax filing only Most elected and appointed public officials of state or local governments are employees under common law rules. Free online state tax filing only See chapter 3 of Publication 963, Federal-State Reference Guide. Free online state tax filing only In addition, wages, with certain exceptions, are subject to social security and Medicare taxes. Free online state tax filing only See section 15 for more information on the exceptions. Free online state tax filing only   If an election worker is employed in another capacity with the same government entity, see Revenue Ruling 2000-6 on page 512 of Internal Revenue Bulletin 2000-6 at www. Free online state tax filing only irs. Free online state tax filing only gov/pub/irs-irbs/irb00-06. Free online state tax filing only pdf. Free online state tax filing only   You can get information on reporting and social security coverage from your local IRS office. Free online state tax filing only If you have any questions about coverage under a section 218 (Social Security Act) agreement, contact the appropriate state official. Free online state tax filing only To find your State Social Security Administrator, visit the National Conference of State Social Security Administrators website at www. Free online state tax filing only ncsssa. Free online state tax filing only org. Free online state tax filing only Disregarded entities and qualified subchapter S subsidiaries (QSubs). Free online state tax filing only   Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes. Free online state tax filing only Eligible single-member entities that have not elected to be taxed as corporations must report and pay employment taxes on wages paid to their employees using the entities' own names and EINs. Free online state tax filing only See Regulations sections 1. Free online state tax filing only 1361-4(a)(7) and 301. Free online state tax filing only 7701-2(c)(2)(iv). Free online state tax filing only COBRA premium assistance credit. Free online state tax filing only   The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. Free online state tax filing only COBRA generally covers multiemployer health plans and health plans maintained by private-sector employers (other than churches) with 20 or more full and part-time employees. Free online state tax filing only Parallel requirements apply to these plans under the Employee Retirement Income Security Act of 1974 (ERISA). Free online state tax filing only Under the Public Health Service Act, COBRA requirements apply also to health plans covering state or local government employees. Free online state tax filing only Similar requirements apply under the Federal Employees Health Benefits Program and under some state laws. Free online state tax filing only For the premium assistance (or subsidy) discussed below, these requirements are all referred to as COBRA requirements. Free online state tax filing only   Under the American Recovery and Reinvestment Act of 2009 (ARRA), employers are allowed a credit against “payroll taxes” (referred to in this publication as “employment taxes”) for providing COBRA premium assistance to assistance eligible individuals. Free online state tax filing only For periods of COBRA continuation coverage beginning after February 16, 2009, a group health plan must treat an assistance eligible individual as having paid the required COBRA continuation coverage premium if the individual elects COBRA coverage and pays 35% of the amount of the premium. Free online state tax filing only   An assistance eligible individual is a qualified beneficiary of an employer's group health plan who is eligible for COBRA continuation coverage during the period beginning September 1, 2008, and ending May 31, 2010, due to the involuntarily termination from employment of a covered employee during the period and elects continuation COBRA coverage. Free online state tax filing only The assistance for the coverage can last up to 15 months. Free online state tax filing only   Employees terminated during the period beginning September 1, 2008, and ending May 31, 2010, who received a severance package that delayed the start of the COBRA continuation coverage, may still be eligible for premium assistance for COBRA continuation coverage. Free online state tax filing only For more information see Notice 2009-27, 2009-16 I. Free online state tax filing only R. Free online state tax filing only B. Free online state tax filing only 838, available at www. Free online state tax filing only irs. Free online state tax filing only gov/irb/2009-16_irb/ar09. Free online state tax filing only html. Free online state tax filing only   Administrators of the group health plans (or other entities) that provide or administer COBRA continuation coverage must provide notice to assistance eligible individuals of the COBRA premium assistance. Free online state tax filing only   The 65% of the premium not paid by the assistance eligible individuals is reimbursed to the employer maintaining the group health plan. Free online state tax filing only The reimbursement is made through a credit against the employer's employment tax liabilities. Free online state tax filing only For information on how to claim the credit, see the Instructions for Form 941 or the Instructions for Form 944. Free online state tax filing only The credit is treated as a deposit made on the first day of the return period (quarter or year). Free online state tax filing only In the case of a multiemployer plan, the credit is claimed by the plan, rather than the employer. Free online state tax filing only In the case of an insured plan subject to state law continuation coverage requirements, the credit is claimed by the insurance company, rather than the employer. Free online state tax filing only   Anyone claiming the credit for COBRA premium assistance payments must maintain the following information to support their claim, including the following. Free online state tax filing only Information on the receipt of the assistance eligible individuals' 35% share of the premium, including dates and amounts. Free online state tax filing only In the case of an insurance plan, a copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA. Free online state tax filing only In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals. Free online state tax filing only Attestation of involuntary termination, including the date of the involuntary termination for each covered employee whose involuntary termination is the basis for eligibility for the subsidy. Free online state tax filing only Proof of each assistance eligible individual's eligibility for COBRA coverage and the election of COBRA coverage. Free online state tax filing only A record of the SSNs of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals. Free online state tax filing only   For more information, visit IRS. Free online state tax filing only gov and enter “COBRA” in the search box. Free online state tax filing only Prev  Up  Next   Home   More Online Publications