Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Free State Return

2013 State Income Tax FormsFile Free State Income TaxIrs 1040 FormE File TaxesIrs 2012 Tax Forms 1040 Instructions1040ez TelefileFiling 2010 Tax ReturnI Need Tax Instruction Booklet For 1040ezTaxslayer 2011State Tax Return Free E FileForm 1040x ExampleAmendment Tax ReturnAmended Tax Return 2012Irs Estimated Tax Form 2012Military Onesource TaxesFile Federal State Taxes FreeWww 1040ezNeed To Amend 2012 Tax Return2010 1040 Tax FormMilitary Pay ChartE File1040x Instructions Dummies2009 Tax FormMilitary DiscountsIrs Gov OrgTaxes Amendment2010 New Car Tax Credit1040nr Ez InstructionsNj 1040 NrFree Tax Filing H&r Block2011 Form 1040ezFiling An Amended Tax Return 2012Taxact LoginIrs Gov 2012 Tax FormsFederal Tax Form 941 20121040ez Fillable FormStudent TaxIrs Tax TablesMy Free Taxes1040 Ez 2010

Free State Return

Free state return 13. Free state return   Employment Taxes Table of Contents What's New for 2013 What's New for 2014 Reminders Important Dates for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Farm Employment Family Employees Crew Leaders Social Security and Medicare TaxesReligious exemption. Free state return Wage limit. Free state return Federal Income Tax WithholdingNew Form W-4 for 2014. Free state return Required Notice to Employees About Earned Income Credit (EIC) Reporting and Paying Social Security, Medicare, and Withheld Federal Income TaxesElectronic deposit requirement. Free state return Federal Unemployment (FUTA) TaxReporting and Paying FUTA Tax What's New for 2013 Social security and Medicare tax for 2013. Free state return  The employee tax rate for social security is 6. Free state return 2%. Free state return Previously, the employee tax rate for social security was 4. Free state return 2%. Free state return The employer tax rate for social security remains unchanged at 6. Free state return 2%. Free state return The social security wage base limit is $113,700. Free state return The Medicare tax rate is 1. Free state return 45% each for the employee and employer, unchanged from 2012. Free state return There is no wage base limit for Medicare tax. Free state return Additional Medicare Tax. Free state return  In addition to withholding Medicare tax at 1. Free state return 45%, you must withhold a 0. Free state return 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Free state return 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 state return Additional Medicare Tax is only imposed on the employee. Free state return There is no employer share of Additional Medicare Tax. Free state return All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 threshold. Free state return For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. Free state return For more information on Additional Medicare Tax, visit IRS. Free state return gov and enter “Additional Medicare Tax” in the search box. Free state return Leave-based donation programs to aid victims of Hurricane Sandy. Free state return  Under these programs, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made before January 1, 2014, to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy. Free state return The donated leave will not be included in the income or wages of the employee. Free state return The employer may deduct the cash payments as business expenses or charitable contributions. Free state return For more information, see Notice 2012-69, 2012-51 I. Free state return R. Free state return B. Free state return 712, available at www. Free state return irs. Free state return gov/irb/2012-51_IRB/ar09. Free state return html. Free state return Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans extended. Free state return  The work opportunity tax credit is now available for eligible unemployed veterans who begin work before January 1, 2014. Free state return Previously, the credit was available for unemployed veterans who began work on or after November 22, 2011, and before January 1, 2013. Free state return 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 state return For more information, visit IRS. Free state return gov and enter “work opportunity credit” in the search box. Free state return What's New for 2014 Social security and Medicare tax for 2014. Free state return  The employee and employer tax rates for social security and the maximum amount of wages subject to social security tax for 2014 will be discussed in Publication 51 (Circular A), Agricultural Employer's Tax Guide (For use in 2014). Free state return The Medicare tax rate for 2014 will also be discussed in Publication 51 (Circular A) (For use in 2014). Free state return There is no limit on the amount of wages subject to Medicare tax. Free state return Reminders Additional employment tax information for farmers. Free state return  See Publication 51 (Circular A) for more detailed guidance on employment taxes. Free state return For the latest information about employment tax developments impacting farmers, go to www. Free state return irs. Free state return gov/pub51. Free state return Correcting a previously filed Form 943. Free state return  If you discover an error on a previously filed Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, make the correction using Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund. Free state return Form 943-X is filed separately from Form 943. Free state return For more information on correcting Form 943, see the Instructions for Form 943-X. Free state return Federal tax deposits must be made by electronic funds transfer. Free state return  You must use electronic funds transfer to make all federal tax deposits. Free state return Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). Free state return 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 state return Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Free state return EFTPS is a free service provided by the Department of Treasury. Free state return Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Free state return For more information on making federal tax deposits, see section 7 of Publication 51 (Circular A). Free state return To get more information about EFTPS or to enroll in EFTPS, visit www. Free state return eftps. Free state return gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). Free state return Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. Free state return Important Dates for 2014 You should take the action indicated by the dates listed. Free state return See By February 15 and On February 16 for Form W-4, Employee's Withholding Allowance Certificate, information. Free state return Due dates for deposits of withheld federal income taxes, social security taxes, and Medicare taxes are not listed here. Free state return For these dates, see Publication 509, Tax Calendars (For use in 2014). Free state return Note. Free state return  If any date shown below for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. Free state return A statewide legal holiday delays a filing or furnishing due date only if the IRS office where you are required to file a return or furnish a form is located in that state. Free state return For any due date, you will meet the “file” or “furnish” date requirement if the envelope containing the tax return or form is properly addressed, contains sufficient postage, and is postmarked by the U. Free state return S. Free state return Postal Service by the due date, or sent by an IRS-designated delivery service by the due date. Free state return See Private delivery services in Publication 51 (Circular A). Free state return Federal tax deposits can only be made by electronic funds transfer and are governed by legal holidays in the District of Columbia. Free state return Statewide holidays no longer apply. Free state return For a list of legal holidays that delay the due date of a federal tax deposit, see section 7 of Publication 51 (Circular A). Free state return Fiscal year taxpayers. Free state return  The due dates listed below apply whether you use a calendar or a fiscal year. Free state return By January 31. Free state return   File Form 943 with the IRS. Free state return If you deposited all Form 943 taxes when due, you have 10 additional days to file. Free state return Furnish each employee with a completed Form W-2, Wage and Tax Statement. Free state return Furnish each recipient to whom you paid $600 or more in nonemployee compensation with a completed Form 1099 (for example, Form 1099-MISC). Free state return File Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, with the IRS. Free state return If you deposited all the FUTA tax when due, you have 10 additional days to file. Free state return File Form 945, Annual Return of Withheld Federal Income Tax, with the IRS to report any nonpayroll income tax withheld during 2013. Free state return If you deposited all Form 945 taxes when due, you have 10 additional days to file. Free state return By February 15. Free state return  Ask for a new Form W-4 or Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, from each employee who claimed exemption from federal income tax withholding last year. Free state return On February 16. Free state return  Any Form W-4 claiming exemption from withholding for the previous year has now expired. Free state return Begin withholding for any employee who previously claimed exemption from withholding but has not given you a new Form W-4 for the current year. Free state return If the employee does not give you a new Form W-4, withhold taxes based on the last valid Form W-4 you have for the employee that does not claim exemption from withholding or, if one does not exist, as if he or she is single with zero withholding allowances. Free state return If the employee furnishes a new Form W-4 claiming exemption from withholding after February 15, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. Free state return By February 28. Free state return   File paper Forms 1099 and 1096. Free state return File Copy A of all paper Forms 1099 with Form 1096, Annual Summary and Transmittal of U. Free state return S. Free state return Information Returns, with the IRS. Free state return For electronically filed returns, see By March 31 below. Free state return File paper Forms W-2 and W-3. Free state return File Copy A of all paper Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration (SSA). Free state return For electronically filed returns, see By March 31 below. Free state return By March 31. Free state return   File electronic Forms W-2 and 1099. Free state return File electronic Forms W-2 with the SSA and Forms 1099 with the IRS. Free state return For more information on reporting Form W-2 information to the SSA electronically, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Free state return socialsecurity. Free state return gov/employer. Free state return For information on filing information returns electronically with the IRS, see Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically. Free state return By April 30, July 31, October 31, and January 31. Free state return   Deposit FUTA taxes. Free state return Deposit FUTA tax due if it is more than $500. Free state return Before December 1. Free state return  Remind employees to submit a new Form W-4 if their withholding allowances have changed or will change for the next year. Free state return Introduction You are generally required to withhold federal income tax from the wages of your employees. Free state return You may also be subject to social security and Medicare taxes under the Federal Insurance Contributions Act (FICA) and federal unemployment tax under the Federal Unemployment Tax Act (FUTA). Free state return You must also withhold Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Free state return This chapter includes information about these taxes. Free state return You must also pay self-employment tax on your net earnings from farming. Free state return See chapter 12 for information on self-employment tax. Free state return Topics - This chapter discusses: Farm employment, Family employees, Crew leaders, Social security and Medicare taxes, Additional Medicare Tax withholding, Federal income tax withholding, Reporting and paying social security, Medicare, and withheld federal income taxes, and FUTA tax. Free state return Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits 51 (Circular A), Agricultural Employer's Tax Guide 926 Household Employer's Tax Guide Form (and Instructions) W-2 Wage and Tax Statement W-4 Employee's Withholding Allowance Certificate W-9 Request for Taxpayer Identification Number and Certification 940 Employer's Annual Federal Unemployment (FUTA) Tax Return 943 Employer's Annual Federal Tax Return for Agricultural Employees 943-X Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund See chapter 16 for information about getting publications and forms. Free state return Farm Employment In general, you are an employer of farmworkers if your employees do any of the following types of work. Free state return Raising or harvesting agricultural or horticultural products on a farm, including raising and feeding of livestock. Free state return Operating, managing, conserving, improving, or maintaining your farm and its tools and equipment. Free state return Services performed in salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor). Free state return Handling, processing, or packaging any agricultural or horticultural commodity if you produced more than half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity). Free state return Work related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. Free state return For more information, see Publication 51 (Circular A). Free state return Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. Free state return This is so even when you give the employee freedom of action. Free state return What matters is that you have the right to control the details of how the services are performed. Free state return You are responsible for withholding and paying employment taxes for your employees. Free state return You are also required to file employment tax returns. Free state return These requirements do not apply to amounts that you pay to independent contractors. Free state return See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Free state return If you employ a family of workers, each worker subject to your control (not just the head of the family) is an employee. Free state return Special rules apply to crew leaders. Free state return See Crew Leaders , later. Free state return Employer identification number (EIN). Free state return   If you have employees, you must have an EIN. Free state return If you do not have an EIN, you may apply for one online. Free state return Go to IRS. Free state return gov and click on the Apply for an EIN Online link under Tools. Free state return You may also apply for an EIN by calling 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Free state return The hours of operation for both numbers are Monday–Friday form 7:00 a. Free state return m. Free state return –7:00 p. Free state return m. Free state return local time (Alaska and Hawaii follow Pacific time). Free state return You can also fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Free state return Employee's social security number (SSN). Free state return   An employee who does not have an SSN should submit Form SS-5, Application for a Social Security Card, to the Social Security Administration (SSA). Free state return Form SS-5 is available from any SSA office or by calling 1-800-772-1213 (operates 24 hours per day). Free state return It is also available from the SSA's website at www. Free state return socialsecurity. Free state return gov. Free state return   The employee must furnish evidence of age, identity, and U. Free state return S. Free state return citizenship or lawful immigration status permitting employment with the Form SS-5. Free state return An employee who is age 18 or older must appear in person with this evidence at an SSA office. Free state return Form I-9. Free state return    You must verify that each new employee is legally eligible to work in the United States. Free state return This includes completing the Form I-9, Employment Eligibility Verification. Free state return Form I-9 is available from the U. Free state return S. Free state return Citizenship and Immigration Services (USCIS) offices or by calling the Bureau of Citizenship and Immigration Services Forms Request Line at 1-800-870-3676. Free state return Form I-9 is also available from the USCIS website at www. Free state return uscis. Free state return gov. Free state return You can also contact the USCIS at 1-800-375-5283 for more information. Free state return New hire reporting. Free state return   You are required to report any new employee to a designated state new hire registry. Free state return Many states accept a copy of Form W-4 with employer information added. Free state return Visit the Office of Child Support Enforcement website at www. Free state return acf. Free state return hhs. Free state return gov/programs/cse/newhire for more information. Free state return Family Employees Generally, the wages you pay to family members who are your employees are subject to employment taxes. Free state return However, certain exemptions may apply to wages paid to your child, spouse, or parent. Free state return Exemptions for your child. Free state return   Payments for the services of your child under age 18 who works for you in your trade or business (including a farm) are not subject to social security and Medicare taxes. Free state return However, see Nonexempt services of a child or spouse , later. Free state return Payments for the services of your child under age 21 employed by you in other than a trade or business, such as payments for household services in your home, are also not subject to social security or Medicare taxes. Free state return Payments for the services of your child under age 21 employed by you, whether or not in your trade or business, are not subject to FUTA tax. Free state return Although not subject to social security, Medicare, or FUTA tax, the child's wages still may be subject to federal income tax withholding. Free state return Exemptions for your spouse. Free state return   Payments for the services of your spouse who works for you in your trade or business are subject to federal income tax withholding and social security and Medicare taxes, but not FUTA tax. Free state return   Payments for the services of your spouse employed by you in other than a trade or business, such as payments for household services in your home, are not subject to social security, Medicare, or FUTA taxes. Free state return Nonexempt services of a child or spouse. Free state return   Payments for the services of your child or spouse are subject to federal income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for any of the following entities. Free state return A corporation, even if it is controlled by you. Free state return A partnership, even if you are a partner. Free state return This does not apply to wages paid to your child if each partner is a parent of the child. Free state return An estate or trust, even if it is the estate of a deceased parent. Free state return In these situations, the child or spouse is considered to work for the corporation, partnership, or estate, not you. Free state return Exemptions for your parent. Free state return   Payments for the services of your parent employed by you in your trade or business are subject to federal income tax withholding and social security and Medicare taxes. Free state return Social security and Medicare taxes do not apply to wages paid to your parent for services not in your trade or business, but they do apply to payments for household services in your home if both the following conditions are satisfied. Free state return You have a child living in your home who is under age 18 or has a physical or mental condition that requires care by an adult for at least 4 continuous weeks in a calendar quarter. Free state return You are a widow or widower; or divorced and not remarried; or have a spouse in the home who, because of a physical or mental condition, cannot care for your child for at least 4 continuous weeks in the quarter. Free state return   Wages you pay to your parent are not subject to FUTA tax, regardless of the type of services provided. Free state return Qualified joint venture. Free state return   If spouses elect to be treated as a qualified joint venture instead of a partnership, either spouse may report and pay the employment taxes due on the wages paid to employees using the EIN of that spouse's sole proprietorship. Free state return For more information about qualified joint ventures, see chapter 12. Free state return Crew Leaders If farmworkers are provided by a crew leader, the crew leader may be the employer of the workers. Free state return Social security and Medicare taxes. Free state return   For social security and Medicare tax purposes, the crew leader is the employer of the workers if both of the following requirements are met. Free state return The crew leader pays (either on his or her own behalf or on behalf of the farmer) the workers for their farm labor. Free state return The crew leader has not entered into a written agreement with the farmer under which the crew leader is designated as an employee of the farmer. Free state return Federal income tax withholding. Free state return   If the crew leader is the employer for social security and Medicare tax purposes, the crew leader is the employer for federal income tax withholding purposes. Free state return Federal unemployment (FUTA) tax. Free state return   For FUTA tax purposes, the crew leader is the employer of the workers if, in addition to the earlier requirements, either of the following requirements are met. Free state return The crew leader is registered under the Migrant and Seasonal Agricultural Worker Protection Act. Free state return Substantially all crew members operate or maintain mechanized equipment provided by the crew leader as part of the service to the farmer. Free state return   The farmer is the employer of workers furnished by a crew leader in all other situations. Free state return In addition, the farmer is the employer of workers furnished by a registered crew leader if the workers are the employees of the farmer under the common-law test. Free state return For example, some farmers employ individuals to recruit farmworkers exclusively for them. Free state return Although these individuals may be required to register under the Migrant and Seasonal Agricultural Worker Protection Act, the workers are employed directly by the farmer. Free state return The farmer is the employer in these cases. Free state return For information about common-law employees, see section 1 of Publication 15-A. Free state return For information about crew leaders, see the Department of Labor website at www. Free state return dol. Free state return gov/whd/regs/compliance/whdfs49. Free state return htm. Free state return Social Security and Medicare Taxes All cash wages you pay to an employee during the year for farmwork are subject to social security and Medicare taxes if you meet either of the following tests. Free state return You pay the employee $150 or more in cash wages (count all wages paid on a time, piecework, or other basis) during the year for farmwork (the $150 test). Free state return The $150 test applies separately to each farmworker that you employ. Free state return If you employ a family of workers, each member is treated separately. Free state return Do not count wages paid by other employers. Free state return You pay cash and noncash wages of $2,500 or more during the year to all your employees for farmwork (the $2,500 test). Free state return If the $2,500 test for the group is not met, the $150 test for an employee still applies. Free state return Exceptions. Free state return   Annual cash wages of less than $150 you pay to a seasonal farmworker are not subject to social security and Medicare taxes, even if you pay $2,500 or more to all your farmworkers. Free state return However, these wages count toward the $2,500 test for determining whether other farmworkers' wages are subject to social security and Medicare taxes. Free state return   A seasonal farmworker is a worker who: Works as a hand-harvest laborer, Is paid piece rates in an operation usually paid on this basis in the region of employment, Commutes daily from his or her permanent home to the farm, and Worked in agriculture less than 13 weeks in the preceding calendar year. Free state return   See Family Employees , earlier, for certain exemptions from social security and Medicare taxes that apply to your child, spouse, and parent. Free state return Religious exemption. Free state return   An exemption from social security and Medicare taxes is available to members of a recognized religious group or division opposed to public insurance. Free state return This exemption is available only if both the employee and the employer are members of the group or division. Free state return   For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Free state return Cash wages. Free state return   Only cash wages paid to farmworkers are subject to social security and Medicare taxes. Free state return Cash wages include checks, money orders, and any kind of money or cash. Free state return   Only cash wages subject to social security and Medicare taxes are credited to your employees for social security benefit purposes. Free state return Payments not subject to these taxes, such as commodity wages, do not contribute to your employees' social security coverage. Free state return For information about social security benefits, contact the SSA at 1-800-772-1213 or online at www. Free state return socialsecurity. Free state return gov. Free state return Noncash wages. Free state return    Noncash wages include food, lodging, clothing, transportation passes, and other goods and services. Free state return Noncash wages paid to farmworkers, including commodity wages, are not subject to social security and Medicare taxes. Free state return However, they are subject to these taxes if the substance of the transaction is a cash payment. Free state return For information on lodging provided as a condition of employment, see Publication 15-B. Free state return   Report the value of noncash wages in box 1 of Form W-2 together with cash wages. Free state return Do not show noncash wages in box 3 or in box 5, (unless the substance of the transaction is a cash payment). Free state return Tax rates and social security wage limit. Free state return   For 2013, the employer and the employee will pay the following taxes. Free state return The employer and employee each pay 6. Free state return 2% of cash wages for social security tax (old-age, survivors, and disability insurance). Free state return The employer and employee each pay 1. Free state return 45% of cash wages for Medicare tax (hospital insurance). Free state return The employee pays 0. Free state return 9% of cash wages in excess of $200,000 for Additional Medicare Tax. Free state return Wage limit. Free state return   The limit on wages subject to the social security tax for 2013 is $113,700. Free state return There is no limit on wages subject to the Medicare tax. Free state return All covered wages are subject to the Medicare tax. Free state return Additionally, all wages in excess of $200,000 are subject to Additional Medicare Tax withholding. Free state return Paying employee's share. Free state return   If you would rather pay the employee's share of social security and Medicare taxes without deducting it from his or her wages, you may do so. Free state return It is additional income to the employee. Free state return You must include it in box 1 of the employee's Form W-2, but do not count it as social security and Medicare wages (boxes 3 and 5 on Form W-2) or as wages for federal unemployment (FUTA) tax purposes. Free state return Example. Free state return Jane operates a small family fruit farm. Free state return She employs day laborers in the picking season to enable her to timely get her crop to market. Free state return She does not deduct the employees' share of social security and Medicare taxes from their pay; instead, she pays it on their behalf. Free state return When her accountant, Susan, prepares the employees' Forms W-2, she adds each employee's share of social security and Medicare taxes paid by Jane to the employee's wage income (box 1 of Form W-2), but does not include it in box 3 (social security wages) or box 5 (Medicare wages and tips). Free state return For 2013, Jane paid Mary $1,000 during the year. Free state return Susan enters $1,076. Free state return 50 in box 1 of Mary's Form W-2 ($1,000 wages plus $76. Free state return 50 social security and Medicare taxes paid for Mary). Free state return She enters $1,000 in boxes 3 and 5 of Mary's Form W-2. Free state return Additional Medicare Tax. Free state return   In addition to withholding Medicare tax at 1. Free state return 45%, you must withhold a 0. Free state return 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Free state return 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 state return Additional Medicare Tax is only imposed on the employee. Free state return There is no employer share of Additional Medicare Tax. Free state return All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 threshold. Free state return   For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E). Free state return For more information on Additional Medicare Tax, visit IRS. Free state return gov and enter “Additional Medicare Tax” in the search box. Free state return Federal Income Tax Withholding If the cash wages you pay to farmworkers are subject to social security and Medicare taxes, they are also subject to federal income tax withholding. Free state return Although noncash wages are subject to federal income tax, withhold income tax only if you and the employee agree to do so. Free state return The amount to withhold is figured on gross wages without taking out social security and Medicare taxes, union dues, insurance, etc. Free state return Form W-4. Free state return   Generally, the amount of federal income tax you withhold is based on the employee's marital status and withholding allowances claimed on the employee's Form W-4. Free state return In general, an employee can claim withholding allowances on Form W-4 equal to the number of exemptions the employee will be entitled to claim on his or her tax return. Free state return An employee may also be able to claim a special withholding allowance and allowances for estimated deductions and credits. Free state return   Do not withhold federal income tax from the wages of an employee who, by filing Form W-4, certifies that he or she had no federal income tax liability last year and anticipates no liability for the current year. Free state return   You should give each new employee a Form W-4 as soon as you hire the employee. Free state return For Spanish-speaking employees, you may use Formulario W-4(SP) which is the Spanish translation of Form W-4. Free state return Have the employee complete and return the form to you before the first payday. Free state return If the employee does not return the completed form, you must withhold federal income tax as if the employee is single and claims no withholding allowances. Free state return New Form W-4 for 2014. Free state return   You should make the 2014 Form W-4 available to your employees and encourage them to check their income tax withholding for 2014. Free state return Those employees who owed a large amount of tax or received a large refund for 2013 may want to submit a new Form W-4. Free state return You cannot accept substitute Forms W-4 developed by employees. Free state return How to figure withholding. Free state return   You can use one of several methods to determine the amount to withhold. Free state return The methods are described in Publication 51 (Circular A), which contains tables showing the correct amount of federal income tax you should withhold. Free state return Publication 51 (Circular A) also contains additional information about federal income tax withholding. Free state return Nonemployee compensation. Free state return   Generally, you do not have to withhold federal income tax on payments for services to individuals who are not your employees. Free state return However, you may be required to report these payments on Form 1099-MISC, Miscellaneous Income, and to withhold under the backup withholding rules. Free state return For more information, see the Instructions for Form 1099-MISC. Free state return Required Notice to Employees About Earned Income Credit (EIC) You must provide notification about EIC to each employee who worked for you at any time during the year and from whom you did not withhold any federal income tax. Free state return However, you do not have to notify employees who claim exemption from federal income tax withholding on Form W-4. Free state return You meet the notification requirement by giving each employee any of the following. Free state return Form W-2, which contains EIC notification on the back of Copy B. Free state return A substitute Form W-2 with the exact EIC wording shown on the back of copy B of Form W-2. Free state return Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC). Free state return Your own written statement with the exact wording of Notice 797. Free state return For more information, see Publication 51 (Circular A). Free state return Reporting and Paying Social Security, Medicare, and Withheld Federal Income Taxes You must withhold federal income, social security, and Medicare taxes required to be withheld from the salaries and wages of your employees. Free state return You are liable for the payment of these taxes to the federal government whether or not you collect them from your employees. Free state return If, for example, you withhold less than the correct tax from an employee's wages, you are still liable for the full amount. Free state return You must also pay the employer's share of social security and Medicare taxes. Free state return There is no employer share of Additional Medicare Tax. Free state return Form 943. Free state return   Report withheld federal income tax, social security tax, and Medicare tax on Form 943. Free state return Your 2013 Form 943 is due by January 31, 2014 (or February 10, 2014, if you made deposits on time in full payment of the taxes due for the year). Free state return Deposits. Free state return   Generally, you must deposit both the employer and employee shares of social security and Medicare taxes and federal income tax withheld during the year. Free state return However, you may make payments with Form 943 instead of depositing them if you accumulate less than a $2,500 tax liability (“Total taxes after adjustments” line on Form 943) during the year and you pay in full with a timely filed return. Free state return   For more information on deposit rules, see Publication 51 (Circular A). Free state return Electronic deposit requirement. Free state return   You must use electronic funds transfer to make all federal tax deposits. Free state return Generally, electronic funds transfers are made using EFTPS. Free state return 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 state return Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Free state return EFTPS is a free service provided by the Department of Treasury. Free state return Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Free state return   For more information on making federal tax deposits, see section 7 of Publication 51 (Circular A). Free state return To get more information about EFTPS or to enroll in EFTPS, visit www. Free state return eftps. Free state return gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). Free state return Additional information about EFTPS is also available in Publication 966. Free state return Form W-2. Free state return   By January 31, you must furnish each employee a Form W-2 showing total wages for the previous year and total federal income tax, social security tax, and Medicare tax withheld. Free state return However, if an employee stops working for you and requests the form earlier, you must give it to the employee within 30 days of the later of the following dates. Free state return The date the employee requests the form. Free state return The date you make your final payment of wages to the employee. Free state return Compensation paid to H-2A visa holders. Free state return   Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2. Free state return Compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes, and therefore should not be reported as wages subject to social security tax (line 2), Medicare tax (line 4), or Additional Medicare Tax (line 6) on Form 943, and should not be reported as social security wages (box 3) or Medicare wages (box 5) on Form W-2. Free state return   An employer is not required to withhold federal income tax from compensation it pays to an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. Free state return In this case, the worker must give the employer a completed Form W-4. Free state return Federal income tax withheld should be reported on Form 943, line 8, and in box 2 of Form W-2. Free state return   These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. Free state return For the rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. Free state return Trust fund recovery penalty. Free state return   If you are responsible for withholding, accounting for, depositing, or paying federal withholding taxes and willfully fail to do so, you can be held liable for a penalty equal to the withheld tax not paid. Free state return A responsible person can be an officer of a corporation, a partner, a sole proprietor, or an employee of any form of business. Free state return A trustee or agent with authority over the funds of the business can also be held responsible for the penalty. Free state return   Willfully means voluntarily, consciously, and intentionally. Free state return Paying other expenses of the business instead of the taxes due is acting willfully. Free state return Consequences of treating an employee as an independent contractor. Free state return   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker. Free state return See Publication 15-A for more information. Free state return Federal Unemployment (FUTA) Tax You must pay FUTA tax if you meet either of the following tests. Free state return You paid cash wages of $20,000 or more to farmworkers in any calendar quarter during the current or preceding calendar year. Free state return You employed 10 or more farmworkers for some part of at least 1 day during any 20 or more different calendar weeks during the current or preceding calendar year. Free state return These rules do not apply to exempt services of your spouse, your parents, or your children under age 21. Free state return See Family Employees , earlier. Free state return Alien farmworkers. Free state return   Wages paid to aliens admitted on a temporary basis to the United States to perform farmwork (also known as “H-2A visa workers”) are exempt from FUTA tax. Free state return However, include your employment of these workers and the wages you paid them to determine whether you meet either of the above tests. Free state return Commodity wages. Free state return   Payments in kind for farm labor are not cash wages. Free state return Do not count them to figure whether you are subject to FUTA tax or to figure how much tax you owe. Free state return Tax rate and credit. Free state return   The gross FUTA tax rate is 6. Free state return 0% of the first $7,000 cash wages you pay to each employee during the year. Free state return However, you are given a credit of up to 5. Free state return 4% of the first $7,000 cash wages you pay to each employee for the state unemployment tax you pay. Free state return If your state tax rate (experience rate) is less than 5. Free state return 4%, you may still be allowed the full 5. Free state return 4% credit. Free state return   If you do not pay the state tax, you cannot take the credit. Free state return If you are exempt from state unemployment tax for any reason, the full 6. Free state return 0% rate applies. Free state return See the Instructions for Form 940 for additional information. Free state return More information. Free state return   For more information on FUTA tax, see Publication 51 (Circular A). Free state return Reporting and Paying FUTA Tax The FUTA tax is imposed on you as the employer. Free state return It must not be collected or deducted from the wages of your employees. Free state return Form 940. Free state return   Report FUTA tax on Form 940. Free state return The 2013 Form 940 is due January 31, 2014 (or February 10, 2014, if you timely deposited the full amount of your 2013 FUTA tax). Free state return Deposits. Free state return   If at the end of any calendar quarter you owe, but have not yet deposited, more than $500 in FUTA tax for the year, you must make a deposit by the end of the following month. Free state return If the undeposited tax is $500 or less at the end of a quarter, you do not have to deposit it. Free state return You can add it to the tax for the next quarter. Free state return If the total undeposited tax is more than $500 at the end of the next quarter, a deposit will be required. Free state return If the total undeposited tax at the end of the 4th quarter is $500 or less, you can either make a deposit or pay it with your return by the January 31, 2014, due date. Free state return Electronic deposit requirement. Free state return   You must use electronic funds transfer to make all federal tax deposits. Free state return Generally, electronic funds transfers are made using EFTPS. Free state return 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 state return Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Free state return EFTPS is a free service provided by the Department of Treasury. Free state return Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Free state return   For more information on making federal tax deposits, see section 7 of Publication 51 (Circular A). Free state return To get more information about EFTPS or to enroll in EFTPS, visit www. Free state return eftps. Free state return gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). Free state return Additional information about EFTPS is also available in Publication 966. Free state return Prev  Up  Next   Home   More Online Publications
Español

Where to Go for Medical Care

In non-emergency situations, your first choice should be your primary care provider (PCP). Your PCP knows your medical history and treats common ailments. Urgent care is best when you need medical attention for a non-life threatening illness quickly or after regular hours. Go to the emergency room if your illness is serious or life-threatening, such as:

  • Choking
  • Stopped breathing
  • Head injury with passing out, fainting, or confusion
  • Injury to neck or spine, especially if there is loss of feeling or inability to move
  • Electric shock or lightning strike
  • Severe burn
  • Seizure that lasts three to five minutes

MedlinePlus has more information about the differences among health care providers and facilities.

Choosing a Health Care Facility

Report cards on the Internet can help you compare healthcare facilities. Compare doctors and health care facilities at www.healthcare.gov/compare. In addition, private organizations like U.S. News and World Report and Healthgrades.com rate hospitals based on information collected from Medicare records and other sources. As of October 2012, the Affordable Care Act requires all hospitals to report performance publically.

When determining the best health care facility for you, consider these factors:

  • Does the facility accept payment from your insurance plan?
  • Does your doctor have privileges to provide treatment to patients at the facility?
  • What is the quality of the facility?
  • Does the facility specialize in services and procedures that fit with your medical needs?
  • Is the facility in an area you can travel to and from easily? Find health care facilities in your area.

Elder Care and Health Care Facilities Seniors

As people live longer, the need for services for seniors has become more important. The Eldercare Locator (www.eldercare.gov), a public service of the Administration on Aging, U.S. Department of Health and Human Services, is a nationwide service that connects older Americans and their caregivers with information on senior services. Visit www.aoa.gov/Elders_Families for a list of resources to connect older persons, caregivers, and professionals with important federal, national, and local programs.

The Joint Commission on Accreditation of Healthcare Organizations(JCAHO) accredits hospitals as well as nursing homes and other healthcare organizations. Specially trained investigators assess whether these organizations meet set standards. At qualitycheck.org, you can check on a local facility, including how it compares with others. The Joint Commission also accepts consumer complaints. You can post a complaint online.

Naming a Durable Power of Attorney for Health Care

A durable power of attorney for health care (sometimes called a durable medical power of attorney) specifies the person you've chosen to make medical decisions for you. It is activated anytime you're unconscious or unable to make medical decisions. You need to choose someone who meets the legal requirements in your state for acting as your agent. State laws vary, but most states disqualify anyone under the age of 18, your health care provider, or employees of your health care provider.

The person you name as your agent must:

  • Be willing to speak and advocate on your behalf
  • Be willing to deal with conflict among friends and family members, if it arises
  • Know you well and understand your wishes
  • Be willing to talk with you about these issues
  • Be someone you trust with your life

The Free State Return

Free state return Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. Free state return S. Free state return Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. Free state return S. Free state return Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. Free state return S. Free state return Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. Free state return Employee business expenses. Free state return Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Free state return You can change your choice for each year's taxes. Free state return To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. Free state return S. Free state return tax return. Free state return However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. Free state return See How To Figure the Credit , later. Free state return To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. Free state return Figure your tax both ways—claiming the credit and claiming the deduction. Free state return Then fill out your return the way that benefits you more. Free state return See Why Choose the Credit, later. Free state return Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. Free state return If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. Free state return You cannot deduct any of them. Free state return Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. Free state return You cannot take a credit for any of them. Free state return See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. Free state return There are exceptions to this general rule, which are described next. Free state return Exceptions for foreign taxes not allowed as a credit. Free state return   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Free state return Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. Free state return S. Free state return tax purposes. Free state return For more information, see Internal Revenue Code section 901(m). Free state return The IRS intends to issue guidance that will explain this provision in greater detail. Free state return   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. Free state return Foreign taxes that are not income taxes. Free state return   In most cases, only foreign income taxes qualify for the foreign tax credit. Free state return Other taxes, such as foreign real and personal property taxes, do not qualify. Free state return But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. Free state return   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. Free state return However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). Free state return Carrybacks and carryovers. Free state return   There is a limit on the credit you can claim in a tax year. Free state return If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. Free state return If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. Free state return That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. Free state return   For more information on the limit, see How To Figure the Credit , later. Free state return For more information on carrybacks and carryovers, see Carryback and Carryover , later. Free state return Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. Free state return You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. Free state return Example. Free state return You paid foreign taxes for the last 13 years and chose to deduct them on your U. Free state return S. Free state return income tax returns. Free state return You were timely in both filing your returns and paying your U. Free state return S. Free state return tax liability. Free state return In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. Free state return Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). Free state return Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. Free state return Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. Free state return If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. Free state return Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. Free state return Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. Free state return However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. Free state return You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. Free state return See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. Free state return Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. Free state return In most cases, if the foreign tax rate is higher than the U. Free state return S. Free state return rate, there will be no U. Free state return S. Free state return tax on the foreign income. Free state return If the foreign tax rate is lower than the U. Free state return S. Free state return rate, U. Free state return S. Free state return tax on the foreign income will be limited to the difference between the rates. Free state return The foreign tax credit can only reduce U. Free state return S. Free state return taxes on foreign source income; it cannot reduce U. Free state return S. Free state return taxes on U. Free state return S. Free state return source income. Free state return Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. Free state return This is because: A credit reduces your actual U. Free state return S. Free state return income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. Free state return You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. Free state return (See Limit on credit under How To Figure the Credit, later. Free state return ) Example 1. Free state return For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. Free state return None of the dividends are qualified dividends. Free state return You file a joint return and can claim two $3,900 exemptions. Free state return You had to pay $2,000 in foreign income taxes on the dividend income. Free state return If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. Free state return Your taxable income then is $57,500 and your tax is $7,736. Free state return If you take the credit instead, your itemized deductions are only $13,000. Free state return Your taxable income then is $59,500 and your tax before the credit is $8,036. Free state return After the credit, however, your tax is only $6,036. Free state return Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. Free state return Example 2. Free state return In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. Free state return You report on your U. Free state return S. Free state return return this income as well as $56,000 of U. Free state return S. Free state return source wages and an allowable $49,000 partnership loss from a U. Free state return S. Free state return partnership. Free state return Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. Free state return You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. Free state return If you deduct the foreign tax on your U. Free state return S. Free state return return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. Free state return If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. Free state return You can take a credit of only $113 because of limits discussed later. Free state return Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. Free state return If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). Free state return When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. Free state return Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. Free state return “Tax year” refers to the tax year for which your U. Free state return S. Free state return return is filed, not the tax year for which your foreign return is filed. Free state return Accrual method of accounting. Free state return   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. Free state return You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. Free state return   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. Free state return Generally, this occurs on the last day of the tax year for which your foreign return is filed. Free state return Contesting your foreign tax liability. Free state return   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. Free state return However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. Free state return Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. Free state return If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . Free state return You may have to post a bond. Free state return   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. Free state return   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. Free state return Cash method of accounting. Free state return   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. Free state return You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. Free state return Choosing to take credit in the year taxes accrue. Free state return   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. Free state return You make the choice by checking the box in Part II of Form 1116. Free state return Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. Free state return   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. Free state return You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Free state return   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. Free state return Credit based on taxes paid in earlier year. Free state return   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. Free state return Example. Free state return Last year you took the credit based on taxes paid. Free state return This year you chose to take the credit based on taxes accrued. Free state return During the year you paid foreign income taxes owed for last year. Free state return You also accrued foreign income taxes for this year that you did not pay by the end of the year. Free state return You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. Free state return Foreign Currency and Exchange Rates U. Free state return S. Free state return income tax is imposed on income expressed in U. Free state return S. Free state return dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. Free state return Therefore, fluctuations in the value of the foreign currency relative to the U. Free state return S. Free state return dollar may affect the foreign tax credit. Free state return Translating foreign currency into U. Free state return S. Free state return dollars. Free state return   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. Free state return S. Free state return dollars. Free state return How and when you do this depends on your functional currency. Free state return In most cases, your functional currency is the U. Free state return S. Free state return dollar unless you are required to use the currency of a foreign country. Free state return   You must make all federal income tax determinations in your functional currency. Free state return The U. Free state return S. Free state return dollar is the functional currency for all taxpayers except some qualified business units. Free state return A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Free state return Unless you are self-employed, your functional currency is the U. Free state return S. Free state return dollar. Free state return   Even if you are self-employed and have a qualified business unit, your functional currency is the U. Free state return S. Free state return dollar if any of the following apply. Free state return You conduct the business primarily in dollars. Free state return The principal place of business is located in the United States. Free state return You choose to or are required to use the dollar as your functional currency. Free state return The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. Free state return   If your functional currency is the U. Free state return S. Free state return dollar, you must immediately translate into dollars all items of income, expense, etc. Free state return , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Free state return If there is more than one exchange rate, use the one that most properly reflects your income. Free state return In most cases, you can get exchange rates from banks and U. Free state return S. Free state return Embassies. Free state return   If your functional currency is not the U. Free state return S. Free state return dollar, make all income tax determinations in your functional currency. Free state return At the end of the year, translate the results, such as income or loss, into U. Free state return S. Free state return dollars to report on your income tax return. Free state return    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. Free state return   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. Free state return If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. Free state return If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. Free state return   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). Free state return Exception. Free state return   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. Free state return This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. Free state return The foreign taxes are paid on or after the first day of the tax year to which they relate. Free state return The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. Free state return The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). Free state return (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. Free state return )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. Free state return Election to use exchange rate on date paid. Free state return   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. Free state return If any of the accrued taxes are unpaid, you must translate them into U. Free state return S. Free state return dollars using the exchange rate on the last day of the U. Free state return S. Free state return tax year to which those taxes relate. Free state return You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. Free state return S. Free state return dollar functional currency. Free state return Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. Free state return The election is available for tax years beginning after 2004. Free state return It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. Free state return Make the election by attaching a statement to the applicable tax return. Free state return The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. Free state return S. Free state return dollar functional currency. Free state return Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. Free state return S. Free state return foreign tax credit claimed. Free state return The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. Free state return If a foreign tax redetermination occurs, a redetermination of your U. Free state return S. Free state return tax liability is required if any of the following conditions apply. Free state return The accrued taxes when paid differ from the amounts claimed as a credit. Free state return The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. Free state return If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. Free state return You will not be allowed a credit for the unpaid taxes until you pay them. Free state return When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. Free state return S. Free state return dollars using the exchange rate as of the date they were paid. Free state return The foreign tax credit is allowed for the year to which the foreign tax relates. Free state return See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. Free state return The foreign taxes you paid are refunded in whole or in part. Free state return For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. Free state return However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. Free state return S. Free state return tax year. Free state return In this case, you must adjust your U. Free state return S. Free state return tax in the tax year in which the accrued foreign taxes are paid. Free state return Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. Free state return S. Free state return tax liability for each tax year affected by the redetermination. Free state return In most cases, you must file Form 1040X, Amended U. Free state return S. Free state return Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. Free state return S. Free state return tax liability for the year or years affected. Free state return See Contents of statement , later. Free state return You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. Free state return There are other exceptions to this requirement. Free state return They are discussed later under Due date of notification to IRS . Free state return Contents of statement. Free state return   The statement must include all of the following. Free state return Your name, address, and taxpayer identification number. Free state return The tax year or years that are affected by the foreign tax redetermination. Free state return The date or dates the foreign taxes were accrued, if applicable. Free state return The date or dates the foreign taxes were paid. Free state return The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. Free state return Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. Free state return   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. Free state return   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). Free state return Due date of notification to IRS. Free state return   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. Free state return There is no limit on the time the IRS has to redetermine and assess the correct U. Free state return S. Free state return tax due. Free state return If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. Free state return S. Free state return taxes. Free state return See Time Limit on Refund Claims , later. Free state return   Exceptions to this due date are explained in the next two paragraphs. Free state return Multiple redeterminations of U. Free state return S. Free state return tax liability for same tax year. Free state return   Where more than one foreign tax redetermination requires a redetermination of U. Free state return S. Free state return tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. Free state return If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. Free state return However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. Free state return S. Free state return tax liability is required may occur after the due date for providing that notification. Free state return In this situation, you may have to file more than one Form 1040X for that tax year. Free state return Additional U. Free state return S. Free state return tax due eliminated by foreign tax credit carryback or carryover. Free state return   If a foreign tax redetermination requires a redetermination of U. Free state return S. Free state return tax liability that would otherwise result in an additional amount of U. Free state return S. Free state return tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. Free state return Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. Free state return You must file the statement by the due date (with extensions) of that return. Free state return The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. Free state return S. Free state return tax liability is required). Free state return Failure-to-notify penalty. Free state return   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. Free state return   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. Free state return S. Free state return tax. Free state return This penalty cannot be more than 25% of the tax due. Free state return Foreign tax refund. Free state return   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. Free state return S. Free state return tax for the time before the date of the refund. Free state return   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. Free state return The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. Free state return Interest also is owed from the time you receive a refund until you pay the additional tax due. Free state return Foreign tax imposed on foreign refund. Free state return   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. Free state return However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. Free state return Example. Free state return You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. Free state return When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. Free state return Time Limit on Refund Claims You have 10 years to file a claim for refund of U. Free state return S. Free state return tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. Free state return The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. Free state return You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. Free state return The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). Free state return The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. Free state return See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. Free state return Who Can Take the Credit? U. Free state return S. Free state return citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. Free state return S. Free state return tax on foreign source income may be able to take a foreign tax credit. Free state return U. Free state return S. Free state return Citizens If you are a U. Free state return S. Free state return citizen, you are taxed by the United States on your worldwide income wherever you live. Free state return You are normally entitled to take a credit for foreign taxes you pay or accrue. Free state return Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. Free state return S. Free state return citizens. Free state return If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. Free state return Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. Free state return For information on alien status, see Publication 519. Free state return Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. Free state return However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. Free state return S. Free state return possession on income from foreign sources that is effectively connected with a trade or business in the United States. Free state return But if you must pay tax to a foreign country or U. Free state return S. Free state return possession on income from U. Free state return S. Free state return sources only because you are a citizen or a resident of that country or U. Free state return S. Free state return possession, do not use that tax in figuring the amount of your credit. Free state return For information on alien status and effectively connected income, see Publication 519. Free state return What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. Free state return The tax must be imposed on you. Free state return You must have paid or accrued the tax. Free state return The tax must be the legal and actual foreign tax liability. Free state return The tax must be an income tax (or a tax in lieu of an income tax). Free state return Certain foreign taxes do not qualify for the credit even if the four tests are met. Free state return See Foreign Taxes for Which You Cannot Take a Credit, later. Free state return Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. Free state return S. Free state return possession. Free state return For example, a tax that is deducted from your wages is considered to be imposed on you. Free state return You cannot shift the right to claim the credit by contract or other means. Free state return Foreign country. Free state return   A foreign country includes any foreign state and its political subdivisions. Free state return Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. Free state return U. Free state return S. Free state return possessions. Free state return   For foreign tax credit purposes, all qualified taxes paid to U. Free state return S. Free state return possessions are considered foreign taxes. Free state return For this purpose, U. Free state return S. Free state return possessions include Puerto Rico and American Samoa. Free state return   When the term “foreign country” is used in this publication, it includes U. Free state return S. Free state return possessions unless otherwise stated. Free state return You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. Free state return S. Free state return possession. Free state return However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. Free state return Joint return. Free state return   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. Free state return Combined income. Free state return   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. Free state return 901-2(f)(3)(iii). Free state return Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. Free state return   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. Free state return However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. Free state return For more details, see paragraphs (f) and (h) of Regulations section 1. Free state return 901-2. Free state return For similar rules applicable to prior tax years, see Regulations section 1. Free state return 901-2 (revised as of April 1, 2011). Free state return Example. Free state return You and your spouse reside in Country X, which imposes income tax on your combined incomes. Free state return Both of you use the “u” as your functional currency. Free state return Country X apportions tax based on income. Free state return You had income of 30,000u and your spouse had income of 20,000u. Free state return Your filing status on your U. Free state return S. Free state return income tax return is married filing separately. Free state return You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. Free state return S income tax return. Free state return Your spouse can claim only 40% (20,000u/50,000u). Free state return Partner or S corporation shareholder. Free state return   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. Free state return These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. Free state return However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. Free state return Beneficiary. Free state return   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. Free state return This amount will be shown on the Schedule K-1 you receive from the estate or trust. Free state return However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. Free state return Mutual fund shareholder. Free state return   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. Free state return You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. Free state return If you do not receive this information, you will need to contact the fund. Free state return Controlled foreign corporation shareholder. Free state return   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. Free state return If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. Free state return Controlled foreign corporation. Free state return   A controlled foreign corporation is a foreign corporation in which U. Free state return S. Free state return shareholders own more than 50% of the voting power or value of the stock. Free state return You are considered a U. Free state return S. Free state return shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. Free state return See Internal Revenue Code sections 951(b) and 958(b) for more information. Free state return Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. Free state return Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. Free state return Foreign tax refund. Free state return   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. Free state return   For example, the United States has tax treaties with many countries allowing U. Free state return S. Free state return citizens and residents reductions in the rates of tax of those foreign countries. Free state return However, some treaty countries require U. Free state return S. Free state return citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. Free state return The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. Free state return Subsidy received. Free state return   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. Free state return This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. Free state return A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. Free state return   The term “subsidy” includes any type of benefit. Free state return Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Free state return Shareholder receiving refund for corporate tax in integrated system. Free state return   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. Free state return You may be able to claim a refund of these taxes from the foreign government. Free state return You must include the refund (including any amount withheld) in your income in the year received. Free state return Any tax withheld from the refund is a qualified foreign tax. Free state return Example. Free state return You are a shareholder of a French corporation. Free state return You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. Free state return The French government imposes a 15% withholding tax ($15) on the refund you received. Free state return You receive a check for $85. Free state return You include $100 in your income. Free state return The $15 of tax withheld is a qualified foreign tax. Free state return Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. Free state return Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. Free state return Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. Free state return See Taxes in Lieu of Income Taxes , later. Free state return Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. Free state return A foreign levy is an income tax only if it meets both of the following requirements. Free state return It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. Free state return The predominant character of the tax is that of an income tax in the U. Free state return S. Free state return sense. Free state return A foreign levy may meet these requirements even if the foreign tax law differs from U. Free state return S. Free state return tax law. Free state return The foreign law may include in income items that U. Free state return S. Free state return law does not include, or it may allow certain exclusions or deductions that U. Free state return S. Free state return law does not allow. Free state return Specific economic benefit. Free state return   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. Free state return   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. Free state return   However, see the exception discussed later under Pension, unemployment, and disability fund payments . Free state return Economic benefits. Free state return   Economic benefits include the following. Free state return Goods. Free state return Services. Free state return Fees or other payments. Free state return Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. Free state return Discharges of contractual obligations. Free state return   In most cases, the right or privilege merely to engage in business is not an economic benefit. Free state return Dual-capacity taxpayers. Free state return   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. Free state return ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. Free state return    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. Free state return   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. Free state return    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. Free state return For more information about these agreements, see Publication 54. Free state return Soak-up taxes. Free state return   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. Free state return A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. Free state return This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. Free state return Penalties and interest. Free state return   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. Free state return Taxes not based on income. Free state return   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. Free state return Taxes based on assets, such as property taxes, do not qualify for the credit. Free state return Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. Free state return A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. Free state return A tax in lieu of an income tax does not have to be based on realized net income. Free state return A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. Free state return In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. Free state return However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. Free state return The soak-up tax. Free state return The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. Free state return Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. Free state return These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. Free state return S. Free state return persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. Free state return Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. Free state return S. Free state return gross income. Free state return Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. Free state return S. Free state return income under the foreign earned income exclusion or the foreign housing exclusion. Free state return See Publication 54 for more information on the foreign earned income and housing exclusions. Free state return Wages completely excluded. Free state return   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. Free state return Wages partly excluded. Free state return   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. Free state return You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. Free state return   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. Free state return Deductible expenses do not include the foreign housing deduction. Free state return   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Free state return If the foreign law taxes foreign earned income and some other income (for example, earned income from U. Free state return S. Free state return sources or a type of income not subject to U. Free state return S. Free state return tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. Free state return Example. Free state return You are a U. Free state return S. Free state return citizen and a cash basis taxpayer, employed by Company X and living in Country A. Free state return Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. Free state return To find that part, do the following. Free state return First, find the amount of business expenses allocable to excluded wages and therefore not deductible. Free state return To do this, multiply the otherwise deductible expenses by a fraction. Free state return That fraction is the excluded wages over your foreign earned income. Free state return   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. Free state return To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). Free state return The result is $81,984. Free state return Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). Free state return Finally, multiply the foreign tax you paid by the resulting fraction. Free state return   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. Free state return Taxes on Income From Puerto Rico Exempt From U. Free state return S. Free state return Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. Free state return For information on figuring the reduction, see Publication 570. Free state return Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. Free state return For more information on this exclusion, see Publication 570. Free state return Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. Free state return However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. Free state return Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. Free state return However, you can claim an itemized deduction for these taxes. Free state return See Choosing To Take Credit or Deduction , earlier. Free state return Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. Free state return The following countries meet this description for 2013. Free state return Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. Free state return Cuba. Free state return Iran. Free state return Libya (but see Note later). Free state return North Korea. Free state return Sudan. Free state return Syria. Free state return Waiver of denial of the credit. Free state return   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. Free state return S. Free state return companies in the sanctioned country. Free state return The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. Free state return Note. Free state return Effective December 10, 2004, the President granted a waiver to Libya. Free state return Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. Free state return Limit on credit. Free state return   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. Free state return You must fill out a separate Form 1116 for this income. Free state return This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. Free state return Example. Free state return You lived and worked in Iran until August, when you were transferred to Italy. Free state return You paid taxes to each country on the income earned in that country. Free state return You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. Free state return Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. Free state return You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. Free state return Figuring the credit when a sanction ends. Free state return    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. Free state return For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. Free state return Example. Free state return The sanctions against Country X ended on July 31. Free state return On August 19, you receive a distribution from a mutual fund of Country X income. Free state return The fund paid Country X income tax for you on the distribution. Free state return Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. Free state return Amounts for the nonsanctioned period. Free state return   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. Free state return Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. Free state return   Number of nonsanctioned days in year  Number of days in year Example. Free state return You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. Free state return Sanctions against Country X ended on July 11, 2013. Free state return You are unable to determine how much of the income or tax is for the nonsanctioned period. Free state return Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. Free state return You would compute the income for the nonsanctioned period as follows. Free state return 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. Free state return 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. Free state return Further information. Free state return   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. Free state return This Cumulative Bulletin can be found in many libraries and IRS offices. Free state return Table 1. Free state return Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. Free state return Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. Free state return The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). Free state return The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. Free state return If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. Free state return When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Free state return Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. Free state return Withholding tax. Free state return   For this purpose, withholding tax includes any tax determined on a gross basis. Free state return It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Free state return Ex-dividend date. Free state return   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. Free state return Example 1. Free state return You bought common stock from a foreign corporation on November 3. Free state return You sold the stock on November 19. Free state return You received a dividend on this stock because you owned it on the ex-dividend date of November 5. Free state return To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). Free state return Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. Free state return Example 2. Free state return The facts are the same as in Example 1 except that you sold the stock on November 14. Free state return You held the stock for only 11 days. Free state return You are not entitled to the credit. Free state return Exception. Free state return   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. Free state return See section 901(k)(4) of the Internal Revenue Code for more information. Free state return Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. Free state return When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Free state return Withholding tax. Free state return   For this purpose, withholding tax includes any tax determined on a gross basis. Free state return It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Free state return Exception for dealers. Free state return   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. Free state return See section 901(I)(2) of the Internal Revenue Code for more information. Free state return Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. Free state return A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. Free state return S. Free state return tax purposes but not for foreign tax purposes. Free state return For more information, see Internal Revenue Code section 901(m). Free state return The IRS intends to issue guidance that will explain this provision in greater detail. Free state return Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. Free state return Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. Free state return For details, see Regulations section 1. Free state return 901-3. Free state return Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. Free state return See the instructions for line 12 in the Form 1116 instructions to figure this reduction. Free state return In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. Free state return List of boycotting countries. Free state return   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. Free state return As of November 2013, the following countries are listed. Free state return Iraq. Free state return Kuwait. Free state return Lebanon. Free state return Libya. Free state return Qatar. Free state return Saudi Arabia. Free state return Syria. Free state return United Arab Emirates. Free state return Yemen. Free state return    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. Free state return   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. Free state return The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. Free state return Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. Free state return Public inspection. Free state return   A determination and any related background file is open to public inspection. Free state return However, your identity and certain other information will remain confidential. Free state return Reporting requirements. Free state return   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. Free state return A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. Free state return A partnership in which you are a partner. Free state return A trust you are treated as owning. Free state return Form 5713 required. Free state return   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. Free state return See the Instructions for Form 5713 for information on when and where to file the form. Free state return Penalty for failure to file. Free state return   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. Free state return Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. Free state return The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. Free state return S. Free state return tax liability (Form 1040, line 44) divided by your worldwide taxable income. Free state return You may be entitled to carry over to other years taxes reduced under this rule. Free state return See Internal Revenue Code section 907(f). Free state return Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. Free state return Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. Free state return Taxes of U. Free state return S. Free state return Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. Free state return If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. Free state return See Penalty for not filing Form 5471 or Form 8865 , later. Free state return U. Free state return S. Free state return persons controlling foreign corporations. Free state return   If you are a U. Free state return S. Free state return citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. Free state return S. Free state return Persons With Respect To Certain Foreign Corporations. Free state return Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. Free state return U. Free state return S. Free state return persons controlling foreign partnerships. Free state return   If you are a U. Free state return S. Free state return citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file