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H&r block free Publication 51 - Main Content Table of Contents 1. H&r block free Taxpayer Identification NumbersWhen you receive your EIN. H&r block free Registering for SSNVS. H&r block free 2. H&r block free Who Are Employees?Crew Leaders Business Owned and Operated by Spouses 3. H&r block free Wages and Other Compensation 4. H&r block free Social Security and Medicare TaxesThe $150 Test or the $2,500 Test Social Security and Medicare Tax Withholding 5. H&r block free Federal Income Tax WithholdingImplementation of lock-in letter. H&r block free Seasonal employees and employees not currently performing services. H&r block free Termination and re-hire of employees. H&r block free How To Figure Federal Income Tax Withholding 6. H&r block free Required Notice to Employees About Earned Income Credit (EIC) 7. H&r block free Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties Employers of Both Farm and Nonfarm Workers 8. H&r block free Form 943 9. H&r block free Reporting Adjustments on Form 943Current Year Adjustments Prior Year Adjustments 10. H&r block free Federal Unemployment (FUTA) Tax 11. H&r block free Reconciling Wage Reporting Forms 13. H&r block free Federal Income Tax Withholding MethodsWage Bracket Method Percentage Method Alternative Methods of Federal Income Tax Withholding How To Get Tax Help 1. H&r block free Taxpayer Identification Numbers If you are required to withhold any federal income, social security, or Medicare taxes, you will need an employer identification number (EIN) for yourself. H&r block free Also, you will need the SSN of each employee and the name of each employee as shown on the employee's social security card. H&r block free Employer identification number (EIN). H&r block free   An employer identification number (EIN) is a nine-digit number that the IRS issues. H&r block free The digits are arranged as follows: 00-0000000. H&r block free It is used to identify the tax accounts of employers and certain others who have no employees. H&r block free Use your EIN on all of the items that you send to the IRS and SSA. H&r block free   If you do not have an EIN, you may apply for one online. H&r block free Visit IRS. H&r block free gov and click on the Apply for an EIN Online link under Tools. H&r block free You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. H&r block free Do not use a SSN in place of an EIN. H&r block free   If you do not have an EIN by the time a return is due, write “Applied For” and the date you applied for it in the space shown for the number. H&r block free If you took over another employer's business, do not use that employer's EIN. H&r block free   You should have only one EIN. H&r block free If you have more than one, and are not sure which one to use, call the toll-free Business and Specialty Tax Line at 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). H&r block free Provide the EINs that you have, the name and address to which each number was assigned, and the address of your principal place of business. H&r block free The IRS will tell you which EIN to use. H&r block free   For more information, see Publication 1635 or Publication 583. H&r block free When you receive your EIN. H&r block free   If you are a new employer that indicated a federal tax obligation when requesting an EIN, you will be pre-enrolled in the Electronic Federal Tax Payment System (EFTPS). H&r block free You will receive information in your Employer Identification Number (EIN) Package about Express Enrollment and an additional mailing containing your EFTPS personal identification number (PIN) and instructions for activating your PIN. H&r block free Call the toll-free number located in your “How to Activate Your Enrollment” brochure to activate your enrollment and begin making your employment tax deposits. H&r block free If you outsource any of your payroll and related tax duties to a third party payer, such as a payroll service provider or reporting agent, be sure to tell them about your EFTPS enrollment. H&r block free Social security number (SSN). H&r block free   An employee's social security number (SSN) consists of nine digits arranged as follows: 000-00-0000. H&r block free You must obtain each employee's name and SSN as shown on the employee's social security card because you must enter them on Form W-2. H&r block free Do not accept a social security card that says “Not valid for employment. H&r block free ” A social security number issued with this legend does not permit employment. H&r block free You may, but are not required to, photocopy the social security card if the employee provides it. H&r block free If you do not show the employee's correct name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. H&r block free See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs. H&r block free Applying for a social security card. H&r block free   Any employee who is legally eligible to work in the United States and does not have a social security card can get one by completing Form SS-5, Application for a Social Security Card, and submitting the necessary documentation to SSA. H&r block free You can get Form SS-5 at SSA offices, by calling 1-800-772-1213 or 1-800-325-0778 (TTY), or from the SSA website at www. H&r block free socialsecurity. H&r block free gov/online/ss-5. H&r block free html. H&r block free The employee must complete and sign Form SS-5; it cannot be filed by the employer. H&r block free You may be asked to supply a letter to accompany Form SS-5 if the employee has exceeded his or her yearly or lifetime limit for the number of replacement cards allowed. H&r block free Applying for a social security number. H&r block free   If you file Form W-2 on paper and your employee has applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. H&r block free If you are filing electronically, enter all zeros (000-00-0000) in the social security number field. H&r block free When the employee receives the SSN, file Copy A of Form W-2c, Corrected Wage and Tax Statement, with the SSA to show the employee's SSN. H&r block free Furnish Copies B, C, and 2 of Form W-2c to the employee. H&r block free Up to 25 Forms W-2c per Form W-3c, Transmittal of Corrected Wage and Tax Statements, may be filed per session over the Internet, with no limit on the number of sessions. H&r block free For more information, visit SSA's Employer W-2 Filing Instructions & Information webpage at www. H&r block free socialsecurity. H&r block free gov/employer. H&r block free Advise your employee to correct the SSN on his or her original Form W-2. H&r block free Correctly record the employee's name and SSN. H&r block free   Record the name and number of each employee as they are shown on the employee's social security card. H&r block free If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a corrected card from the SSA. H&r block free Continue to report the employee's wages under the old name until the employee shows you an updated social security card with the new name. H&r block free   If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported on the most recently filed Form W-2. H&r block free It is not necessary to correct other years if the previous name and SSN were used for years before the most recent Form W-2. H&r block free IRS individual taxpayer identification numbers (ITINs) for aliens. H&r block free   Do not accept an ITIN in place of an SSN for employee identification or for work. H&r block free An ITIN is issued for use by resident and nonresident aliens who need identification for tax purposes, but who are not eligible for U. H&r block free S. H&r block free employment. H&r block free The ITIN is a nine-digit number formatted like an SSN (for example, NNN-NN-NNNN). H&r block free However, it begins with the number “9” and has either a “7” or “8” as the fourth digit (for example, 9NN-7N-NNNN or 9NN-8N-NNNN). H&r block free    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. H&r block free If the individual is currently eligible to work in the United States, instruct the individual to apply for an SSN and follow the instructions under Applying for a social security number, earlier in this section. H&r block free Do not use an ITIN in place of an SSN on Form W-2. H&r block free Verification of social security numbers. H&r block free   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 employee names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive results the next business day. H&r block free Visit www. H&r block free socialsecurity. H&r block free gov/employer/ssnv. H&r block free htm for more information. H&r block free Registering for SSNVS. H&r block free   You must register online and receive authorization from your employer to use SSNVS. H&r block free To register, visit SSA's website at www. H&r block free socialsecurity. H&r block free gov/employer and click on the Business Services Online link. H&r block free Follow the registration instructions to obtain a user identification (ID) and password. H&r block free You will need to provide the following information about yourself and your company. H&r block free Name. H&r block free SSN. H&r block free Date of birth. H&r block free Type of employer. H&r block free EIN. H&r block free Company name, address, and telephone number. H&r block free Email address. H&r block free When you have completed the online registration process, SSA will mail a one-time activation code to your employer. H&r block free You must enter the activation code online to use SSNVS. H&r block free 2. H&r block free Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. H&r block free See Publication 15-A for details on statutory employees and nonemployees. H&r block free Employee status under common law. H&r block free   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. H&r block free This is so even when you give the employee freedom of action. H&r block free What matters is that you have the right to control the details of how the services are performed. H&r block free See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. H&r block free If an employer-employee relationship exists, it does not matter what it is called. H&r block free The employee may be called an agent or independent contractor. H&r block free It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. H&r block free You are responsible for withholding and paying employment taxes for your employees. H&r block free You are also required to file employment tax returns. H&r block free These requirements do not apply to amounts that you pay to independent contractors. H&r block free The rules discussed in this publication apply only to workers who are your employees. H&r block free In general, you are an employer of farmworkers if your employees: Raise or harvest agricultural or horticultural products on your farm (including the raising and feeding of livestock); Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and equipment; Provide services relating to salvaging timber, or clearing land of brush and other debris, left by a hurricane (also known as hurricane labor); Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group of up to 20 unincorporated operators, all of the commodity); or Do work for you related to cotton ginning, turpentine, gum resin products, or the operation and maintenance of irrigation facilities. H&r block free For this purpose, the term “farm” includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, as well as plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards. H&r block free Farmwork does not include reselling activities that do not involve any substantial activity of raising agricultural or horticultural commodities, such as a retail store or a greenhouse used primarily for display or storage. H&r block free The table in section 12, How Do Employment Taxes Apply to Farmwork , distinguishes between farm and nonfarm activities, and also addresses rules that apply in special situations. H&r block free Crew Leaders If you are a crew leader, you are an employer of farmworkers. H&r block free A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. H&r block free If there is no written agreement between you and the farm operator stating that you are his or her employee and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader. H&r block free For FUTA tax rules, see section 10. H&r block free Business Owned and Operated by Spouses If you and your spouse jointly own and operate a farm or nonfarm business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. H&r block free See Publication 541, Partnerships, for more details. H&r block free The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. H&r block free Exception—Qualified joint venture. H&r block free   For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. H&r block free A qualified joint venture conducts a trade or business where: The only members of the joint venture are spouses who file a joint income tax return, Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property is not enough), Both spouses elect to not be treated as a partnership, and The business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or limited liability company (LLC). H&r block free   To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse's interest in the venture, and reported on separate Schedules C or F as sole proprietors. H&r block free Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. H&r block free   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. H&r block free If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse's sole proprietorship. H&r block free Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. H&r block free However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return. H&r block free    Note. H&r block free If your spouse is your employee, not your partner, you must pay social security and Medicare taxes for him or her. H&r block free   For more information on qualified joint ventures, visit IRS. H&r block free gov and enter “qualified joint venture” in the search box. H&r block free Exception—Community income. H&r block free   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. H&r block free S. H&r block free possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. H&r block free You may still make an election to be taxed as a qualified joint venture instead of a partnership. H&r block free See Exception—Qualified joint venture , earlier in this section. H&r block free 3. H&r block free Wages and Other Compensation Cash wages that you pay to employees for farmwork are generally subject to social security tax and Medicare tax. H&r block free You may also be required to withhold, deposit, and report Additional Medicare Tax. H&r block free See section 4 for more information. H&r block free If the wages are subject to social security and Medicare taxes, they are also subject to federal income tax withholding. H&r block free You may also be liable for FUTA tax, which is not withheld by you or paid by the employee. H&r block free FUTA tax is discussed in section 10. H&r block free Cash wages include checks, money orders, etc. H&r block free Do not count as cash wages the value of food, lodging, and other noncash items. H&r block free For more information on what payments are considered taxable wages, see Publication 15 (Circular E). H&r block free Commodity wages. H&r block free   Commodity wages are not cash and are not subject to social security and Medicare taxes or federal income tax withholding. H&r block free However, noncash payments, including commodity wages, are treated as cash wages (see above) if the substance of the transaction is a cash payment. H&r block free These noncash payments are subject to social security and Medicare taxes and federal income tax withholding. H&r block free Other compensation. H&r block free   Publications 15-A and 15-B discuss other forms of compensation that may be taxable. H&r block free Family members. H&r block free   Generally, the wages that you pay to family members who are your employees are subject to social security and Medicare taxes, federal income tax withholding, and FUTA tax. H&r block free However, certain exemptions may apply for your child, spouse, or parent. H&r block free See the table, How Do Employment Taxes Apply to Farmwork , in section 12. H&r block free Household employees. H&r block free   The wages of an employee who performs household services, such as a maid, babysitter, gardener, or cook, in your home are not subject to social security and Medicare taxes if you pay that employee cash wages of less than $1,900 in 2014. H&r block free   Social security and Medicare taxes do not apply to cash wages for housework in your private home if it was done by your spouse or your child under age 21. H&r block free Nor do the taxes apply to housework done by your parent unless: You have a child living in your home who is under age 18 or has a physical or mental condition that requires care by an adult for at least 4 continuous weeks in a calendar quarter, and You are a widow or widower, or divorced and not remarried, or have a spouse in the home who, because of a physical or mental condition, cannot care for your child for at least 4 continuous weeks in the quarter. H&r block free   For more information, see Publication 926, Household Employer's Tax Guide. H&r block free    Wages for household work may not be a deductible farm expense. H&r block free See Publication 225, Farmer's Tax Guide. H&r block free Share farmers. H&r block free   You do not have to withhold or pay social security and Medicare taxes on amounts paid to share farmers under share-farming arrangements. H&r block free Compensation paid to H-2A visa holders. H&r block free   Report compensation of $600 or more paid to foreign agricultural workers who entered the country on H-2A visas in box 1 of Form W-2 but do not report it as social security wages (box 3) or Medicare wages (box 5) on Form W-2 because compensation paid to H-2A workers for agricultural labor performed in connection with this visa is not subject to social security and Medicare taxes. H&r block free On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. H&r block free   An employer is not required to withhold federal income tax from compensation it pays an H-2A worker for agricultural labor performed in connection with this visa unless the worker asks for withholding and the employer agrees. H&r block free In that case, the worker must give the employer a completed Form W-4. H&r block free Federal income tax withheld should be reported in box 2 of Form W-2. H&r block free These reporting rules apply when the H-2A worker provides his or her taxpayer identification number (TIN) to the employer. H&r block free For rules relating to backup withholding and reporting when the H-2A worker does not provide a TIN, see the Instructions for Form 1099-MISC and the Instructions for Form 945. H&r block free 4. H&r block free Social Security and Medicare Taxes Generally, you must withhold social security and Medicare taxes on all cash wage payments that you make to your employees. H&r block free You may also be required to withhold Additional Medicare Tax. H&r block free For more information, see Additional Medicare Tax withholding , later. H&r block free The $150 Test or the $2,500 Test All cash wages that you pay to an employee during the year for farmwork are subject to social security and Medicare taxes and federal income tax withholding if either of the two tests below is met. H&r block free You pay cash wages to an employee of $150 or more in a year for farmwork (count all cash wages paid on a time, piecework, or other basis). H&r block free The $150 test applies separately to each farmworker that you employ. H&r block free If you employ a family of workers, each member is treated separately. H&r block free Do not count wages paid by other employers. H&r block free The total that you pay for farmwork (cash and noncash) to all your employees is $2,500 or more during the year. H&r block free Exceptions. H&r block free   The $150 and $2,500 tests do not apply to wages that you pay to a farmworker who receives less than $150 in annual cash wages and the wages are not subject to social security and Medicare taxes, or federal income tax withholding, even if you pay $2,500 or more in that year to all of your farmworkers if the farmworker: Is employed in agriculture as a hand-harvest laborer, Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment, Commutes daily from his or her permanent home to the farm, and Had been employed in agriculture less than 13 weeks in the preceding calendar year. H&r block free   Amounts that you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages that you pay to other farmworkers are subject to social security and Medicare taxes. H&r block free Social Security and Medicare Tax Withholding The social security tax rate is 6. H&r block free 2%, for both the employee and employer, on the first $117,000 paid to each employee. H&r block free You must withhold at this rate from each employee and pay a matching amount. H&r block free The Medicare tax rate is 1. H&r block free 45% each for the employee and employer on all wages. H&r block free You must withhold at this rate from each employee and pay a matching amount. H&r block free There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. H&r block free Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. H&r block free For details, see Publication 15-A. H&r block free Additional Medicare Tax withholding. H&r block free   In addition to withholding Medicare tax at 1. H&r block free 45%, you must withhold a 0. H&r block free 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. H&r block free 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. H&r block free Additional Medicare Tax is only imposed on the employee. H&r block free There is no employer share of Additional Medicare Tax. H&r block free All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. H&r block free   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). H&r block free For more information on Additional Medicare Tax, visit IRS. H&r block free gov and enter “Additional Medicare Tax” in the search box. H&r block free Employee share paid by employer. H&r block free   If you would rather pay a household or agricultural employee's share of the social security and Medicare taxes without withholding them from his or her wages, you may do so. H&r block free If you do not withhold the taxes, however, you must still pay them. H&r block free Any employee social security and Medicare taxes that you pay is additional income to the employee. H&r block free Include it in box 1 of the employee's Form W-2, but do not count it as social security and Medicare wages and do not include it in boxes 3 and 5. H&r block free Also, do not count the additional income as wages for FUTA tax purposes. H&r block free Different rules apply to employer payments of social security and Medicare taxes for non-household and non-agricultural employees. H&r block free See section 7 of Publication 15-A. H&r block free Withholding social security and Medicare taxes on nonresident alien employees. H&r block free   In general, if you pay wages to nonresident alien employees, you must withhold social security and Medicare taxes as you would for a U. H&r block free S. H&r block free citizen or resident alien. H&r block free However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. H&r block free Also see Compensation paid to H-2A visa holders in section 3. H&r block free Religious exemption. H&r block free    An exemption from social security and Medicare taxes is available to members of a recognized religious sect opposed to public insurance. H&r block free This exemption is available only if both the employee and the employer are members of the sect. H&r block free   For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. H&r block free 5. H&r block free Federal Income Tax Withholding Farmers and crew leaders must withhold federal income tax from the wages of farmworkers if the wages are subject to social security and Medicare taxes. H&r block free The amount to withhold is figured on gross wages before taking out social security and Medicare taxes, union dues, insurance, etc. H&r block free You may use one of several methods to determine the amount of federal income tax withholding. H&r block free They are discussed in section 13. H&r block free Form W-4. H&r block free   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. H&r block free Encourage your employees to file an updated Form W-4 for 2014, especially if they owed taxes or received a large refund when filing their 2013 tax return. H&r block free Advise your employees to use the IRS Withholding Calculator on the IRS website at www. H&r block free irs. H&r block free gov/individuals for help in determining how many withholding allowances to claim on their Form W-4. H&r block free   Ask each new employee to give you a signed Form W-4 when starting work. H&r block free Make the form effective with the first wage payment. H&r block free If a new employee does not give you a completed Form W-4, withhold tax as if he or she is single, with no withholding allowances. H&r block free Forms in Spanish. H&r block free   You can provide Formulario W-4(SP) in place of Form W-4 to your Spanish-speaking employees. H&r block free For more information, see Publicación 17(SP). H&r block free Effective date of Form W-4. H&r block free   A Form W-4 remains in effect until the employee gives you a new one. H&r block free When you receive a new Form W-4, do not adjust withholding for pay periods before the effective date of the new form. H&r block free Do not adjust withholding retroactively. H&r block free If an employee gives you a replacement Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. H&r block free For exceptions, see Exemption from federal income tax withholding , IRS review of requested Forms W-4 , and Invalid Forms W-4 , later in this section. H&r block free A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. H&r block free Completing Form W-4. H&r block free   The amount of federal income tax withholding is based on marital status and withholding allowances. H&r block free Your employees may not base their withholding amounts on a fixed dollar amount or percentage. H&r block free However, the employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. H&r block free   Employees may claim fewer withholding allowances than they are entitled to claim. H&r block free They may do this to ensure that they have enough withholding or to offset other sources of taxable income that are not subject to withholding. H&r block free   See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. H&r block free Along with Form W-4, you may wish to order Publication 505 for use by your employees. H&r block free    Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. H&r block free If an employee wants additional withholding, he or she should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. H&r block free Exemption from federal income tax withholding. H&r block free   Generally, an employee may claim exemption from federal income tax withholding because he or she had no federal income tax liability last year and expects none this year. H&r block free See the Form W-4 instructions for more information. H&r block free However, the wages are still subject to social security and Medicare taxes. H&r block free   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. H&r block free To continue to be exempt from withholding in the next calendar year, an employee must give you a new Form W-4 by February 15. H&r block free If the employee does not give you a new Form W-4 by February 15, withhold tax based on the last valid Form W-4 you have for the employee that did not claim an exemption from withholding or, if one does not exist, withhold as if he or she is single with zero withholding allowances. H&r block free If the employee provides a new Form W-4 claiming an exemption from withholding on February 16 or later, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place. H&r block free Withholding income taxes on the wages of nonresident alien employees. H&r block free   In general, you must withhold federal income taxes on the wages of nonresident alien employees. H&r block free However, see Publication 515 for exceptions to this general rule. H&r block free Also see Compensation paid to H-2A visa workers in section 3. H&r block free Withholding adjustment for nonresident alien employees. H&r block free   A special procedure applies for figuring the amount of income tax to withhold from wages of nonresident alien employees performing services within the United States for wages paid in 2014. H&r block free This procedure requires a special chart to be used with the withholding tables to determine the amount to withhold from the wages of the nonresident alien employee. H&r block free See Withholding adjustment for nonresident alien employees in section 9 of Publication 15 (Circular E). H&r block free Nonresident alien employee's Form W-4. H&r block free   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding; Request withholding as if they are single, regardless of their actual marital status; Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or Korea, he or she may claim more than one allowance); and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. H&r block free   If you maintain an electronic Form W-4 system, you should provide a field for nonresident alien employees to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. H&r block free    A nonresident alien employee may request additional withholding at his or her option for other purposes, although such additions should not be necessary for withholding to cover federal income tax liability related to employment. H&r block free Form 8233. H&r block free   If a nonresident alien employee claims a tax treaty exemption from withholding, the employee must submit Form 8233, Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with respect to the income exempt under the treaty, instead of Form W-4. H&r block free See Publication 515 for details. H&r block free IRS review of requested Forms W-4. H&r block free   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. H&r block free You may also be directed to send certain Forms W-4 to the IRS. H&r block free You may receive a notice from the IRS requiring you to submit a copy of Form W-4 for one or more of your named employees. H&r block free Send the requested copy or copies of Form W-4 to the IRS at the address provided and in the manner directed by the notice. H&r block free The IRS may also require you to submit copies of Form W-4 to the IRS as directed by a revenue procedure or notice published in the Internal Revenue Bulletin. H&r block free When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. H&r block free   After submitting a copy of the requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). H&r block free However, if the IRS later notifies you in writing that the employee is not entitled to claim a complete exemption from withholding or more than the maximum number of withholding allowances specified by the IRS in the written notice, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the notice (commonly referred to as a “lock-in letter”). H&r block free Initial lock-in letter. H&r block free   The IRS uses information reported on Form W-2 to identify employees with withholding compliance problems. H&r block free In some cases, where a serious under-withholding problem is found to exist for a particular employee, the IRS may issue a lock-in letter to the employer specifying the maximum number of withholding allowances and marital status permitted for a specific employee. H&r block free You will also receive a copy for the employee that identifies the maximum number of withholding allowances permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate number of withholding allowances. H&r block free If the employee is employed by you as of the date of the notice, you must furnish the employee copy to the employee within 10 business days of receipt. H&r block free You may follow any reasonable business practice to furnish the employee copy to the employee. H&r block free Implementation of lock-in letter. H&r block free   When you receive the notice specifying the maximum number of withholding allowances and marital status permitted, you may not withhold immediately on the basis of the notice. H&r block free You must begin withholding tax on the basis of the notice for any wages paid after the date specified in the notice. H&r block free The delay between your receipt of the notice and the date to begin the withholding on the basis of the notice permits the employee to contact the IRS. H&r block free Seasonal employees and employees not currently performing services. H&r block free   If you receive a notice for an employee who is not currently performing services for you, you are still required to furnish the employee copy to the employee and withhold based on the notice if any of the following apply. H&r block free You are paying wages for the employee's prior services and the wages are subject to income tax withholding on or after the date specified in the notice. H&r block free You reasonably expect the employee to resume services within 12 months of the date of the notice. H&r block free The employee is on a bona fide leave of absence that does not exceed 12 months or the employee has a right to reemployment after the leave of absence. H&r block free Termination and re-hire of employees. H&r block free   If you are required to furnish and withhold based on the notice and the employment relationship is terminated after the date of the notice, you must continue to withhold based on the notice if you continue to pay any wages subject to income tax withholding. H&r block free You must also withhold based on the notice or modification notice (explained next) if the employee resumes the employment relationship with you within 12 months after the termination of the employment relationship. H&r block free Modification notice. H&r block free   After issuing the notice specifying the maximum number of withholding allowances and marital status permitted, the IRS may issue a subsequent notice (modification notice) that modifies the original notice. H&r block free The modification notice may change the marital status and/or the number of withholding allowances permitted. H&r block free You must withhold federal income tax based on the effective date specified in the modification notice. H&r block free New Form W-4 after IRS notice. H&r block free   After the IRS issues a notice or modification notice, if the employee provides you with a new Form W-4 claiming complete exemption from withholding or claims a marital status, a number of withholding allowances, and any additional withholding that results in less withholding than would result under the IRS notice or modification notice, you must disregard the new Form W-4. H&r block free You are required to withhold on the basis of the notice or modification notice unless the IRS subsequently notifies you to withhold based on the new Form W-4. H&r block free If the employee wants to put a new Form W-4 into effect that results in less withholding than required, the employee must contact the IRS. H&r block free   If, after you receive an IRS notice or modification notice, your employee provides you with a new Form W-4 that does not claim exemption from federal income tax withholding and claims a marital status, a number of withholding allowances, and any additional withholding that results in more withholding than would result under the notice or modification notice, you must withhold tax on the basis of that new Form W-4. H&r block free Otherwise, disregard any subsequent Forms W-4 provided by the employee and withhold based on the IRS notice or modification notice. H&r block free Substitute Forms W-4. H&r block free   You are encouraged to have your employees use the official version of Form W-4 to claim withholding allowances or exemption from withholding. H&r block free Call the IRS at 1-800-TAX-FORM (1-800-829-3676) or visit IRS. H&r block free gov to obtain copies of Form W-4. H&r block free   You may use a substitute version of Form W-4 to meet your business needs. H&r block free However, your substitute Form W-4 must contain language that is identical to the official Form W-4 and your form must meet all current IRS rules for substitute forms. H&r block free At the time that you provide your substitute form to the employee, you must provide him or her with all tables, instructions, and worksheets from the current Form W-4. H&r block free   You cannot accept a substitute Form W-4 developed by an employee, and the employee submitting such form will be treated as failing to furnish a Form W-4. H&r block free However, continue to use any valid Forms W-4 developed by your employees that you accepted before October 11, 2007. H&r block free Invalid Forms W-4. H&r block free   Any unauthorized change or addition to Form W-4 makes it invalid. H&r block free This includes taking out any language by which the employee certifies that the form is correct. H&r block free A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way that it is false. H&r block free An employee who submits a false Form W-4 may be subject to a $500 penalty. H&r block free You may treat a Form W-4 as invalid if the employee wrote “exempt” on line 7 and also entered a number on line 5 or an amount on line 6. H&r block free   When you get an invalid Form W-4, do not use it to figure federal income tax withholding. H&r block free Tell the employee that it is invalid and ask for another one. H&r block free If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. H&r block free However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before. H&r block free   For additional information about these rules, see Treasury Decision 9337, 2007-35 I. H&r block free R. H&r block free B. H&r block free 455, available at www. H&r block free irs. H&r block free gov/irb/2007-35_IRB/ar10. H&r block free html. H&r block free Amounts exempt from levy on wages, salary, and other income. H&r block free   If you receive a Notice of Levy on Wages, Salary, and Other Income—Forms 668-W(ACS), 668-W(c)(DO), or 668-W(ICS), you must withhold amounts as described in the instructions for these forms. H&r block free Publication 1494, Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income—Forms 668-W(ACS), 668-W(c)(DO), and 668-W(ICS), shows the exempt amount. H&r block free If a levy issued in a prior year is still in effect and the taxpayer submits a new Statement of Exemptions and Filing Status, use the current year Publication 1494 to compute the exempt amount. H&r block free How To Figure Federal Income Tax Withholding There are several ways to figure federal income tax withholding. H&r block free Wage bracket tables. H&r block free See section 13 for directions on how to use the tables. H&r block free Percentage method. H&r block free See section 13 for directions on how to use the percentage method. H&r block free Alternative formula tables for percentage method withholding. H&r block free See Publication 15-A. H&r block free Wage bracket percentage method withholding tables. H&r block free See Publication 15-A. H&r block free Other alternative methods. H&r block free See Publication 15-A. H&r block free Employers with automated payroll systems will find the two alternative formula tables and the two alternative wage bracket percentage method tables in Publication 15-A useful. H&r block free If an employee wants additional federal tax withheld, have the employee show the extra amount on Form W-4. H&r block free Supplemental wages. H&r block free   Supplemental wages are wage payments to an employee that are not regular wages. H&r block free They include, but are not limited to, bonuses, commissions, overtime pay, accumulated sick leave, severance pay, awards, prizes, back pay and retroactive pay increases for current employees, and payments for nondeductible moving expenses. H&r block free Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. H&r block free   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total was a single payment for a regular payroll period. H&r block free   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold federal income tax from your employee's regular wages. H&r block free If you withheld federal income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. H&r block free Withhold a flat 25% (no other percentage allowed). H&r block free If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. H&r block free If there are no concurrently paid regular wages, add the supplemental wages to alternatively, either the regular wages paid or to be paid for the current payroll period or the regular wages paid for the preceding payroll period. H&r block free Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. H&r block free Subtract the tax withheld from the regular wages. H&r block free Withhold the remaining tax from the supplemental wages. H&r block free If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and previous supplemental wage payments, and withhold the remaining tax from the current payment of supplemental wages. H&r block free If you did not withhold federal income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b above. H&r block free This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. H&r block free    Separate rules apply to any supplemental wages exceeding $1 million that you pay to an individual during the year. H&r block free See section 7 in Publication 15 (Circular E) for details. H&r block free   Regardless of the method that you use to withhold federal income tax on supplemental wages, they are generally subject to social security, Medicare, and FUTA taxes. H&r block free 6. H&r block free Required Notice to Employees About Earned Income Credit (EIC) You must notify employees who have no federal income tax withheld that they may be able to claim a tax refund because of the EIC. H&r block free Although you do not have to notify employees who claim exemption from withholding on Form W-4 about the EIC, you are encouraged to notify any employees whose wages for 2013 were less than $46,227 ($51,567 if married filing jointly) that they may be eligible to claim the credit for 2013. H&r block free This is because eligible employees may get a refund of the amount of EIC that is more than the tax that they owe. H&r block free You will meet the notification requirement if you issue to the employee Form W-2 with the EIC notice on the back of Copy B, or a substitute Form W-2 with the same statement. H&r block free You may also meet the requirement by providing Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), or your own statement that contains the same wording. H&r block free If a substitute Form W-2 is given to the employee on time but does not have the required statement, you must notify the employee within 1 week of the date that the substitute Form W-2 is given. H&r block free If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement by the date that Form W-2 is required to be given. H&r block free If Form W-2 is not required, you must notify the employee by February 7, 2014. H&r block free 7. H&r block free Depositing Taxes Generally, you must deposit both the employer and employee shares of social security and Medicare taxes and federal income tax withheld. H&r block free You must use electronic funds transfer to make all federal tax deposits. H&r block free See How To Deposit , later in this section. H&r block free The credit against employment taxes for COBRA premium assistance payments is treated as a deposit of taxes on the first day of your return period. H&r block free For more information, see COBRA premium assistance credit under Introduction. H&r block free Payment with return. H&r block free   You may make payments with Forms 943 or 945 instead of depositing if one of the following applies. H&r block free You report less than a $2,500 tax liability for the year (Form 943, line 11; Form 945, line 3) and you pay in full with a return that is filed on time. H&r block free However, if you are unsure that you will report less than $2,500, deposit under the rules explained in this section so that you will not be subject to failure-to-deposit penalties. H&r block free You are a monthly schedule depositor and make a payment in accordance with the Accuracy of Deposits Rule discussed later in this section. H&r block free This payment may be $2,500 or more. H&r block free Only monthly schedule depositors, defined later, are allowed to make an Accuracy of Deposits Rule payment with the return. H&r block free Semiweekly schedule depositors must timely deposit the amount. H&r block free See Accuracy of Deposits Rule and How To Deposit, later in this section. H&r block free When To Deposit If you employ both farm and nonfarm workers, do not combine the taxes reportable on Forms 941 or 944 with Form 943 to decide whether to make a deposit. H&r block free See Employers of Both Farm and Nonfarm Workers, later in this section. H&r block free The rules for determining when to deposit Form 943 taxes are discussed below. H&r block free See section 10 for the separate rules that apply to FUTA tax. H&r block free Under these rules, you are classified as either a monthly schedule depositor or a semiweekly schedule depositor. H&r block free The terms “monthly schedule depositor” and “semiweekly schedule depositor” do not refer to how often your business pays its employees or how often you are required to make deposits. H&r block free The terms identify which set of rules you must follow when you incur a tax liability (for example, when you have a payday). H&r block free The deposit schedule that you must use for a calendar year is determined from the tax liability reported on your Form 943, line 9, for the lookback period, discussed next. H&r block free If you reported $50,000 or less of Form 943 taxes for the lookback period, you are a monthly schedule depositor. H&r block free If you reported more than $50,000 of Form 943 taxes for the lookback period, you are a semiweekly schedule depositor. H&r block free Lookback period. H&r block free   The lookback period is the second calendar year preceding the current calendar year. H&r block free For example, the lookback period for 2014 is 2012. H&r block free Example of deposit schedule based on lookback period. H&r block free Rose Co. H&r block free reported taxes on Form 943 as follows. H&r block free 2012 — $48,000 2013 — $60,000 Rose Co. H&r block free is a monthly schedule depositor for 2014 because its taxes for the lookback period ($48,000 for calendar year 2012) were not more than $50,000. H&r block free However, for 2015, Rose Co. H&r block free is a semiweekly schedule depositor because the total taxes before adjustment for its lookback period ($60,000 for calendar year 2013) exceeded $50,000. H&r block free Adjustments to lookback period taxes. H&r block free   To determine your taxes for the lookback period, use only the tax that you reported on the original return (Form 943, line 9). H&r block free Do not include adjustments shown on Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund. H&r block free Example of adjustments. H&r block free An employer originally reported total tax of $45,000 for the lookback period in 2012. H&r block free The employer discovered during March 2014 that the tax reported for the lookback period was understated by $10,000 and corrected this error by filing Form 943-X. H&r block free The total tax reported in the lookback period is still $45,000. H&r block free The $10,000 adjustment is also not treated as part of the 2014 taxes. H&r block free Deposit period. H&r block free   The term “deposit period” refers to the period during which tax liabilities are accumulated for each required deposit due date. H&r block free For monthly schedule depositors, the deposit period is a calendar month. H&r block free The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday. H&r block free Monthly Deposit Schedule If the tax liability reported on Form 943, line 9, for the lookback period is $50,000 or less, you are a monthly schedule depositor for the current year. H&r block free You must deposit Form 943 taxes on payments made during a calendar month by the 15th day of the following month. H&r block free Monthly schedule example. H&r block free   Red Co. H&r block free is a seasonal employer and a monthly schedule depositor. H&r block free It pays wages each Friday. H&r block free It paid wages during August 2014, but did not pay any wages during September. H&r block free Red Co. H&r block free must deposit the combined tax liabilities for the August paydays by September 15. H&r block free Red Co. H&r block free does not have a deposit requirement for September (that is, due by October 15, 2014) because no wages were paid in September; therefore, it did not have a tax liability for September. H&r block free New employers. H&r block free   For agricultural employers, your tax liability for any year in the lookback period before the date you started or acquired your business is considered to be zero. H&r block free Therefore, you are a monthly schedule depositor for the first and second calendar years of your agricultural business (but see the $100,000 Next-Day Deposit Rule , later in this section). H&r block free Semiweekly Deposit Schedule You are a semiweekly schedule depositor for a calendar year if the tax liability on Form 943, line 9, during your lookback period was more than $50,000. H&r block free Under the semiweekly deposit schedule, deposit Form 943 taxes for payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. H&r block free Deposit amounts accumulated for payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. H&r block free Semiweekly depositors are not required to deposit twice a week if their payments were in the same semiweekly period unless the $100,000 Next-Day Deposit Rule (discussed later in this section) applies. H&r block free For example, if you made a payment on both Wednesday and Friday and incurred taxes of $10,000 for each pay date, deposit the $20,000 by the following Wednesday. H&r block free If you made no additional payments on Saturday through Tuesday, no deposit is due on Friday. H&r block free Semiweekly schedule depositors must complete Form 943-A, Agricultural Employer's Record of Federal Tax Liability, and submit it with Form 943. H&r block free Semiweekly Deposit Schedule IF the payday falls on a. H&r block free . H&r block free . H&r block free THEN deposit taxes by the following. H&r block free . H&r block free . H&r block free Wednesday, Thursday, and/or Friday Wednesday Saturday, Sunday, Monday, and/or Tuesday Friday Semiweekly schedule example. H&r block free   Green, Inc. H&r block free , is a semiweekly schedule depositor and pays wages once each month on the last Friday of the month. H&r block free Green, Inc. H&r block free , will deposit only once a month, but the deposit will be made under the semiweekly deposit schedule as follows. H&r block free Green, Inc. H&r block free 's tax liability for the April 25, 2014 (Friday), wage payment must be deposited by April 30, 2014 (Wednesday). H&r block free Semiweekly deposit period spanning two quarters. H&r block free   If you have more than one pay date during a semiweekly period and the pay dates fall in different calendar quarters, you will need to make separate deposits for the separate liabilities. H&r block free For example, if you have a pay date on Monday, March 31, 2014 (first quarter), and another pay date on Tuesday, April 1, 2014 (second quarter), two separate deposits will be required even though the pay dates fall within the same semiweekly period. H&r block free Both deposits will be due Friday, April 4, 2014 (3 business days from the end of the semiweekly deposit period). H&r block free Deposits on Business Days Only If a deposit is required to be made on a day that is not a business day, the deposit is considered timely if it is made by the close of the next business day. H&r block free A business day is any day other than a Saturday, Sunday, or legal holiday. H&r block free For example, if a deposit is required to be made on Friday and Friday is a legal holiday, the deposit is considered timely if it is made by the following Monday (if Monday is a business day). H&r block free Semiweekly schedule depositors   will always have 3 business days to make a deposit. H&r block free That is, if any of the 3 weekdays after the end of a semiweekly period is a legal holiday, you will have an additional day for each day that is a legal holiday to make the deposit. H&r block free For example, if a semiweekly schedule depositor accumulated taxes on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday (this allows 3 business days to make the deposit). H&r block free Legal holiday. H&r block free   The term “legal holiday” means any legal holiday in the District of Columbia. H&r block free Legal holidays for 2014 are listed below. H&r block free January 1— New Year's Day January 20— Birthday of Martin Luther King, Jr. H&r block free February 17— Washington's Birthday April 16— District of Columbia Emancipation Day May 26— Memorial Day July 4— Independence Day September 1— Labor Day October 13— Columbus Day November 11— Veterans' Day November 27— Thanksgiving Day December 25— Christmas Day $100,000 Next-Day Deposit Rule If you accumulate $100,000 or more of Form 943 taxes (that is, taxes reported on Form 943, line 11) on any day during a deposit period, you must deposit the tax by the close of the next business day, whether you are a monthly or a semiweekly schedule depositor. H&r block free For purposes of the $100,000 rule, do not continue accumulating a tax liability after the end of a deposit period. H&r block free For example, if a semiweekly schedule depositor has accumulated a liability of $95,000 on a Tuesday (of a Saturday-through-Tuesday deposit period) and accumulated a $10,000 liability on Wednesday, the $100,000 next-day deposit rule does not apply because the $10,000 is accumulated in the next deposit period. H&r block free Thus, $95,000 must be deposited by Friday and $10,000 must be deposited by the following Wednesday. H&r block free However, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. H&r block free For example, Fir Co. H&r block free is a semiweekly schedule depositor. H&r block free On Monday, Fir Co. H&r block free accumulates taxes of $110,000 and must deposit this amount on Tuesday, the next business day. H&r block free On Tuesday, Fir Co. H&r block free accumulates additional taxes of $30,000. H&r block free Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. H&r block free does not have to deposit the $30,000 until Friday (following the semiweekly deposit schedule). H&r block free If you are a monthly schedule depositor and you accumulate a $100,000 tax liability on any day, you become a semiweekly schedule depositor on the next day and remain so for at least the rest of the calendar year and for the following calendar year. H&r block free Example of the $100,000 next-day deposit rule. H&r block free   Elm, Inc. H&r block free , started its business on May 1, 2014. H&r block free Because Elm, Inc. H&r block free , is a new employer, the taxes for its lookback period are considered to be zero; therefore, Elm, Inc. H&r block free , is a monthly schedule depositor. H&r block free On May 8, Elm, Inc. H&r block free , paid wages for the first time and accumulated taxes of $50,000. H&r block free On May 9 (Friday), Elm, Inc. H&r block free , paid wages and accumulated taxes of $60,000, for a total of $110,000. H&r block free Because Elm, Inc. H&r block free , accumulated $110,000 on May 9, it must deposit $110,000 by May 12 (Monday), the next business day. H&r block free Elm, Inc. H&r block free , became a semiweekly schedule depositor on May 10. H&r block free It will be a semiweekly schedule depositor for the remainder of 2014 and for 2015. H&r block free Accuracy of Deposits Rule You are required to deposit 100% of your tax liability on or before the deposit due date. H&r block free However, penalties will not be applied for depositing less than 100% if both of the following conditions are met. H&r block free Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited. H&r block free The deposit shortfall is paid or deposited by the shortfall makeup date as described below. H&r block free Makeup Date for Deposit Shortfall:    Monthly Schedule Depositor—Deposit the shortfall or pay it with your return by the due date of your Form 943. H&r block free You may pay the shortfall with your Form 943 even if the amount is $2,500 or more. H&r block free Semiweekly Schedule Depositor—Deposit by the earlier of (a) the first Wednesday or Friday (whichever comes first) that falls on or after the 15th of the month following the month in which the shortfall occurred, or (b) the due date for Form 943. H&r block free For example, if a semiweekly schedule depositor has a deposit shortfall during February 2014, the shortfall makeup date is March 19, 2014 (Wednesday). H&r block free How To Deposit You must deposit employment taxes by electronic funds transfer. H&r block free See Payment with return , earlier in this section, for exceptions explaining when taxes may be paid with the tax return instead of being deposited. H&r block free Electronic deposit requirement. H&r block free   You must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). H&r block free Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). H&r block free 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. H&r block free   EFTPS is a free service provided by the Department of Treasury. H&r block free To get more information or to enroll in EFTPS, call 1-800-555-4477 (business), 1-800-316-6541 (individual), or 1-800-733-4829 (TDD). H&r block free You can also visit the EFTPS website at www. H&r block free eftps. H&r block free gov. H&r block free Additional information about EFTPS is also available in Publication 966. H&r block free New employers that have a federal tax obligation will be pre-enrolled in EFTPS. H&r block free Call the toll-free number located in your Employer Identification Number (EIN) Package to activate your enrollment and begin making your tax deposit payments. H&r block free See When you receive your EIN in section 1 for more information. H&r block free Deposit record. H&r block free   For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. H&r block free The number can be used as a receipt or to trace the payment. H&r block free Depositing on time. H&r block free   For deposits made by EFTPS to be on time, you must initiate the deposit by 8 p. H&r block free m. H&r block free Eastern time the day before the date a deposit is due. H&r block free If you use a third party to make a deposit on your behalf, they may have different cutoff times. H&r block free Same-day payment option. H&r block free   If you fail to initiate a deposit transaction on EFTPS by 8 p. H&r block free m. H&r block free Eastern time the day before the date a deposit is due, you can still make your deposit on time by using the Federal Tax Application (FTA). H&r block free To use the same-day payment method, you will need to make arrangements with your financial institution ahead of time. H&r block free Please check with your financial institution regarding availability, deadlines, and costs. H&r block free Your financial institution may charge you a fee for payments made this way. H&r block free To learn more about the information you will need to provide to your financial institution to make a same-day wire payment, visit www. H&r block free eftps. H&r block free gov to download the Same-Day Payment Worksheet. H&r block free Deposit Penalties Penalties may apply if you do not make required deposits on time or if you make deposits for less than the required amount. H&r block free The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. H&r block free IRS may also waive deposit penalties if you inadvertently fail to deposit in the first quarter that a deposit is due, or the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return. H&r block free For amounts not properly deposited or not deposited on time, the penalty rates are shown next. H&r block free Penalty Charged for. H&r block free . H&r block free . H&r block free 2% Deposits made 1 to 5 days late. H&r block free 5% Deposits made 6 to 15 days late. H&r block free 10% Deposits made 16 or more days late. H&r block free Also applies to amounts paid within 10 days of the date of the first notice the IRS sent asking for the tax due. H&r block free 10% Amounts (that should have been deposited) paid directly to the IRS or paid with your tax return. H&r block free See Payment with return , earlier in this section, for exceptions. H&r block free 15% Amounts still unpaid more than 10 days after the date of the first notice that the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier. H&r block free Late deposit penalty amounts are determined using calendar days, starting from the due date of the liability. H&r block free Order in which deposits are applied. H&r block free   Deposits generally are applied to the most recent tax liability within the year. H&r block free If you receive a failure-to-deposit penalty notice, you may designate how your deposits are to be applied in order to minimize the amount of the penalty, if you do so within 90 days of the date of the notice. H&r block free Follow the instructions on the penalty notice that you received. H&r block free For examples on how the IRS will apply deposits and more information on designating deposits, see Revenue Procedure 2001-58. H&r block free You can find Revenue Procedure 2001-58 on page 579 of Internal Revenue Bulletin 2001-50 at www. H&r block free irs. H&r block free gov/pub/irs-irbs/irb01-50. H&r block free pdf. H&r block free Example. H&r block free Cedar, Inc. H&r block free , is required to make a deposit of $1,000 on July 15 and $1,500 on August 15. H&r block free It does not make the deposit on July 15. H&r block free On August 15, Cedar, Inc. H&r block free , deposits $2,000. H&r block free Under the deposits rule, which applies deposits to the most recent tax liability, $1,500 of the deposit is applied to the August 15 deposit and the remaining $500 is applied to the July deposit. H&r block free Accordingly, $500 of the July 15 liability remains undeposited. H&r block free The penalty on this underdeposit will apply as explained above. H&r block free Trust fund recovery penalty. H&r block free   If federal income, social security, or Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. H&r block free The penalty is the full amount of the unpaid trust fund tax. H&r block free This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business. H&r block free   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. H&r block free   A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. H&r block free A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds. H&r block free    Willfully means voluntarily, consciously, and intentionally. H&r block free A responsible person acts willfully if the person knows that the required actions of collecting, accounting for or paying over trust fund taxes are not taking place, or recklessly disregards obvious and known risks to the government's right to receive trust fund taxes. H&r block free “Average” failure-to-deposit penalty. H&r block free   IRS may assess an “averaged” failure-to-deposit penalty of 2% to 10% if you are a monthly schedule depositor and did not properly complete Form 943, line 17, when your tax liability shown on Form 943, line 11, was $2,500 or more. H&r block free IRS may also assess this penalty of 2% to 10% if you are a semiweekly schedule depositor and your tax liability shown on Form 943, line 11, was $2,500 or more and you did any of the following. H&r block free Completed Form 943, line 17, instead of Form 943-A. H&r block free Failed to attach a properly completed Form 943-A. H&r block free Completed Form 943-A incorrectly, for example, by entering tax deposits instead of tax liabilities in the numbered spaces. H&r block free   IRS figures the penalty by allocating your tax liability on Form 943, line 11, equally throughout the tax period. H&r block free Your deposits and payments may not be counted as timely because IRS does not know the actual dates of your tax liabilities. H&r block free   You can avoid the penalty by reviewing your return before filing it. H&r block free Follow these steps before filing your Form 943. H&r block free If you are a monthly schedule depositor, report your tax liabilities (not your deposits) in the monthly entry spaces on Form 943, line 17. H&r block free If you are a semiweekly schedule depositor, report your tax liabilities (not your deposits) on Form 943-A in the lines that represent the dates you paid your employees. H&r block free Verify that your total liability shown on Form 943, line 17, or Form 943-A, line M, equals your tax liability shown on Form 943, line 11. H&r block free Do not show negative amounts on Form 943, line 17, or Form 943-A. H&r block free For prior period errors discovered after December 31, 2008, do not adjust your tax liabilities reported on Form 943, line 17, or on Form 943-A. H&r block free Employers of Both Farm and Nonfarm Workers If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers (Form 943 taxes) separately from employment taxes for the nonfarm workers (Form 941 and 944 taxes). H&r block free Form 943 taxes and Form 941/944 taxes are not combined for purposes of applying any of the deposit schedule rules. H&r block free If a deposit is due, deposi
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Understanding Your CP104 Notice

We made changes to your excise tax return because we believe there was a miscalculation. As a result of these changes, there is a balance due.


What you need to do

  • Read your notice carefully — it explains the changes to your tax account.
  • Compare the figures on the notice with your excise tax return.
  • If you disagree with our change(s), contact us within 10 days from the date of your notice.
  • If you agree with our change(s), correct the copy of your excise tax return that you kept for your records.
  • Make your payment by your due date.
  • If you can’t pay the amount you owe, go to the payments page to find out more about your payment options.

You may want to

  • Download copies of the following materials (if they weren’t included with your notice).

 


Answers to Common Questions

Q. How can I find out what caused my tax return to change?

A. Please contact us at the toll free number listed on the top right corner of your notice for specific information about your tax return.

Q. What should I do if I disagree with the changes you made?

A. If you disagree, contact us at the toll free number listed on the top right corner of your notice or respond in writing within 10 days from the date of the notice. If your response provides us with additional information that justifies a reversal of the change, we’ll reverse the change we made to your account. If you agree with the change, please pay any additional balance due by the date specified in the notice.

Q. What happens if I can’t pay the full amount I owe?

A. You can arrange to make a payment plan with us if you can’t pay the full amount you owe. Go to the payments page to find out more about your payment options.

Q. Am I charged interest on the money I owe?

A. Not if you pay the full amount you owe by the date specified on the notice. However, interest accrues on the unpaid balance after that date.

Q. Will I receive a penalty if I can’t pay the full amount?

A. Yes, you will receive a late payment penalty. You can contact us at the number given on your notice if you’re unable to pay the full amount shown in your specific notice because of circumstances beyond your control. Contact us by the due date of your payment and, depending on your situation, we may be able to remove the penalty.


Tips for next year

Consider filing your excise taxes electronically. Filing online can help you to avoid mistakes and find credits and deductions for which you may qualify. Learn more about e-file.

Page Last Reviewed or Updated: 23-Jan-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The H&r Block Free

H&r block free 1. H&r block free   Traditional IRAs Table of Contents What's New for 2013 What's New for 2014 Introduction Who Can Open a Traditional IRA?What Is Compensation? When Can a Traditional IRA Be Opened? How Can a Traditional IRA Be Opened?Individual Retirement Account Individual Retirement Annuity Individual Retirement Bonds Simplified Employee Pension (SEP) Employer and Employee Association Trust Accounts Required Disclosures How Much Can Be Contributed?Limit. H&r block free When repayment contributions can be made. H&r block free No deduction. H&r block free Reserve component. H&r block free Figuring your IRA deduction. H&r block free Reporting the repayment. H&r block free Example. H&r block free General Limit Kay Bailey Hutchison Spousal IRA Limit Filing Status Less Than Maximum Contributions More Than Maximum Contributions When Can Contributions Be Made? How Much Can You Deduct?Kay Bailey Hutchison Spousal IRA. H&r block free Are You Covered by an Employer Plan? Limit if Covered by Employer Plan Reporting Deductible Contributions Nondeductible Contributions Examples — Worksheet for Reduced IRA Deduction for 2013 What if You Inherit an IRA?Treating it as your own. H&r block free Can You Move Retirement Plan Assets?Transfers to Roth IRAs from other retirement plans. H&r block free Trustee-to-Trustee Transfer Rollovers Transfers Incident To Divorce Converting From Any Traditional IRA Into a Roth IRA Recharacterizations When Can You Withdraw or Use Assets?Contributions Returned Before Due Date of Return When Must You Withdraw Assets? (Required Minimum Distributions)IRA Owners IRA Beneficiaries Which Table Do You Use To Determine Your Required Minimum Distribution? What Age(s) Do You Use With the Table(s)? Miscellaneous Rules for Required Minimum Distributions Are Distributions Taxable?January 2013 QCDs treated as made in 2012. H&r block free 2013 Reporting. H&r block free Additional reporting requirements if you made the election to treat a January 2013 QCD as made in 2012. H&r block free One-time transfer. H&r block free Testing period rules apply. H&r block free More information. H&r block free Distributions Fully or Partly Taxable Figuring the Nontaxable and Taxable Amounts Recognizing Losses on Traditional IRA Investments Other Special IRA Distribution Situations Reporting and Withholding Requirements for Taxable Amounts What Acts Result in Penalties or Additional Taxes?Prohibited Transactions Investment in Collectibles Excess Contributions Early Distributions Excess Accumulations (Insufficient Distributions) Reporting Additional Taxes What's New for 2013 Traditional IRA contribution and deduction limit. H&r block free  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. H&r block free If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. H&r block free For more information, see How Much Can Be Contributed? in this chapter. H&r block free Modified AGI limit for traditional IRA contributions increased. H&r block free  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. H&r block free If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. H&r block free If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. H&r block free See How Much Can You Deduct? in this chapter. H&r block free Net Investment Income Tax. H&r block free  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). H&r block free However, these distributions are taken into account when determining the modified adjusted gross income threshold. H&r block free Distributions from a nonqualified retirement plan are included in net investment income. H&r block free See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. H&r block free What's New for 2014 Modified AGI limit for traditional IRA contributions increased. H&r block free  For 2014, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $96,000 but less than $116,000 for a married couple filing a joint return or a qualifying widow(er), More than $60,000 but less than $70,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. H&r block free If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. H&r block free If your modified AGI is $191,000 or more, you cannot take a deduction for contributions to a traditional IRA. H&r block free Introduction This chapter discusses the original IRA. H&r block free In this publication the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. H&r block free ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. H&r block free The following are two advantages of a traditional IRA: You may be able to deduct some or all of your contributions to it, depending on your circumstances. H&r block free Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. H&r block free Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. H&r block free You can have a traditional IRA whether or not you are covered by any other retirement plan. H&r block free However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. H&r block free See How Much Can You Deduct , later. H&r block free Both spouses have compensation. H&r block free   If both you and your spouse have compensation and are under age 70½, each of you can open an IRA. H&r block free You cannot both participate in the same IRA. H&r block free If you file a joint return, only one of you needs to have compensation. H&r block free What Is Compensation? Generally, compensation is what you earn from working. H&r block free For a summary of what compensation does and does not include, see Table 1-1. H&r block free Compensation includes all of the items discussed next (even if you have more than one type). H&r block free Wages, salaries, etc. H&r block free   Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. H&r block free The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). H&r block free Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2. H&r block free Commissions. H&r block free   An amount you receive that is a percentage of profits or sales price is compensation. H&r block free Self-employment income. H&r block free   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deduction allowed for the deductible part of your self-employment taxes. H&r block free   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. H&r block free Self-employment loss. H&r block free   If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation. H&r block free Alimony and separate maintenance. H&r block free   For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance. H&r block free Nontaxable combat pay. H&r block free   If you were a member of the U. H&r block free S. H&r block free Armed Forces, compensation includes any nontaxable combat pay you received. H&r block free This amount should be reported in box 12 of your 2013 Form W-2 with code Q. H&r block free Table 1-1. H&r block free Compensation for Purposes of an IRA Includes . H&r block free . H&r block free . H&r block free Does not include . H&r block free . H&r block free . H&r block free   earnings and profits from property. H&r block free wages, salaries, etc. H&r block free     interest and dividend income. H&r block free commissions. H&r block free     pension or annuity income. H&r block free self-employment income. H&r block free     deferred compensation. H&r block free alimony and separate maintenance. H&r block free     income from certain  partnerships. H&r block free nontaxable combat pay. H&r block free     any amounts you exclude from income. H&r block free     What Is Not Compensation? Compensation does not include any of the following items. H&r block free Earnings and profits from property, such as rental income, interest income, and dividend income. H&r block free Pension or annuity income. H&r block free Deferred compensation received (compensation payments postponed from a past year). H&r block free Income from a partnership for which you do not provide services that are a material income-producing factor. H&r block free Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. H&r block free Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. H&r block free When Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. H&r block free However, the time for making contributions for any year is limited. H&r block free See When Can Contributions Be Made , later. H&r block free How Can a Traditional IRA Be Opened? You can open different kinds of IRAs with a variety of organizations. H&r block free You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. H&r block free You can also open an IRA through your stockbroker. H&r block free Any IRA must meet Internal Revenue Code requirements. H&r block free The requirements for the various arrangements are discussed below. H&r block free Kinds of traditional IRAs. H&r block free   Your traditional IRA can be an individual retirement account or annuity. H&r block free It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. H&r block free Individual Retirement Account An individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. H&r block free The account is created by a written document. H&r block free The document must show that the account meets all of the following requirements. H&r block free The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian. H&r block free The trustee or custodian generally cannot accept contributions of more than the deductible amount for the year. H&r block free However, rollover contributions and employer contributions to a simplified employee pension (SEP) can be more than this amount. H&r block free Contributions, except for rollover contributions, must be in cash. H&r block free See Rollovers , later. H&r block free You must have a nonforfeitable right to the amount at all times. H&r block free Money in your account cannot be used to buy a life insurance policy. H&r block free Assets in your account cannot be combined with other property, except in a common trust fund or common investment fund. H&r block free You must start receiving distributions by April 1 of the year following the year in which you reach age 70½. H&r block free See When Must You Withdraw Assets? (Required Minimum Distributions) , later. H&r block free Individual Retirement Annuity You can open an individual retirement annuity by purchasing an annuity contract or an endowment contract from a life insurance company. H&r block free An individual retirement annuity must be issued in your name as the owner, and either you or your beneficiaries who survive you are the only ones who can receive the benefits or payments. H&r block free An individual retirement annuity must meet all the following requirements. H&r block free Your entire interest in the contract must be nonforfeitable. H&r block free The contract must provide that you cannot transfer any portion of it to any person other than the issuer. H&r block free There must be flexible premiums so that if your compensation changes, your payment can also change. H&r block free This provision applies to contracts issued after November 6, 1978. H&r block free The contract must provide that contributions cannot be more than the deductible amount for an IRA for the year, and that you must use any refunded premiums to pay for future premiums or to buy more benefits before the end of the calendar year after the year in which you receive the refund. H&r block free Distributions must begin by April 1 of the year following the year in which you reach age 70½. H&r block free See When Must You Withdraw Assets? (Required Minimum Distributions) , later. H&r block free Individual Retirement Bonds The sale of individual retirement bonds issued by the federal government was suspended after April 30, 1982. H&r block free The bonds have the following features. H&r block free They stop earning interest when you reach age 70½. H&r block free If you die, interest will stop 5 years after your death, or on the date you would have reached age 70½, whichever is earlier. H&r block free You cannot transfer the bonds. H&r block free If you cash (redeem) the bonds before the year in which you reach age 59½, you may be subject to a 10% additional tax. H&r block free See Age 59½ Rule under Early Distributions, later. H&r block free You can roll over redemption proceeds into IRAs. H&r block free Simplified Employee Pension (SEP) A simplified employee pension (SEP) is a written arrangement that allows your employer to make deductible contributions to a traditional IRA (a SEP IRA) set up for you to receive such contributions. H&r block free Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. H&r block free See Publication 560 for more information about SEPs. H&r block free Employer and Employee Association Trust Accounts Your employer or your labor union or other employee association can set up a trust to provide individual retirement accounts for employees or members. H&r block free The requirements for individual retirement accounts apply to these traditional IRAs. H&r block free Required Disclosures The trustee or issuer (sometimes called the sponsor) of your traditional IRA generally must give you a disclosure statement at least 7 days before you open your IRA. H&r block free However, the sponsor does not have to give you the statement until the date you open (or purchase, if earlier) your IRA, provided you are given at least 7 days from that date to revoke the IRA. H&r block free The disclosure statement must explain certain items in plain language. H&r block free For example, the statement should explain when and how you can revoke the IRA, and include the name, address, and telephone number of the person to receive the notice of cancellation. H&r block free This explanation must appear at the beginning of the disclosure statement. H&r block free If you revoke your IRA within the revocation period, the sponsor must return to you the entire amount you paid. H&r block free The sponsor must report on the appropriate IRS forms both your contribution to the IRA (unless it was made by a trustee-to-trustee transfer) and the amount returned to you. H&r block free These requirements apply to all sponsors. H&r block free How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. H&r block free These limits and rules are explained below. H&r block free Community property laws. H&r block free   Except as discussed later under Kay Bailey Hutchison Spousal IRA Limit , each spouse figures his or her limit separately, using his or her own compensation. H&r block free This is the rule even in states with community property laws. H&r block free Brokers' commissions. H&r block free   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. H&r block free For information about whether you can deduct brokers' commissions, see Brokers' commissions , later, under How Much Can You Deduct. H&r block free Trustees' fees. H&r block free   Trustees' administrative fees are not subject to the contribution limit. H&r block free For information about whether you can deduct trustees' fees, see Trustees' fees , later, under How Much Can You Deduct. H&r block free Qualified reservist repayments. H&r block free   If you were a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined later under Early Distributions) you received. H&r block free You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. H&r block free To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or a similar arrangement. H&r block free Limit. H&r block free   Your qualified reservist repayments cannot be more than your qualified reservist distributions, explained under Early Distributions , later. H&r block free When repayment contributions can be made. H&r block free   You cannot make these repayment contributions later than the date that is 2 years after your active duty period ends. H&r block free No deduction. H&r block free   You cannot deduct qualified reservist repayments. H&r block free Reserve component. H&r block free   The term “reserve component” means the: Army National Guard of the United States, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National Guard of the United States, Air Force Reserve, Coast Guard Reserve, or Reserve Corps of the Public Health Service. H&r block free Figuring your IRA deduction. H&r block free   The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. H&r block free Reporting the repayment. H&r block free   If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606. H&r block free Example. H&r block free   In 2013, your IRA contribution limit is $5,500. H&r block free However, because of your filing status and AGI, the limit on the amount you can deduct is $3,500. H&r block free You can make a nondeductible contribution of $2,000 ($5,500 - $3,500). H&r block free In an earlier year you received a $3,000 qualified reservist distribution, which you would like to repay this year. H&r block free   For 2013, you can contribute a total of $8,500 to your IRA. H&r block free This is made up of the maximum deductible contribution of $3,500; a nondeductible contribution of $2,000; and a $3,000 qualified reservist repayment. H&r block free You contribute the maximum allowable for the year. H&r block free Since you are making a nondeductible contribution ($2,000) and a qualified reservist repayment ($3,000), you must file Form 8606 with your return and include $5,000 ($2,000 + $3,000) on line 1 of Form 8606. H&r block free The qualified reservist repayment is not deductible. H&r block free Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. H&r block free See chapter 2 for information about Roth IRAs. H&r block free General Limit For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation (defined earlier) for the year. H&r block free Note. H&r block free This limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). H&r block free This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. H&r block free (See Nondeductible Contributions , later. H&r block free ) Qualified reservist repayments do not affect this limit. H&r block free Examples. H&r block free George, who is 34 years old and single, earns $24,000 in 2013. H&r block free His IRA contributions for 2013 are limited to $5,500. H&r block free Danny, an unmarried college student working part time, earns $3,500 in 2013. H&r block free His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. H&r block free More than one IRA. H&r block free   If you have more than one IRA, the limit applies to the total contributions made on your behalf to all your traditional IRAs for the year. H&r block free Annuity or endowment contracts. H&r block free   If you invest in an annuity or endowment contract under an individual retirement annuity, no more than $5,500 ($6,500 if you are age 50 or older) can be contributed toward its cost for the tax year, including the cost of life insurance coverage. H&r block free If more than this amount is contributed, the annuity or endowment contract is disqualified. H&r block free Kay Bailey Hutchison Spousal IRA Limit For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts: $5,500 ($6,500 if you are age 50 or older), or The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. H&r block free Your spouse's IRA contribution for the year to a traditional IRA. H&r block free Any contributions for the year to a Roth IRA on behalf of your spouse. H&r block free This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is age 50 or older or $13,000 if both of you are age 50 or older). H&r block free Note. H&r block free This traditional IRA limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). H&r block free Example. H&r block free Kristin, a full-time student with no taxable compensation, marries Carl during the year. H&r block free Neither of them was age 50 by the end of 2013. H&r block free For the year, Carl has taxable compensation of $30,000. H&r block free He plans to contribute (and deduct) $5,500 to a traditional IRA. H&r block free If he and Kristin file a joint return, each can contribute $5,500 to a traditional IRA. H&r block free This is because Kristin, who has no compensation, can add Carl's compensation, reduced by the amount of his IRA contribution ($30,000 − $5,500 = $24,500), to her own compensation (-0-) to figure her maximum contribution to a traditional IRA. H&r block free In her case, $5,500 is her contribution limit, because $5,500 is less than $24,500 (her compensation for purposes of figuring her contribution limit). H&r block free Filing Status Generally, except as discussed earlier under Kay Bailey Hutchison Spousal IRA Limit , your filing status has no effect on the amount of allowable contributions to your traditional IRA. H&r block free However, if during the year either you or your spouse was covered by a retirement plan at work, your deduction may be reduced or eliminated, depending on your filing status and income. H&r block free See How Much Can You Deduct , later. H&r block free Example. H&r block free Tom and Darcy are married and both are 53. H&r block free They both work and each has a traditional IRA. H&r block free Tom earned $3,800 and Darcy earned $48,000 in 2013. H&r block free Because of the Kay Bailey Hutchison Spousal IRA limit rule, even though Tom earned less than $6,500, they can contribute up to $6,500 to his IRA for 2013 if they file a joint return. H&r block free They can contribute up to $6,500 to Darcy's IRA. H&r block free If they file separate returns, the amount that can be contributed to Tom's IRA is limited by his earned income, $3,800. H&r block free Less Than Maximum Contributions If contributions to your traditional IRA for a year were less than the limit, you cannot contribute more after the due date of your return for that year to make up the difference. H&r block free Example. H&r block free Rafael, who is 40, earns $30,000 in 2013. H&r block free Although he can contribute up to $5,500 for 2013, he contributes only $3,000. H&r block free After April 15, 2014, Rafael cannot make up the difference between his actual contributions for 2013 ($3,000) and his 2013 limit ($5,500). H&r block free He cannot contribute $2,500 more than the limit for any later year. H&r block free More Than Maximum Contributions If contributions to your IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. H&r block free However, a penalty or additional tax may apply. H&r block free See Excess Contributions , later, under What Acts Result in Penalties or Additional Taxes. H&r block free When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). H&r block free Contributions must be in the form of money (cash, check, or money order). H&r block free Property cannot be contributed. H&r block free Although property cannot be contributed, your IRA may invest in certain property. H&r block free For example, your IRA may purchase shares of stock. H&r block free For other restrictions on the use of funds in your IRA, see Prohibited Transactions , later in this chapter. H&r block free You may be able to transfer or roll over certain property from one retirement plan to another. H&r block free See the discussion of rollovers and other transfers later in this chapter under Can You Move Retirement Plan Assets . H&r block free You can make a contribution to your IRA by having your income tax refund (or a portion of your refund), if any, paid directly to your traditional IRA, Roth IRA, or SEP IRA. H&r block free For details, see the instructions for your income tax return or Form 8888, Allocation of Refund (Including Savings Bond Purchases). H&r block free Contributions can be made to your traditional IRA for each year that you receive compensation and have not reached age 70½. H&r block free For any year in which you do not work, contributions cannot be made to your IRA unless you receive alimony, nontaxable combat pay, military differential pay, or file a joint return with a spouse who has compensation. H&r block free See Who Can Open a Traditional IRA , earlier. H&r block free Even if contributions cannot be made for the current year, the amounts contributed for years in which you did qualify can remain in your IRA. H&r block free Contributions can resume for any years that you qualify. H&r block free Contributions must be made by due date. H&r block free   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. H&r block free For most people, this means that contributions for 2013 must be made by April 15, 2014, and contributions for 2014 must be made by April 15, 2015. H&r block free Age 70½ rule. H&r block free   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. H&r block free   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. H&r block free If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. H&r block free Designating year for which contribution is made. H&r block free   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. H&r block free If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). H&r block free Filing before a contribution is made. H&r block free    You can file your return claiming a traditional IRA contribution before the contribution is actually made. H&r block free Generally, the contribution must be made by the due date of your return, not including extensions. H&r block free Contributions not required. H&r block free   You do not have to contribute to your traditional IRA for every tax year, even if you can. H&r block free How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if applicable) explained earlier under How Much Can Be Contributed . H&r block free However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. H&r block free See Limit if Covered by Employer Plan , later. H&r block free You may be able to claim a credit for contributions to your traditional IRA. H&r block free For more information, see chapter 4. H&r block free Trustees' fees. H&r block free   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. H&r block free However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). H&r block free For information about miscellaneous itemized deductions, see Publication 529, Miscellaneous Deductions. H&r block free Brokers' commissions. H&r block free   These commissions are part of your IRA contribution and, as such, are deductible subject to the limits. H&r block free Full deduction. H&r block free   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older), or 100% of your compensation. H&r block free   This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. H&r block free Kay Bailey Hutchison Spousal IRA. H&r block free   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of: $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older), or The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. H&r block free The IRA deduction for the year of the spouse with the greater compensation. H&r block free Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. H&r block free Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. H&r block free   This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation. H&r block free Note. H&r block free If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. H&r block free After a divorce or legal separation, you can deduct only the contributions to your own IRA. H&r block free Your deductions are subject to the rules for single individuals. H&r block free Covered by an employer retirement plan. H&r block free   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. H&r block free This is discussed later under Limit if Covered by Employer Plan . H&r block free Limits on the amount you can deduct do not affect the amount that can be contributed. H&r block free Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. H&r block free The “Retirement Plan” box should be checked if you were covered. H&r block free Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered , later. H&r block free If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. H&r block free Federal judges. H&r block free   For purposes of the IRA deduction, federal judges are covered by an employer plan. H&r block free For Which Year(s) Are You Covered? Special rules apply to determine the tax years for which you are covered by an employer plan. H&r block free These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. H&r block free Tax year. H&r block free   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. H&r block free For almost all people, the tax year is the calendar year. H&r block free Defined contribution plan. H&r block free   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. H&r block free However, also see Situations in Which You Are Not Covered , later. H&r block free   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. H&r block free In a defined contribution plan, the amount to be contributed to each participant's account is spelled out in the plan. H&r block free The level of benefits actually provided to a participant depends on the total amount contributed to that participant's account and any earnings and losses on those contributions. H&r block free Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. H&r block free Example. H&r block free Company A has a money purchase pension plan. H&r block free Its plan year is from July 1 to June 30. H&r block free The plan provides that contributions must be allocated as of June 30. H&r block free Bob, an employee, leaves Company A on December 31, 2012. H&r block free The contribution for the plan year ending on June 30, 2013, is made February 15, 2014. H&r block free Because an amount is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2013 tax year. H&r block free   A special rule applies to certain plans in which it is not possible to determine if an amount will be contributed to your account for a given plan year. H&r block free If, for a plan year, no amounts have been allocated to your account that are attributable to employer contributions, employee contributions, or forfeitures, by the last day of the plan year, and contributions are discretionary for the plan year, you are not covered for the tax year in which the plan year ends. H&r block free If, after the plan year ends, the employer makes a contribution for that plan year, you are covered for the tax year in which the contribution is made. H&r block free Example. H&r block free Mickey was covered by a profit-sharing plan and left the company on December 31, 2012. H&r block free The plan year runs from July 1 to June 30. H&r block free Under the terms of the plan, employer contributions do not have to be made, but if they are made, they are contributed to the plan before the due date for filing the company's tax return. H&r block free Such contributions are allocated as of the last day of the plan year, and allocations are made to the accounts of individuals who have any service during the plan year. H&r block free As of June 30, 2013, no contributions were made that were allocated to the June 30, 2013, plan year, and no forfeitures had been allocated within the plan year. H&r block free In addition, as of that date, the company was not obligated to make a contribution for such plan year and it was impossible to determine whether or not a contribution would be made for the plan year. H&r block free On December 31, 2013, the company decided to contribute to the plan for the plan year ending June 30, 2013. H&r block free That contribution was made on February 15, 2014. H&r block free Mickey is an active participant in the plan for his 2014 tax year but not for his 2013 tax year. H&r block free No vested interest. H&r block free   If an amount is allocated to your account for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the account. H&r block free Defined benefit plan. H&r block free   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. H&r block free This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. H&r block free   A defined benefit plan is any plan that is not a defined contribution plan. H&r block free In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. H&r block free The plan administrator figures the amount needed to provide those benefits and those amounts are contributed to the plan. H&r block free Defined benefit plans include pension plans and annuity plans. H&r block free Example. H&r block free Nick, an employee of Company B, is eligible to participate in Company B's defined benefit plan, which has a July 1 to June 30 plan year. H&r block free Nick leaves Company B on December 31, 2012. H&r block free Because Nick is eligible to participate in the plan for its year ending June 30, 2013, he is covered by the plan for his 2013 tax year. H&r block free No vested interest. H&r block free   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. H&r block free Situations in Which You Are Not Covered Unless you are covered by another employer plan, you are not covered by an employer plan if you are in one of the situations described below. H&r block free Social security or railroad retirement. H&r block free   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. H&r block free Benefits from previous employer's plan. H&r block free   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. H&r block free Reservists. H&r block free   If the only reason you participate in a plan is because you are a member of a reserve unit of the Armed Forces, you may not be covered by the plan. H&r block free You are not covered by the plan if both of the following conditions are met. H&r block free The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. H&r block free You did not serve more than 90 days on active duty during the year (not counting duty for training). H&r block free Volunteer firefighters. H&r block free   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. H&r block free You are not covered by the plan if both of the following conditions are met. H&r block free The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. H&r block free Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. H&r block free Limit if Covered by Employer Plan As discussed earlier, the deduction you can take for contributions made to your traditional IRA depends on whether you or your spouse was covered for any part of the year by an employer retirement plan. H&r block free Your deduction is also affected by how much income you had and by your filing status. H&r block free Your deduction may also be affected by social security benefits you received. H&r block free Reduced or no deduction. H&r block free   If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. H&r block free   Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. H&r block free These amounts vary depending on your filing status. H&r block free   To determine if your deduction is subject to the phaseout, you must determine your modified adjusted gross income (AGI) and your filing status, as explained later under Deduction Phaseout . H&r block free Once you have determined your modified AGI and your filing status, you can use Table 1-2 or Table 1-3 to determine if the phaseout applies. H&r block free Social Security Recipients Instead of using Table 1-2 or Table 1-3 and Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, later, complete the worksheets in Appendix B of this publication if, for the year, all of the following apply. H&r block free You received social security benefits. H&r block free You received taxable compensation. H&r block free Contributions were made to your traditional IRA. H&r block free You or your spouse was covered by an employer retirement plan. H&r block free Use the worksheets in Appendix B to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. H&r block free Appendix B includes an example with filled-in worksheets to assist you. H&r block free Table 1-2. H&r block free Effect of Modified AGI1 on Deduction if You Are Covered by a Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. H&r block free IF your filing status is . H&r block free . H&r block free . H&r block free AND your modified adjusted gross income (modified AGI) is . H&r block free . H&r block free . H&r block free THEN you can take . H&r block free . H&r block free . H&r block free single or head of household $59,000 or less a full deduction. H&r block free more than $59,000 but less than $69,000 a partial deduction. H&r block free $69,000 or more no deduction. H&r block free married filing jointly or  qualifying widow(er) $95,000 or less a full deduction. H&r block free more than $95,000 but less than $115,000 a partial deduction. H&r block free $115,000 or more no deduction. H&r block free married filing separately2 less than $10,000 a partial deduction. H&r block free $10,000 or more no deduction. H&r block free 1 Modified AGI (adjusted gross income). H&r block free See Modified adjusted gross income (AGI) , later. H&r block free  2 If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status). H&r block free Table 1-3. H&r block free Effect of Modified AGI1 on Deduction if You Are NOT Covered by a Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. H&r block free IF your filing status is . H&r block free . H&r block free . H&r block free AND your modified adjusted gross income (modified AGI) is . H&r block free . H&r block free . H&r block free THEN you can take . H&r block free . H&r block free . H&r block free single, head of household, or qualifying widow(er) any amount a full deduction. H&r block free married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction. H&r block free married filing jointly with a spouse who is covered by a plan at work $178,000 or less a full deduction. H&r block free more than $178,000 but less than $188,000 a partial deduction. H&r block free $188,000 or more no deduction. H&r block free married filing separately with a spouse who is covered by a plan at work2 less than $10,000 a partial deduction. H&r block free $10,000 or more no deduction. H&r block free 1 Modified AGI (adjusted gross income). H&r block free See Modified adjusted gross income (AGI) , later. H&r block free  2 You are entitled to the full deduction if you did not live with your spouse at any time during the year. H&r block free For 2014, if you are not covered by a retirement plan at work and you are married filing jointly with a spouse who is covered by a plan at work, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. H&r block free If your AGI is $191,000 or more, you cannot take a deduction for a contribution to a traditional IRA. H&r block free Deduction Phaseout The amount of any reduction in the limit on your IRA deduction (phaseout) depends on whether you or your spouse was covered by an employer retirement plan. H&r block free Covered by a retirement plan. H&r block free   If you are covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI, as shown in Table 1-2. H&r block free For 2014, if you are covered by a retirement plan at work, your IRA deduction will not be reduced (phased out) unless your modified AGI is: More than $60,000 but less than $70,000 for a single individual (or head of household), More than $96,000 but less than $116,000 for a married couple filing a joint return (or a qualifying widow(er)), or Less than $10,000 for a married individual filing a separate return. H&r block free If your spouse is covered. H&r block free   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 1-3. H&r block free Filing status. H&r block free   Your filing status depends primarily on your marital status. H&r block free For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. H&r block free If you need more information on filing status, see Publication 501, Exemptions, Standard Deduction, and Filing Information. H&r block free Lived apart from spouse. H&r block free   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. H&r block free Modified adjusted gross income (AGI). H&r block free   You can use Worksheet 1-1 to figure your modified AGI. H&r block free If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Both contributions for 2013 and distributions in 2013 , later. H&r block free    Do not assume that your modified AGI is the same as your compensation. H&r block free Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions. H&r block free Form 1040. H&r block free   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. H&r block free IRA deduction. H&r block free Student loan interest deduction. H&r block free Tuition and fees deduction. H&r block free Domestic production activities deduction. H&r block free Foreign earned income exclusion. H&r block free Foreign housing exclusion or deduction. H&r block free Exclusion of qualified savings bond interest shown on Form 8815. H&r block free Exclusion of employer-provided adoption benefits shown on Form 8839. H&r block free This is your modified AGI. H&r block free Form 1040A. H&r block free   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. H&r block free IRA deduction. H&r block free Student loan interest deduction. H&r block free Tuition and fees deduction. H&r block free Exclusion of qualified savings bond interest shown on Form 8815. H&r block free This is your modified AGI. H&r block free Form 1040NR. H&r block free   If you file Form 1040NR, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. H&r block free IRA deduction. H&r block free Student loan interest deduction. H&r block free Domestic production activities deduction. H&r block free Exclusion of qualified savings bond interest shown on Form 8815. H&r block free Exclusion of employer-provided adoption benefits shown on Form 8839. H&r block free This is your modified AGI. H&r block free Income from IRA distributions. H&r block free   If you received distributions in 2013 from one or more traditional IRAs and your traditional IRAs include only deductible contributions, the distributions are fully taxable and are included in your modified AGI. H&r block free Both contributions for 2013 and distributions in 2013. H&r block free   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. H&r block free You received distributions in 2013 from one or more traditional IRAs, You made contributions to a traditional IRA for 2013, and Some of those contributions may be nondeductible contributions. H&r block free (See Nondeductible Contributions and Worksheet 1-2, later. H&r block free ) If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. H&r block free To do this, you can use Worksheet 1-5, later. H&r block free   If at least one of the above does not apply, figure your modified AGI using Worksheet 1-1, later. H&r block free How To Figure Your Reduced IRA Deduction If you or your spouse is covered by an employer retirement plan and you did not receive any social security benefits, you can figure your reduced IRA deduction by using Worksheet 1-2. H&r block free Figuring Your Reduced IRA Deduction for 2013. H&r block free The Instructions for Form 1040, Form 1040A, and Form 1040NR include similar worksheets that you can use instead of the worksheet in this publication. H&r block free If you or your spouse is covered by an employer retirement plan, and you received any social security benefits, see Social Security Recipients , earlier. H&r block free Note. H&r block free If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. H&r block free Worksheet 1-1. H&r block free Figuring Your Modified AGI Use this worksheet to figure your modified AGI for traditional IRA purposes. H&r block free 1. H&r block free Enter your adjusted gross income (AGI) from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37, figured without taking into account the amount from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 1. H&r block free   2. H&r block free Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 2. H&r block free   3. H&r block free Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. H&r block free   4. H&r block free Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 4. H&r block free   5. H&r block free Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. H&r block free   6. H&r block free Enter any foreign housing deduction from Form 2555, line 50 6. H&r block free   7. H&r block free Enter any excludable savings bond interest from Form 8815, line 14 7. H&r block free   8. H&r block free Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. H&r block free   9. H&r block free Add lines 1 through 8. H&r block free This is your Modified AGI for traditional IRA purposes 9. H&r block free   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. H&r block free If you file Form 1040A, enter your IRA deduction on line 17 of that form. H&r block free If you file Form 1040NR, enter your IRA deduction on line 32 of that form. H&r block free You cannot deduct IRA contributions on Form 1040EZ or Form 1040NR-EZ. H&r block free Self-employed. H&r block free   If you are self-employed (a sole proprietor or partner) and have a SIMPLE IRA, enter your deduction for allowable plan contributions on Form 1040, line 28. H&r block free If you file Form 1040NR, enter your deduction on line 28 of that form. H&r block free Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA of up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. H&r block free The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. H&r block free Example. H&r block free Tony is 29 years old and single. H&r block free In 2013, he was covered by a retirement plan at work. H&r block free His salary is $62,000. H&r block free His modified AGI is $70,000. H&r block free Tony makes a $5,500 IRA contribution for 2013. H&r block free Because he was covered by a retirement plan and his modified AGI is above $69,000, he cannot deduct his $5,500 IRA contribution. H&r block free He must designate this contribution as a nondeductible contribution by reporting it on Form 8606. H&r block free Repayment of reservist distributions. H&r block free   Nondeductible contributions may include repayments of qualified reservist distributions. H&r block free For more information, see Qualified reservist repayments under How Much Can Be Contributed, earlier. H&r block free Form 8606. H&r block free   To designate contributions as nondeductible, you must file Form 8606. H&r block free (See the filled-in Forms 8606 in this chapter. H&r block free )   You do not have to designate a contribution as nondeductible until you file your tax return. H&r block free When you file, you can even designate otherwise deductible contributions as nondeductible contributions. H&r block free   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. H&r block free    A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. H&r block free In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. H&r block free See Form 8606 under Distributions Fully or Partly Taxable, later. H&r block free Failure to report nondeductible contributions. H&r block free   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. H&r block free All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. H&r block free Penalty for overstatement. H&r block free   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. H&r block free Penalty for failure to file Form 8606. H&r block free   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. H&r block free Tax on earnings on nondeductible contributions. H&r block free   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. H&r block free Cost basis. H&r block free   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. H&r block free Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. H&r block free    Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. H&r block free See Are Distributions Taxable, later, for more information. H&r block free Recordkeeping. H&r block free There is a recordkeeping worksheet, Appendix A. H&r block free Summary Record of Traditional IRA(s) for 2013 , that you can use to keep a record of deductible and nondeductible IRA contributions. H&r block free Examples — Worksheet for Reduced IRA Deduction for 2013 The following examples illustrate the use of Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013. H&r block free Example 1. H&r block free For 2013, Tom and Betty file a joint return on Form 1040. H&r block free They are both 39 years old. H&r block free They are both employed and Tom is covered by his employer's retirement plan. H&r block free Tom's salary is $59,000 and Betty's is $32,555. H&r block free They each have a traditional IRA and their combined modified AGI, which includes $5,000 interest and dividend income, is $96,555. H&r block free Because their modified AGI is between $95,000 and $115,000 and Tom is covered by an employer plan, Tom is subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . H&r block free For 2013, Tom contributed $5,500 to his IRA and Betty contributed $5,500 to hers. H&r block free Even though they file a joint return, they must use separate worksheets to figure the IRA deduction for each of them. H&r block free Tom can take a deduction of only $5,080. H&r block free He can choose to treat the $5,080 as either deductible or nondeductible contributions. H&r block free He can either leave the $420 ($5,500 − $5,080) of nondeductible contributions in his IRA or withdraw them by April 15, 2014. H&r block free He decides to treat the $5,080 as deductible contributions and leave the $420 of nondeductible contributions in his IRA. H&r block free Using Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, Tom figures his deductible and nondeductible amounts as shown on Worksheet 1-2. H&r block free Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated. H&r block free Betty figures her IRA deduction as follows. H&r block free Betty can treat all or part of her contributions as either deductible or nondeductible. H&r block free This is because her $5,500 contribution for 2013 is not subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . H&r block free She does not need to use Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, because their modified AGI is not within the phaseout range that applies. H&r block free Betty decides to treat her $5,500 IRA contributions as deductible. H&r block free The IRA deductions of $5,080 and $5,500 on the joint return for Tom and Betty total $10,580. H&r block free Example 2. H&r block free For 2013, Ed and Sue file a joint return on Form 1040. H&r block free They are both 39 years old. H&r block free Ed is covered by his employer's retirement plan. H&r block free Ed's salary is $45,000. H&r block free Sue had no compensation for the year and did not contribute to an IRA. H&r block free Sue is not covered by an employer plan. H&r block free Ed contributed $5,500 to his traditional IRA and $5,500 to a traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). H&r block free Their combined modified AGI, which includes $2,000 interest and dividend income and a large capital gain from the sale of stock, is $180,555. H&r block free Because the combined modified AGI is $115,000 or more, Ed cannot deduct any of the contribution to his traditional IRA. H&r block free He can either leave the $5,500 of nondeductible contributions in his IRA or withdraw them by April 15, 2014. H&r block free Sue figures her IRA deduction as shown on Worksheet 1-2. H&r block free Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated. H&r block free Worksheet 1-2. H&r block free Figuring Your Reduced IRA Deduction for 2013 (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. H&r block free ) Note. H&r block free If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. H&r block free IF you . H&r block free . H&r block free . H&r block free AND your  filing status is . H&r block free . H&r block free . H&r block free AND your modified AGI is over . H&r block free . H&r block free . H&r block free THEN enter on  line 1 below . H&r block free . H&r block free . H&r block free       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. H&r block free Enter applicable amount from table above 1. H&r block free   2. H&r block free Enter your modified AGI (that of both spouses, if married filing jointly) 2. H&r block free     Note. H&r block free If line 2 is equal to or more than the amount on line 1, stop here. H&r block free  Your IRA contributions are not deductible. H&r block free See Nondeductible Contributions , earlier. H&r block free     3. H&r block free Subtract line 2 from line 1. H&r block free If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. H&r block free You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. H&r block free   4. H&r block free Multiply line 3 by the percentage below that applies to you. H&r block free If the result is not a multiple of $10, round it to the next highest multiple of $10. H&r block free (For example, $611. H&r block free 40 is rounded to $620. H&r block free ) However, if the result is less than $200, enter $200. H&r block free         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. H&r block free 5% (. H&r block free 275) (by 32. H&r block free 5% (. H&r block free 325) if you are age 50 or older). H&r block free All others, multiply line 3 by 55% (. H&r block free 55) (by 65% (. H&r block free 65) if you are age 50 or older). H&r block free 4. H&r block free   5. H&r block free Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). H&r block free If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. H&r block free If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. H&r block free   6. H&r block free Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). H&r block free If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. H&r block free 6. H&r block free   7. H&r block free IRA deduction. H&r block free Compare lines 4, 5, and 6. H&r block free Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. H&r block free If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. H&r block free   8. H&r block free Nondeductible contribution. H&r block free Subtract line 7 from line 5 or 6, whichever is smaller. H&r block free  Enter the result here and on line 1 of your Form 8606 8. H&r block free   Worksheet 1-2. H&r block free Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. H&r block free ) Note. H&r block free If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. H&r block free IF you . H&r block free . H&r block free . H&r block free AND your  filing status is . H&r block free . H&r block free . H&r block free AND your modified AGI is over . H&r block free . H&r block free . H&r block free THEN enter on  line 1 below . H&r block free . H&r block free . H&r block free       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. H&r block free Enter applicable amount from table above 1. H&r block free 115,000 2. H&r block free Enter your modified AGI (that of both spouses, if married filing jointly) 2. H&r block free 96,555   Note. H&r block free If line 2 is equal to or more than the amount on line 1, stop here. H&r block free  Your IRA contributions are not deductible. H&r block free See Nondeductible Contributions , earlier. H&r block free     3. H&r block free Subtract line 2 from line 1. H&r block free If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. H&r block free You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. H&r block free 18,445 4. H&r block free Multiply line 3 by the percentage below that applies to you. H&r block free If the result is not a multiple of $10, round it to the next highest multiple of $10. H&r block free (For example, $611. H&r block free 40 is rounded to $620. H&r block free ) However, if the result is less than $200, enter $200. H&r block free         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. H&r block free 5% (. H&r block free 275) (by 32. H&r block free 5% (. H&r block free 325) if you are age 50 or older). H&r block free All others, multiply line 3 by 55% (. H&r block free 55) (by 65% (. H&r block free 65) if you are age 50 or older). H&r block free 4. H&r block free 5,080 5. H&r block free Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). H&r block free If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. H&r block free If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. H&r block free 59,000 6. H&r block free Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). H&r block free If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. H&r block free 6. H&r block free 5,500 7. H&r block free IRA deduction. H&r block free Compare lines 4, 5, and 6. H&r block free Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. H&r block free If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. H&r block free 5,080 8. H&r block free Nondeductible contribution. H&r block free Subtract line 7 from line 5 or 6, whichever is smaller. H&r block free  Enter the result here and on line 1 of your Form 8606 8. H&r block free 420 Worksheet 1-2. H&r block free Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. H&r block free ) Note. H&r block free If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. H&r block free IF you . H&r block free . H&r block free . H&r block free AND your  filing status is . H&r block free . H&r block free . H&r block free AND your modified AGI is over . H&r block free . H&r block free . H&r block free THEN enter on  line 1 below . H&r block free . H&r block free . H&r block free       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. H&r block free Enter applicable amount from table above 1. H&r block free 188,000 2. H&r block free Enter your modified AGI (that of both spouses, if married filing jointly) 2. H&r block free 180,555   Note. H&r block free If line 2 is equal to or more than the amount on line 1, stop here. H&r block free  Your IRA contributions are not deductible. H&r block free See Nondeductible Contributions , earlier. H&r block free     3. H&r block free Subtract line 2 from line 1. H&r block free If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. H&r block free You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. H&r block free 7,445 4. H&r block free Multiply line 3 by the percentage below that applies to you. H&r block free If the result is not a multiple of $10, round it to the next highest multiple of $10. H&r block free (For example, $611. H&r block free 40 is rounded to $620. H&r block free ) However, if the result is less than $200, enter $200. H&r block free         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. H&r block free 5% (. H&r block free 275) (by 32. H&r block free 5% (. H&r block free 325) if you are age 50 or older). H&r block free All others, multiply line 3 by 55% (. H&r block free 55) (by 65% (. H&r block free 65) if you are age 50 or older). H&r block free 4. H&r block free 4,100 5. H&r block free Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). H&r block free If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. H&r block free If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. H&r block free 39,500 6. H&r block free Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). H&r block free If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. H&r block free 6. H&r block free 5,500 7. H&r block free IRA deduction. H&r block free Compare lines 4, 5, and 6. H&r block free Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. H&r block free If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. H&r block free 4,100 8. H&r block free Nondeductible contribution. H&r block free Subtract line 7 from line 5 or 6, whichever is smaller. H&r block free  Enter the result here and on line 1 of your Form 8606 8. H&r block free 1,400 What if You Inherit an IRA? If you inherit a traditional IRA, you are called a beneficiary. H&r block free A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. H&r block free Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. H&r block free Inherited from spouse. H&r block free   If you inherit a traditional IRA from your spouse, you generally have the following three choices. H&r block free You can: Treat it as your own IRA by designating yourself as the account owner. H&r block free Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (s