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H&r blocks Publication 17 - Introductory Material Table of Contents What's New Reminders IntroductionIcons. H&r blocks Ordering forms and publications. H&r blocks Tax questions. H&r blocks All material in this publication may be reprinted freely. H&r blocks A citation to Your Federal Income Tax (2013) would be appropriate. H&r blocks The explanations and examples in this publication reflect the interpretation by the Internal Revenue Service (IRS) of: Tax laws enacted by Congress, Treasury regulations, and Court decisions. H&r blocks However, the information given does not cover every situation and is not intended to replace the law or change its meaning. H&r blocks This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS. H&r blocks Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretations by the IRS. H&r blocks All taxpayers have important rights when working with the IRS. H&r blocks These rights are described in Your Rights as a Taxpayer in the back of this publication. H&r blocks What's New This section summarizes important tax changes that took effect in 2013. H&r blocks Most of these changes are discussed in more detail throughout this publication. H&r blocks Future developments. H&r blocks  For the latest information about the tax law topics covered in this publication, including information about any tax legislation, go to www. H&r blocks irs. H&r blocks gov/pub17. H&r blocks Additional Medicare Tax. H&r blocks  Beginning in 2013, a 0. H&r blocks 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. H&r blocks See Form 8959 and its instructions. H&r blocks Net Investment Income Tax. H&r blocks  Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). H&r blocks The NIIT is 3. H&r blocks 8% of the smaller of (a) your net investment income or (b) the excess of your modified adjusted gross income over: $125,000 if married filing separately, $250,000 if married filing jointly or qualifying widow(er), or $200,000 if any other filing status. H&r blocks See Form 8960 and its instructions. H&r blocks Change in tax rates. H&r blocks  The highest tax rate is 39. H&r blocks 6%. H&r blocks For more information, see the 2013 Tax Computation Worksheet or the 2013 Tax Rate Schedules near the end of this publication. H&r blocks Tax rate on net capital gain and qualified dividends. H&r blocks  The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some taxpayers. H&r blocks See chapter 16. H&r blocks Medical and dental expenses. H&r blocks  You can deduct only the part of your medical and dental expenses that is more than 10% of your adjusted gross income (7. H&r blocks 5% if either you or your spouse is age 65 or older). H&r blocks See chapter 21. H&r blocks Personal exemption amount increased for certain taxpayers. H&r blocks  Your personal exemption is increased to $3,900. H&r blocks But the amount is reduced if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if any other filing status. H&r blocks See chapter 3. H&r blocks Limit on itemized deductions. H&r blocks  You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if any other filing status. H&r blocks See chapter 29. H&r blocks Same-sex marriages. H&r blocks  If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. H&r blocks See chapter 2. H&r blocks If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. H&r blocks For details on filing amended returns, see chapter 1. H&r blocks Health flexible spending arrangements (FSAs). H&r blocks  You cannot have more than $2,500 in salary reduction contributions made to a health FSA for plan years beginning after 2012. H&r blocks See chapter 5. H&r blocks Expiring credits. H&r blocks  The plug-in electric vehicle credit and the refundable part of the credit for prior year minimum tax have expired. H&r blocks You cannot claim either one on your 2013 return. H&r blocks See chapter 37. H&r blocks Ponzi-type investment schemes. H&r blocks  There are new rules for how to claim a theft loss deduction on Form 4684 due to a Ponzi-type investment scheme. H&r blocks See chapter 25. H&r blocks Home office deduction simplified method. H&r blocks  If you can take a home office deduction, you may be able to use a simplified method to figure it. H&r blocks See Publication 587. H&r blocks Standard mileage rates. H&r blocks  The 2013 rate for business use of your car is increased to 56½ cents a mile. H&r blocks See chapter 26. H&r blocks The 2013 rate for use of your car to get medical care is increased to 24 cents a mile. H&r blocks See chapter 21. H&r blocks The 2013 rate for use of your car to move is increased to 24 cents a mile. H&r blocks See Publication 521, Moving Expenses. H&r blocks Reminders Listed below are important reminders and other items that may help you file your 2013 tax return. H&r blocks Many of these items are explained in more detail later in this publication. H&r blocks Enter your social security number (SSN). H&r blocks  Enter your SSN in the space provided on your tax form. H&r blocks If you filed a joint return for 2012 and are filing a joint return for 2013 with the same spouse, enter your names and SSNs in the same order as on your 2012 return. H&r blocks See chapter 1. H&r blocks Secure your tax records from identity theft. H&r blocks  Identity theft occurs when someone uses your personal information, such as your name, SSN, or other identifying information, without your permission, to commit fraud or other crimes. H&r blocks An identity thief may use your SSN to get a job or may file a tax return using your SSN to receive a refund. H&r blocks For more information about identity theft and how to reduce your risk from it, see chapter 1. H&r blocks Taxpayer identification numbers. H&r blocks  You must provide the taxpayer identification number for each person for whom you claim certain tax benefits. H&r blocks This applies even if the person was born in 2013. H&r blocks Generally, this number is the person's social security number (SSN). H&r blocks See chapter 1. H&r blocks Foreign source income. H&r blocks  If you are a U. H&r blocks S. H&r blocks citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U. H&r blocks S. H&r blocks law. H&r blocks This is true whether you live inside or outside the United States and whether or not you receive a Form W-2 or Form 1099 from the foreign payer. H&r blocks This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents and royalties). H&r blocks If you live outside the United States, you may be able to exclude part or all of your foreign source earned income. H&r blocks For details, see Publication 54, Tax Guide for U. H&r blocks S. H&r blocks Citizens and Resident Aliens Abroad. H&r blocks Foreign financial assets. H&r blocks  If you had foreign financial assets in 2013, you may have to file Form 8938 with your return. H&r blocks Check www. H&r blocks IRS. H&r blocks gov/form8938 for details. H&r blocks Automatic 6-month extension to file tax return. H&r blocks  You can use Form 4868, Application for Automatic Extension of Time To File U. H&r blocks S. H&r blocks Individual Income Tax Return, to obtain an automatic 6-month extension of time to file your tax return. H&r blocks See chapter 1. H&r blocks Include your phone number on your return. H&r blocks  To promptly resolve any questions we have in processing your tax return, we would like to be able to call you. H&r blocks Please enter your daytime telephone number on your tax form next to your signature and occupation. H&r blocks If you are filing a joint return, you can enter either your or your spouse's daytime phone number. H&r blocks Payment of taxes. H&r blocks   You can pay your taxes online, by phone, or by check or money order. H&r blocks You can make a direct transfer from your bank account or use a credit or debit card. H&r blocks If you e-file, you can schedule an electronic payment. H&r blocks See chapter 1. H&r blocks Faster ways to file your return. H&r blocks  The IRS offers fast, accurate ways to file your tax return information without filing a paper tax return. H&r blocks You can use IRS e-file (electronic filing). H&r blocks See chapter 1. H&r blocks Free electronic filing. H&r blocks  You may be able to file your 2013 taxes online for free. H&r blocks See chapter 1. H&r blocks Change of address. H&r blocks  If you change your address, you should notify the IRS. H&r blocks See Change of Address in chapter 1. H&r blocks Refund on a late filed return. H&r blocks  If you were due a refund but you did not file a return, you generally must file your return within 3 years from the date the return was due (including extensions) to get that refund. H&r blocks See chapter 1. H&r blocks Frivolous tax returns. H&r blocks  The IRS has published a list of positions that are identified as frivolous. H&r blocks The penalty for filing a frivolous tax return is $5,000. H&r blocks See chapter 1. H&r blocks Filing erroneous claim for refund or credit. H&r blocks  You may have to pay a penalty if you file an erroneous claim for refund or credit. H&r blocks See chapter 1. H&r blocks Privacy Act and paperwork reduction information. H&r blocks   The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and the Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you what our legal right is to ask for the information, why we are asking for it, how it will be used, what could happen if we do not receive it, and whether your response is voluntary, required to obtain a benefit, or mandatory under the law. H&r blocks A complete statement on this subject can be found in your tax form instructions. H&r blocks Customer service for taxpayers. H&r blocks  You can set up a personal appointment at the most convenient Taxpayer Assistance Center, on the most convenient business day. H&r blocks See How To Get Tax Help in the back of this publication. H&r blocks Preparer e-file mandate. H&r blocks  Most paid preparers must e-file returns they prepare and file. H&r blocks Your preparer may make you aware of this requirement and the options available to you. H&r blocks Treasury Inspector General for Tax Administration. H&r blocks   If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (call 1-800-877-8339 if you are deaf, hard of hearing, or have a speech disability, and are using TTY/TDD equipment). H&r blocks You can remain anonymous. H&r blocks Photographs of missing children. H&r blocks  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. H&r blocks Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. H&r blocks You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. H&r blocks Introduction This publication covers the general rules for filing a federal income tax return. H&r blocks It supplements the information contained in your tax form instructions. H&r blocks It explains the tax law to make sure you pay only the tax you owe and no more. H&r blocks How this publication is arranged. H&r blocks   This publication closely follows Form 1040, U. H&r blocks S. H&r blocks Individual Income Tax Return. H&r blocks It is divided into six parts which cover different sections of Form 1040. H&r blocks Each part is further divided into chapters which generally discuss one line of the form. H&r blocks Do not worry if you file Form 1040A or Form 1040EZ. H&r blocks Anything included on a line of either of these forms is also included on Form 1040. H&r blocks   The table of contents inside the front cover and the index in the back of the publication are useful tools to help you find the information you need. H&r blocks What is in this publication. H&r blocks   The publication begins with the rules for filing a tax return. H&r blocks It explains: Who must file a return, Which tax form to use, When the return is due, How to e-file your return, and Other general information. H&r blocks It will help you identify which filing status you qualify for, whether you can claim any dependents, and whether the income you receive is taxable. H&r blocks The publication goes on to explain the standard deduction, the kinds of expenses you may be able to deduct, and the various kinds of credits you may be able to take to reduce your tax. H&r blocks   Throughout the publication are examples showing how the tax law applies in typical situations. H&r blocks Also throughout the publication are flowcharts and tables that present tax information in an easy-to-understand manner. H&r blocks   Many of the subjects discussed in this publication are discussed in greater detail in other IRS publications. H&r blocks References to those other publications are provided for your information. H&r blocks Icons. H&r blocks   Small graphic symbols, or icons, are used to draw your attention to special information. H&r blocks See Table 1 later for an explanation of each icon used in this publication. H&r blocks What is not covered in this publication. H&r blocks   Some material that you may find helpful is not included in this publication but can be found in your tax form instruction booklet. H&r blocks This includes lists of: Where to report certain items shown on information documents, and Recorded tax information topics (TeleTax). H&r blocks   If you operate your own business or have other self-employment income, such as from babysitting or selling crafts, see the following publications for more information. H&r blocks Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ). H&r blocks Publication 535, Business Expenses. H&r blocks Publication 587, Business Use of Your Home (Including Use by Daycare Providers). H&r blocks Help from the IRS. H&r blocks   There are many ways you can get help from the IRS. H&r blocks These are explained under How To Get Tax Help in the back of this publication. H&r blocks Comments and suggestions. H&r blocks   We welcome your comments about this publication and your suggestions for future editions. H&r blocks   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. H&r blocks NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. H&r blocks Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. H&r blocks   You can send your comments from www. H&r blocks irs. H&r blocks gov/formspubs/. H&r blocks Click on “More Information” and then on “Comment on Tax Forms and Publications”. H&r blocks   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. H&r blocks Ordering forms and publications. H&r blocks   Visit www. H&r blocks irs. H&r blocks gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. H&r blocks Internal Revenue Service 1201 N. H&r blocks Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. H&r blocks   If you have a tax question, check the information available on IRS. H&r blocks gov or call 1-800-829-1040. H&r blocks We cannot answer tax questions sent to either of the above addresses. H&r blocks IRS mission. H&r blocks   Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. H&r blocks Table 1. H&r blocks Legend of Icons Icon Explanation Items that may cause you particular problems, or an alert about pending legislation that may be enacted after this publication goes to print. H&r blocks An Internet site or an email address. H&r blocks An address you may need. H&r blocks Items you should keep in your personal records. H&r blocks Items you may need to figure or a worksheet you may need to complete and keep for your records. H&r blocks An important phone number. H&r blocks Helpful information you may need. H&r blocks Prev  Up  Next   Home   More Online Publications
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H&r blocks Publication 15 - Main Content Table of Contents 1. H&r blocks Employer Identification Number (EIN) 2. H&r blocks Who Are Employees?Relief provisions. H&r blocks Business Owned and Operated by Spouses 3. H&r blocks Family Employees 4. H&r blocks Employee's Social Security Number (SSN)Registering for SSNVS. H&r blocks 5. H&r blocks Wages and Other CompensationAccountable plan. H&r blocks Nonaccountable plan. H&r blocks Per diem or other fixed allowance. H&r blocks 50% test. H&r blocks Health Savings Accounts and medical savings accounts. H&r blocks Nontaxable fringe benefits. H&r blocks When fringe benefits are treated as paid. H&r blocks Valuation of fringe benefits. H&r blocks Withholding on fringe benefits. H&r blocks Depositing taxes on fringe benefits. H&r blocks 6. H&r blocks TipsOrdering rule. H&r blocks 7. H&r blocks Supplemental Wages 8. H&r blocks Payroll Period 9. H&r blocks Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. H&r blocks Required Notice to Employees About the Earned Income Credit (EIC) 11. H&r blocks Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. H&r blocks Filing Form 941 or Form 944 13. H&r blocks Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. H&r blocks Federal Unemployment (FUTA) TaxSuccessor employer. H&r blocks Household employees. H&r blocks When to deposit. H&r blocks Household employees. H&r blocks Electronic filing by reporting agents. H&r blocks 16. H&r blocks How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. H&r blocks Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. H&r blocks The EIN is a nine-digit number the IRS issues. H&r blocks The digits are arranged as follows: 00-0000000. H&r blocks It is used to identify the tax accounts of employers and certain others who have no employees. H&r blocks Use your EIN on all of the items you send to the IRS and SSA. H&r blocks For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. H&r blocks If you do not have an EIN, you may apply for one online. H&r blocks Go to the IRS. H&r blocks gov and click on the Apply for an EIN Online link under Tools. H&r blocks 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 blocks Do not use an SSN in place of an EIN. H&r blocks You should have only one EIN. H&r blocks If you have more than one and are not sure which one to use, call 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 blocks Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. H&r blocks The IRS will tell you which number to use. H&r blocks If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. H&r blocks If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. H&r blocks 2. H&r blocks Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. H&r blocks See Publication 15-A for details on statutory employees and nonemployees. H&r blocks Employee status under common law. H&r blocks   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 blocks This is so even when you give the employee freedom of action. H&r blocks What matters is that you have the right to control the details of how the services are performed. H&r blocks 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 blocks   Generally, people in business for themselves are not employees. H&r blocks For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. H&r blocks However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. H&r blocks   If an employer-employee relationship exists, it does not matter what it is called. H&r blocks The employee may be called an agent or independent contractor. H&r blocks 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 blocks Statutory employees. H&r blocks   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. H&r blocks Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. H&r blocks An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. H&r blocks A full-time life insurance salesperson who sells primarily for one company. H&r blocks A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. H&r blocks A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. H&r blocks The orders must be for merchandise for resale or supplies for use in the customer's business. H&r blocks The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. H&r blocks    Statutory nonemployees. H&r blocks   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. H&r blocks They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. H&r blocks H-2A agricultural workers. H&r blocks   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. H&r blocks Treating employees as nonemployees. H&r blocks   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. H&r blocks You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. H&r blocks The applicable rates depend on whether you filed required Forms 1099. H&r blocks You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. H&r blocks You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. H&r blocks You continue to owe the full employer share of social security and Medicare taxes. H&r blocks The employee remains liable for the employee share of social security and Medicare taxes. H&r blocks See Internal Revenue Code section 3509 for details. H&r blocks Also see the Instructions for Form 941-X. H&r blocks   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. H&r blocks Section 3509 is not available for reclassifying statutory employees. H&r blocks See Statutory employees , earlier in this section. H&r blocks   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. H&r blocks 2% plus 20% of the employee rate (see the Instructions for Form 941-X). H&r blocks For Medicare taxes; employer rate of 1. H&r blocks 45% plus 20% of the employee rate of 1. H&r blocks 45%, for a total rate of 1. H&r blocks 74% of wages. H&r blocks For Additional Medicare Tax; 0. H&r blocks 18% (20% of the employee rate of 0. H&r blocks 9%) of wages subject to Additional Medicare Tax. H&r blocks For income tax withholding, the rate is 1. H&r blocks 5% of wages. H&r blocks   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. H&r blocks 2% plus 40% of the employee rate (see the Instructions for Form 941-X). H&r blocks For Medicare taxes; employer rate of 1. H&r blocks 45% plus 40% of the employee rate of 1. H&r blocks 45%, for a total rate of 2. H&r blocks 03% of wages. H&r blocks For Additional Medicare Tax; 0. H&r blocks 36% (40% of the employee rate of 0. H&r blocks 9%) of wages subject to Additional Medicare Tax. H&r blocks For income tax withholding, the rate is 3. H&r blocks 0% of wages. H&r blocks Relief provisions. H&r blocks   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. H&r blocks To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. H&r blocks You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. H&r blocks See Publication 1976, Do You Qualify for Relief Under Section 530. H&r blocks IRS help. H&r blocks   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. H&r blocks Voluntary Classification Settlement Program (VCSP). H&r blocks   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. H&r blocks To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). H&r blocks For more information visit IRS. H&r blocks gov and enter “VCSP” in the search box. H&r blocks Business Owned and Operated by Spouses If you and your spouse jointly own and operate a 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 blocks See Publication 541, Partnerships, for more details. H&r blocks 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 blocks Exception—Qualified joint venture. H&r blocks   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 blocks 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 blocks   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 blocks Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. H&r blocks   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 blocks 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 blocks Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. H&r blocks 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 blocks    Note. H&r blocks If your spouse is your employee, not your partner, see One spouse employed by another in section 3. H&r blocks   For more information on qualified joint ventures, visit IRS. H&r blocks gov and enter “qualified joint venture” in the search box. H&r blocks Exception—Community income. H&r blocks   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 blocks S. H&r blocks possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. H&r blocks You may still make an election to be taxed as a qualified joint venture instead of a partnership. H&r blocks See Exception—Qualified joint venture , earlier. H&r blocks 3. H&r blocks Family Employees Child employed by parents. H&r blocks   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. H&r blocks If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. H&r blocks However, see Covered services of a child or spouse , later in this section. H&r blocks Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. H&r blocks Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. H&r blocks One spouse employed by another. H&r blocks   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. H&r blocks However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. H&r blocks Covered services of a child or spouse. H&r blocks   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. H&r blocks Parent employed by son or daughter. H&r blocks   When the employer is a son or daughter employing his or her parent the following rules apply. H&r blocks Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. H&r blocks Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. H&r blocks    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. H&r blocks   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. H&r blocks 4. H&r blocks Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. H&r blocks This requirement also applies to resident and nonresident alien employees. H&r blocks You should ask your employee to show you his or her social security card. H&r blocks The employee may show the card if it is available. H&r blocks Do not accept a social security card that says “Not valid for employment. H&r blocks ” A social security number issued with this legend does not permit employment. H&r blocks You may, but are not required to, photocopy the social security card if the employee provides it. H&r blocks If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. H&r blocks See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. H&r blocks Applying for a social security card. H&r blocks   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. H&r blocks You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. H&r blocks socialsecurity. H&r blocks gov/online/ss-5. H&r blocks html. H&r blocks The employee must complete and sign Form SS-5; it cannot be filed by the employer. H&r blocks 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 blocks Applying for a social security number. H&r blocks   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. H&r blocks If you are filing electronically, enter all zeros (000-00-000) in the social security number field. H&r blocks 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 blocks Furnish copies B, C, and 2 of Form W-2c to the employee. H&r blocks Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. H&r blocks For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. H&r blocks socialsecurity. H&r blocks gov/employer. H&r blocks Advise your employee to correct the SSN on his or her original Form W-2. H&r blocks Correctly record the employee's name and SSN. H&r blocks   Record the name and number of each employee as they are shown on the employee's social security card. H&r blocks 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 blocks 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 blocks 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 for the most recently filed Form W-2. H&r blocks It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. H&r blocks IRS individual taxpayer identification numbers (ITINs) for aliens. H&r blocks   Do not accept an ITIN in place of an SSN for employee identification or for work. H&r blocks An ITIN is only available to resident and nonresident aliens who are not eligible for U. H&r blocks S. H&r blocks employment and need identification for other tax purposes. H&r blocks You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). H&r blocks    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. H&r blocks 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. H&r blocks Do not use an ITIN in place of an SSN on Form W-2. H&r blocks Verification of social security numbers. H&r blocks   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. H&r blocks Visit www. H&r blocks socialsecurity. H&r blocks gov/employer/ssnv. H&r blocks htm for more information. H&r blocks Registering for SSNVS. H&r blocks   You must register online and receive authorization from your employer to use SSNVS. H&r blocks To register, visit SSA's website at www. H&r blocks ssa. H&r blocks gov/employer and click on the Business Services Online link. H&r blocks Follow the registration instructions to obtain a user identification (ID) and password. H&r blocks You will need to provide the following information about yourself and your company. H&r blocks Name. H&r blocks SSN. H&r blocks Date of birth. H&r blocks Type of employer. H&r blocks EIN. H&r blocks Company name, address, and telephone number. H&r blocks Email address. H&r blocks   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. H&r blocks You must enter the activation code online to use SSNVS. H&r blocks 5. H&r blocks Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. H&r blocks The pay may be in cash or in other forms. H&r blocks It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. H&r blocks It does not matter how you measure or make the payments. H&r blocks Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. H&r blocks Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. H&r blocks More information. H&r blocks   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. H&r blocks Also, see section 15 for exceptions to the general rules for wages. H&r blocks Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. H&r blocks Publication 15-B provides information on other forms of compensation, including: Accident and health benefits, Achievement awards, Adoption assistance, Athletic facilities, De minimis (minimal) benefits, Dependent care assistance, Educational assistance, Employee discounts, Employee stock options, Employer-provided cell phones, Group-term life insurance coverage, Health Savings Accounts, Lodging on your business premises, Meals, Moving expense reimbursements, No-additional-cost services, Retirement planning services, Transportation (commuting) benefits, Tuition reduction, and Working condition benefits. H&r blocks Employee business expense reimbursements. H&r blocks   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. H&r blocks How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. H&r blocks If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. H&r blocks   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. H&r blocks Accountable plan. H&r blocks   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. H&r blocks They must have paid or incurred deductible expenses while performing services as your employees. H&r blocks The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. H&r blocks They must substantiate these expenses to you within a reasonable period of time. H&r blocks They must return any amounts in excess of substantiated expenses within a reasonable period of time. H&r blocks   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. H&r blocks   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. H&r blocks This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. H&r blocks   A reasonable period of time depends on the facts and circumstances. H&r blocks Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. H&r blocks Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. H&r blocks Nonaccountable plan. H&r blocks   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. H&r blocks Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. H&r blocks   See section 7 for more information on supplemental wages. H&r blocks Per diem or other fixed allowance. H&r blocks   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. H&r blocks In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. H&r blocks The 2013 standard mileage rate for auto expenses was 56. H&r blocks 5 cents per mile. H&r blocks The rate for 2014 is 56 cents per mile. H&r blocks   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. H&r blocks Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). H&r blocks   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. H&r blocks This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. H&r blocks Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. H&r blocks ” Wages not paid in money. H&r blocks   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. H&r blocks ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. H&r blocks Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. H&r blocks   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. H&r blocks Withhold income tax on these payments only if you and the employee agree to do so. H&r blocks Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. H&r blocks Moving expenses. H&r blocks   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. H&r blocks Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. H&r blocks For more information on moving expenses, see Publication 521, Moving Expenses. H&r blocks Meals and lodging. H&r blocks   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. H&r blocks The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. H&r blocks    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. H&r blocks For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. H&r blocks   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. H&r blocks A written statement that the meals or lodging are for your convenience is not sufficient. H&r blocks 50% test. H&r blocks   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. H&r blocks If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. H&r blocks For more information, see Publication 15-B. H&r blocks Health insurance plans. H&r blocks   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. H&r blocks Generally, this exclusion also applies to qualified long-term care insurance contracts. H&r blocks However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). H&r blocks For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. H&r blocks See Announcement 92-16 for more information. H&r blocks You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. H&r blocks Health Savings Accounts and medical savings accounts. H&r blocks   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. H&r blocks To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. H&r blocks Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. H&r blocks However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. H&r blocks For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). H&r blocks Medical care reimbursements. H&r blocks   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. H&r blocks See Publication 15-B for an exception for highly compensated employees. H&r blocks Differential wage payments. H&r blocks   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. H&r blocks   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. H&r blocks Employers should report differential wage payments in box 1 of Form W-2. H&r blocks For more information about the tax treatment of differential wage payments, visit IRS. H&r blocks gov and enter “employees in a combat zone” in the search box. H&r blocks Fringe benefits. H&r blocks   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). H&r blocks The benefits are subject to income tax withholding and employment taxes. H&r blocks Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. H&r blocks In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. H&r blocks There are other special rules you and your employees may use to value certain fringe benefits. H&r blocks See Publication 15-B for more information. H&r blocks Nontaxable fringe benefits. H&r blocks   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. H&r blocks See Publication 15-B for details. H&r blocks The following are some examples of nontaxable fringe benefits. H&r blocks Services provided to your employees at no additional cost to you. H&r blocks Qualified employee discounts. H&r blocks Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. H&r blocks Examples include a company car for business use and subscriptions to business magazines. H&r blocks Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). H&r blocks Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). H&r blocks Qualified moving expense reimbursement. H&r blocks See Moving expenses , earlier in this section, for details. H&r blocks The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. H&r blocks Qualified tuition reduction an educational organization provides to its employees for education. H&r blocks For more information, see Publication 970, Tax Benefits for Education. H&r blocks Employer-provided cell phones provided primarily for a noncompensatory business reason. H&r blocks   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. H&r blocks No-additional-cost services. H&r blocks Qualified employee discounts. H&r blocks Meals provided at an employer operated eating facility. H&r blocks Reduced tuition for education. H&r blocks  For more information, including the definition of a highly compensated employee, see Publication 15-B. H&r blocks When fringe benefits are treated as paid. H&r blocks   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. H&r blocks You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. H&r blocks You do not have to make this choice for all employees. H&r blocks You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. H&r blocks See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. H&r blocks Valuation of fringe benefits. H&r blocks   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. H&r blocks Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. H&r blocks Withholding on fringe benefits. H&r blocks   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. H&r blocks However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. H&r blocks   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. H&r blocks You must, however, withhold social security and Medicare taxes on the use of the vehicle. H&r blocks See Publication 15-B for more information on this election. H&r blocks Depositing taxes on fringe benefits. H&r blocks   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. H&r blocks To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. H&r blocks   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. H&r blocks See Valuation of fringe benefits , earlier. H&r blocks If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. H&r blocks See section 11 for information on deposit penalties. H&r blocks   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. H&r blocks However, you must recover the income taxes before April 1 of the following year. H&r blocks Sick pay. H&r blocks   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. H&r blocks These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. H&r blocks In either case, these payments are subject to social security, Medicare, and FUTA taxes. H&r blocks Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. H&r blocks The payments are always subject to federal income tax. H&r blocks See Publication 15-A for more information. H&r blocks 6. H&r blocks Tips Tips your employee receives from customers are generally subject to withholding. H&r blocks Your employee must report cash tips to you by the 10th of the month after the month the tips are received. H&r blocks The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. H&r blocks Both directly and indirectly tipped employees must report tips to you. H&r blocks No report is required for months when tips are less than $20. H&r blocks Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. H&r blocks The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period the report covers, and The total of tips received during the month or period. H&r blocks Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. H&r blocks You are permitted to establish a system for electronic tip reporting by employees. H&r blocks See Regulations section 31. H&r blocks 6053-1(d). H&r blocks Collecting taxes on tips. H&r blocks   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. H&r blocks The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. H&r blocks If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. H&r blocks   You can collect these taxes from the employee's wages or from other funds he or she makes available. H&r blocks See Tips treated as supplemental wages in section 7 for more information. H&r blocks Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. H&r blocks You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. H&r blocks You are responsible for the employer Medicare tax for the whole year on all wages and tips. H&r blocks File Form 941 or Form 944 to report withholding and employment taxes on tips. H&r blocks Ordering rule. H&r blocks   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. H&r blocks If there are not enough funds available, withhold taxes in the following order. H&r blocks Withhold on regular wages and other compensation. H&r blocks Withhold social security and Medicare taxes on tips. H&r blocks Withhold income tax on tips. H&r blocks Reporting tips. H&r blocks   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). H&r blocks Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. H&r blocks Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. H&r blocks ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. H&r blocks See section 13 and the General Instructions for Forms W-2 and W-3. H&r blocks   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. H&r blocks See Revenue Ruling 2012-18, 2012-26 I. H&r blocks R. H&r blocks B. H&r blocks 1032, available at www. H&r blocks irs. H&r blocks gov/irb/2012-26_IRB/ar07. H&r blocks html. H&r blocks Allocated tips. H&r blocks   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. H&r blocks However, do not withhold income, social security, or Medicare taxes on allocated tips. H&r blocks   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. H&r blocks   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. H&r blocks For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. H&r blocks For information on filing Form 8027 electronically with the IRS, see Publication 1239. H&r blocks Tip Rate Determination and Education Program. H&r blocks   Employers may participate in the Tip Rate Determination and Education Program. H&r blocks The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. H&r blocks The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). H&r blocks A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. H&r blocks To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. H&r blocks Additionally, visit IRS. H&r blocks gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. H&r blocks 7. H&r blocks Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. H&r blocks They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. H&r blocks Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. H&r blocks How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. H&r blocks See Regulations section 31. H&r blocks 3402(g)-1 for additional guidance for wages paid after January 1, 2007. H&r blocks Also see Revenue Ruling 2008-29, 2008-24 I. H&r blocks R. H&r blocks B. H&r blocks 1149, available at www. H&r blocks irs. H&r blocks gov/irb/2008-24_IRB/ar08. H&r blocks html. H&r blocks Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. H&r blocks   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. H&r blocks If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. H&r blocks 6% (or the highest rate of income tax for the year). H&r blocks Withhold using the 39. H&r blocks 6% rate without regard to the employee's Form W-4. H&r blocks In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. H&r blocks For more information, see Treasury Decision 9276, 2006-37 I. H&r blocks R. H&r blocks B. H&r blocks 423, available at www. H&r blocks irs. H&r blocks gov/irb/2006-37_IRB/ar09. H&r blocks html. H&r blocks Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. H&r blocks   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. H&r blocks Supplemental wages combined with regular wages. H&r blocks   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. H&r blocks Supplemental wages identified separately from regular wages. H&r blocks   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 income tax from your employee's regular wages. H&r blocks If you withheld 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 blocks Withhold a flat 25% (no other percentage allowed). H&r blocks If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. H&r blocks 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 blocks Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. H&r blocks Subtract the tax withheld from the regular wages. H&r blocks Withhold the remaining tax from the supplemental wages. H&r blocks 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 the previous supplemental wage payments, and withhold the remaining tax. H&r blocks If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. H&r blocks 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 blocks Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. H&r blocks Example 1. H&r blocks You pay John Peters a base salary on the 1st of each month. H&r blocks He is single and claims one withholding allowance. H&r blocks In January he is paid $1,000. H&r blocks Using the wage bracket tables, you withhold $50 from this amount. H&r blocks In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. H&r blocks You figure the withholding based on the total of $3,000. H&r blocks The correct withholding from the tables is $338. H&r blocks Example 2. H&r blocks You pay Sharon Warren a base salary on the 1st of each month. H&r blocks She is single and claims one allowance. H&r blocks Her May 1 pay is $2,000. H&r blocks Using the wage bracket tables, you withhold $188. H&r blocks On May 14 she receives a bonus of $1,000. H&r blocks Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). H&r blocks Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. H&r blocks Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). H&r blocks Withhold $150 from the bonus payment. H&r blocks Example 3. H&r blocks The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. H&r blocks You withhold 25% of $1,000, or $250, from Sharon's bonus payment. H&r blocks Example 4. H&r blocks The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. H&r blocks Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). H&r blocks Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. H&r blocks Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). H&r blocks Withhold $443 from the second bonus payment. H&r blocks Tips treated as supplemental wages. H&r blocks   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. H&r blocks If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. H&r blocks If you have not withheld income tax from the regular wages, add the tips to the regular wages. H&r blocks Then withhold income tax on the total. H&r blocks If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. H&r blocks Vacation pay. H&r blocks   Vacation pay is subject to withholding as if it were a regular wage payment. H&r blocks When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. H&r blocks If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. H&r blocks 8. H&r blocks Payroll Period Your payroll period is a period of service for which you usually pay wages. H&r blocks When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. H&r blocks No regular payroll period. H&r blocks   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. H&r blocks Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. H&r blocks If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. H&r blocks Employee paid for period less than 1 week. H&r blocks   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. H&r blocks If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. H&r blocks You then figure withholding based on the daily or miscellaneous period. H&r blocks 9. H&r blocks Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. H&r blocks   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 blocks 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 blocks Advise your employees to use the IRS Withholding Calculator on the IRS website at www. H&r blocks irs. H&r blocks gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. H&r blocks   Ask all new employees to give you a signed Form W-4 when they start work. H&r blocks Make the form effective with the first wage payment. H&r blocks If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. H&r blocks Form in Spanish. H&r blocks   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. H&r blocks For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). H&r blocks The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). H&r blocks Electronic system to receive Form W-4. H&r blocks   You may establish a system to electronically receive Forms W-4 from your employees. H&r blocks See Regulations section 31. H&r blocks 3402(f)(5)-1(c) for more information. H&r blocks Effective date of Form W-4. H&r blocks   A Form W-4 remains in effect until the employee gives you a new one. H&r blocks When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. H&r blocks If an employee gives you a Form W-4 that replaces an existing 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 blocks 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 blocks A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. H&r blocks Successor employer. H&r blocks   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. H&r blocks See Revenue Procedure 2004-53, 2004-34 I. H&r blocks R. H&r blocks B. H&r blocks 320, available at www. H&r blocks irs. H&r blocks gov/irb/2004-34_IRB/ar13. H&r blocks html. H&r blocks Completing Form W-4. H&r blocks   The amount of any federal income tax withholding must be based on marital status and withholding allowances. H&r blocks Your employees may not base their withholding amounts on a fixed dollar amount or percentage. H&r blocks However, an 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 blocks Employees may claim fewer withholding allowances than they are entitled to claim. H&r blocks They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. H&r blocks See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. H&r blocks Along with Form W-4, you may wish to order Publication 505 for use by your employees. H&r blocks Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. H&r blocks If they require additional withholding, they 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 blocks Exemption from federal income tax withholding. H&r blocks   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. H&r blocks See the Form W-4 instructions for more information. H&r blocks However, the wages are still subject to social security and Medicare taxes. H&r blocks See also Invalid Forms W-4 , later in this section. H&r blocks   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 blocks 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 blocks If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. H&r blocks If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. H&r blocks Withholding income taxes on the wages of nonresident alien employees. H&r blocks   In general, you must withhold federal income taxes on the wages of nonresident alien employees. H&r blocks However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. H&r blocks Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. H&r blocks Withholding adjustment for nonresident alien employees. H&r blocks   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. H&r blocks Nonresident alien students from India and business apprentices from India are not subject to this procedure. H&r blocks Instructions. H&r blocks   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. H&r blocks Step 1. H&r blocks   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. H&r blocks    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. H&r blocks 30     Biweekly 86. H&r blocks 50     Semimonthly 93. H&r blocks 80     Monthly 187. H&r blocks 50     Quarterly 562. H&r blocks 50     Semiannually 1,125. H&r blocks 00     Annually 2,250. H&r blocks 00     Daily or Miscellaneous (each day of the payroll period) 8. H&r blocks 70   Step 2. H&r blocks   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. H&r blocks Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. H&r blocks Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. H&r blocks If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. H&r blocks If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. H&r blocks The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. H&r blocks The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. H&r blocks Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. H&r blocks This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. H&r blocks Example. H&r blocks An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. H&r blocks The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). H&r blocks The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. H&r blocks 50 from the chart under Step 1 ($586. H&r blocks 50 total). H&r blocks The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). H&r blocks Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. H&r blocks The $86. H&r blocks 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. H&r blocks Also, the $86. H&r blocks 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. H&r blocks Supplemental wage payment. H&r blocks   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. H&r blocks 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. H&r blocks Nonresident alien employee's Form W-4. H&r blocks   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 South Korea, or a student or business apprentice from India, 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 blocks   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. H&r blocks 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 blocks Form 8233. H&r blocks   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 blocks See Publication 515 for details. H&r blocks IRS review of requested Forms W-4. H&r blocks   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. H&r blocks You may also be directed to send certain Forms W-4 to the IRS. H&r blocks 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 blocks 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 blocks The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. H&r blocks R. H&r blocks B. H&r blocks 455, which is available at www. H&r blocks irs. H&r blocks gov/irb/2007-35_IRB/ar10. H&r blocks html. H&r blocks When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. H&r blocks After submitting a copy of a 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 blocks However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter