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Irs 1040ez 2010

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Irs 1040ez 2010

Irs 1040ez 2010 Publication 957 - Main Content Table of Contents 1. Irs 1040ez 2010 What is Back Pay?Reporting Back Pay Back Pay Under a Statute Nonstatutory Back Pay Format for Report to the SSA Questions 2. Irs 1040ez 2010 Special Wage PaymentsReporting Special Wage Payments Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments Nonqualified Deferred Compensation and Section 457 Plans Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) PlansSpecial rule for box 11 of Form W-2 (distributions and deferral in the same year). Irs 1040ez 2010 1. Irs 1040ez 2010 What is Back Pay? Back pay is pay received in a tax year(s) for actual or deemed employment in an earlier tax year(s). Irs 1040ez 2010 For social security coverage and benefit purposes, all back pay, whether or not under a statute, is wages if it is payment for covered employment. Irs 1040ez 2010 Damages for personal injury, interest, penalties, and legal fees included with back pay awards are not wages. Irs 1040ez 2010 Report all back pay. Irs 1040ez 2010 However, the tax year(s) for which back pay is credited as wages for social security purposes is different if it is awarded under a statute. Irs 1040ez 2010 See Back Pay Under a Statute , later, for more information. Irs 1040ez 2010 Reporting Back Pay The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. Irs 1040ez 2010 However, for income tax purposes, the IRS treats all back pay as wages in the year paid. Irs 1040ez 2010 Employers should use Form W-2, Wage and Tax Statement, or electronic wage reports to report back pay as wages in the year they actually pay the employee. Irs 1040ez 2010 The SSA no longer accepts reports on tapes, cartridges, and diskettes. Irs 1040ez 2010 Example. Irs 1040ez 2010 In 2012, Terry Morris earned wages of $50,000. Irs 1040ez 2010 In the same year, she received $100,000 in settlement of a back pay case against her employer that covered the periods January 2007 through December 2011. Irs 1040ez 2010 Her employer properly reflected social security wages of $110,100 and Medicare wages of $150,000 on her 2012 Form W-2. Irs 1040ez 2010 However, if an employer did not include back pay wages on a previously filed Form W-2, magnetic media, or electronically filed wage report, the employer should prepare a wage correction report, Form W-2c, Corrected Wage and Tax Statement, or electronically filed report, to add the back pay award to the wages previously reported. Irs 1040ez 2010 Example. Irs 1040ez 2010 If, in the above example, Terry Morris' employer had prepared her 2012 Form W-2 reporting social security and Medicare wages of only $50,000 each, the employer would have to correct that report. Irs 1040ez 2010 A Form W-2c correcting the 2012 Form W-2 would show previously reported social security and Medicare wages of $50,000 and the correct amount of $110,100 for social security wages and $150,000 for Medicare wages. Irs 1040ez 2010 SSA treatment of back pay under a statute. Irs 1040ez 2010   Under the law, the SSA credits back pay awarded under a statute to an individual's earnings record in the period(s) the wages should have been paid. Irs 1040ez 2010 This is important because wages not credited to the proper year may result in lower social security benefits or failure to meet the requirements for benefits. Irs 1040ez 2010   However, back pay under statute payments will remain posted to the employee's social security earnings record in the year reported on Form W-2 (or Form W-2c) unless the employer or employee notifies the SSA (in a separate, special report) of the back pay under a statute payment. Irs 1040ez 2010 Then, the SSA can allocate the statutory back pay to the appropriate periods. Irs 1040ez 2010   If a back pay award is not made under a statute, the SSA credits back pay as wages in the year paid. Irs 1040ez 2010    If employers do notify the SSA of this payment, they should prepare a special report (with the information noted below) and send it to: Social Security Administration Attn: CPS Back Pay Staff 7-B-15 SWT 1500 Woodlawn Drive Baltimore, MD 21241-0001 Be sure to send this special report to the above address because the SSA handles it separately from other reports. Irs 1040ez 2010    If you paid the back pay award in the same tax year to which it applies, report the wages on that year's Form W-2. Irs 1040ez 2010 No further action is necessary. Irs 1040ez 2010 Example. Irs 1040ez 2010 In 2012, Judy Wilson received a salary of $30,000 and a back pay under statute award of $2,000 for the period January through June 2012. Irs 1040ez 2010 Her employer properly reported wages of $32,000 for social security and Medicare on her 2012 Form W-2. Irs 1040ez 2010 No further action is necessary. Irs 1040ez 2010 Information the SSA needs to properly credit back pay under a statute (special report). Irs 1040ez 2010   After you complete the special report, you or the employee should send it to the SSA when or after you submit the Form W-2 (on paper or electronically) to the SSA for the year you pay the statutory back pay to the employee. Irs 1040ez 2010 There is no statute of limitations on the filing of the special report to enable the SSA to allocate the wages. Irs 1040ez 2010 The special report must include the following information. Irs 1040ez 2010 The employer's name, address, and employer identification number (EIN). Irs 1040ez 2010 A signed statement citing the federal or state statute under which the payment was made. Irs 1040ez 2010 If the statute is not identified, the SSA will assume the payment was not under a statute and will not allocate to earlier period(s). Irs 1040ez 2010 The name and telephone number of a person to contact. Irs 1040ez 2010 The SSA may have additional questions concerning the back pay case or the individual employee's information. Irs 1040ez 2010 A list of employees receiving the payment and the following information for each employee: The tax year you paid and reported the back pay. Irs 1040ez 2010 The employee's social security number (SSN). Irs 1040ez 2010 The employee's name (as shown on his or her social security card). Irs 1040ez 2010 The amount of the back pay award excluding any amounts specifically designated otherwise, for example, damages for personal injury, interest, penalties, and legal fees. Irs 1040ez 2010 The period(s) the back pay award covers (beginning and ending dates—month and year). Irs 1040ez 2010 The other wages paid subject to social security and/or Medicare taxes and reported in the same year as the back pay award (if none, show zero)*. Irs 1040ez 2010 Do not include the back pay award shown in that wage report. Irs 1040ez 2010 If you originally submitted the report under an establishment number, show that number and the amount of money that is to remain under that establishment number. Irs 1040ez 2010 The amount to allocate to each reporting period*. Irs 1040ez 2010 This includes any amount you want allocated (if applicable) to the tax year of the award payment. Irs 1040ez 2010 If you do not give the SSA specific amounts to allocate, the SSA does the allocation by dividing the back pay award by the number of months or years covered by the award. Irs 1040ez 2010 *Note. Irs 1040ez 2010   For periods before January 1, 1978 (before January 1, 1981, for state and local government employers covered by a Section 218 agreement), show the wage amounts for each calendar quarter ending March 31, June 30, September 30, and December 31. Irs 1040ez 2010 For all tax years, show and identify the social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) separately. Irs 1040ez 2010 MQGE is applicable to federal employees beginning in 1983, and for certain state and local government employees beginning in 1986. Irs 1040ez 2010 For tax years 1991 and later, list the social security and Medicare wages separately. Irs 1040ez 2010 If you originally reported the individual's wages under an establishment or payroll record unit number, show the amount of wages to remain in the award year for that number and furnish that number to the SSA along with the EIN. Irs 1040ez 2010 Back Pay Under a Statute Back pay awarded under a statute is a payment by an employer following an award, determination, or agreement approved or sanctioned by a court or government agency responsible for enforcing a federal or state statute that protects an employee's right to employment or wages. Irs 1040ez 2010 Examples of pertinent statutes include: Age Discrimination in Employment Act, Americans with Disabilities Act, Equal Pay Act, Fair Labor Standards Act, National Labor Relations Act, State minimum wage laws, and State statutes that protect rights to employment and wages. Irs 1040ez 2010 Payments based on laws that have a similar effect to those listed above also may qualify as payments made under a statute. Irs 1040ez 2010 Back pay awards, under some of the statutes listed above, may be compensation for personal injury and not pay for employment. Irs 1040ez 2010 Such awards are not wages for social security coverage purposes. Irs 1040ez 2010 If a court-approved or sanctioned settlement agreement states that the agreement is not an admission of discrimination, liability, or act of wrongdoing, the statement does not change the nature of a back pay award. Irs 1040ez 2010 The payments made in such a settlement may still be back pay and wages under the rules discussed here. Irs 1040ez 2010 Nonstatutory Back Pay A payment for back wages negotiated between an employer and employee without an award, determination, or agreement approved or sanctioned by a court or government agency, the payment is not made under a statute. Irs 1040ez 2010 Delayed wage payments and retroactive pay increases resulting from union negotiation or payments under local ordinances or regulations are back pay and are wages. Irs 1040ez 2010 However, they are not payments made under a statute. Irs 1040ez 2010 If you are uncertain whether the back pay award was under a qualified statute, you may need to contact your personnel department or legal counsel or the attorney who filed the suit. Irs 1040ez 2010 Format for Report to the SSA Use the format shown in Table 1, later, to send the SSA the information needed to properly credit back pay under a statute. Irs 1040ez 2010 In a cover letter, include: Name and address of the employer, Statute under which you paid the back pay, Name and telephone number of the employer contact, and Signature of the reporting official. Irs 1040ez 2010 Under certain circumstances, back pay may be a special wage payment and excluded from wages counted under the social security earnings test. Irs 1040ez 2010 If you pay back pay to an employee age 61 or older, report it to the SSA in accordance with this section. Irs 1040ez 2010 Read Special Wage Payments, later, for additional reporting instructions. Irs 1040ez 2010 Questions If you have questions concerning back pay under a statute, call the SSA at 1-800-772-6270. Irs 1040ez 2010 Exception. Irs 1040ez 2010   If you are a state or local government employer who was covered by an agreement under Section 218 of the Social Security Act before January 1, 1987, and you paid a back pay award before January 1, 1987, which you did not report to the SSA, contact your state Social Security Administrator's office. Irs 1040ez 2010 Table 1. Irs 1040ez 2010 Format for Report (Under Covering Letter) to Request SSA to Allocate Back Pay Under Statute Wages Employer's EIN: xx-xxxxxxx Tax Year in Which Award Payment Was Paid: 2012 (1) SSN and Employee Name (2)1 Award Amount and Period(s) (3)2,3 Other Soc. Irs 1040ez 2010 Sec. Irs 1040ez 2010 /Med. Irs 1040ez 2010 Wages Paid In Award Year (4)3 Allocation     Soc. Irs 1040ez 2010 Sec. Irs 1040ez 2010 Med. Irs 1040ez 2010 /MQGE Year Soc. Irs 1040ez 2010 Sec. Irs 1040ez 2010 Med. Irs 1040ez 2010 /MQGE xxx-xx-xxxx HELEN T. Irs 1040ez 2010 SMITH $100,000 1/2009 - 12/2012 $40,000 $40,000 2009 2010 2011 2012 $20,000 25,000 27,000 28,000 $20,000 25,000 27,000 28,000 xxx-xx-xxxx SAM W. Irs 1040ez 2010 EVANS 30,000 7/89-12/91 -0- -0- 1989 1990 1991   6,000 12,000 12,000 xxx-xx-xxxx ROLAND S. Irs 1040ez 2010 ADAMS 15,000 7/80-12/81 -0- -0- 9/80 12/80 1981 3,500 3,500 8,000   1Exclude amounts specifically designated as damages, penalties, etc. Irs 1040ez 2010  2Exclude the amount of back pay, if any, included in that amount. Irs 1040ez 2010  3For periods before January 1, 1978 (and for state and local government (Section 218) employers before January 1, 1981), show the wage amounts by calendar quarters. Irs 1040ez 2010 The social security and/or Medicare Qualified Government Employment (MQGE) wages (where applicable) must be shown separately FOR ALL YEARS. Irs 1040ez 2010 (Wages subject ONLY to MQGE would be shown in the Medicare/MQGE column; no wages would be shown in the Soc. Irs 1040ez 2010 Sec. Irs 1040ez 2010 column. Irs 1040ez 2010 ) For tax years 1991 and later, the social security and Medicare wages must be listed separately. Irs 1040ez 2010 Explanation of examples. Irs 1040ez 2010 Helen T. Irs 1040ez 2010 Smith–The back pay award, excluding interest, was $100,000 for the periods 1/2009-12/2012. Irs 1040ez 2010 In 2012, this employee was also paid $40,000 in other wages. Irs 1040ez 2010 (Her Form W-2 for 2012 reported $110,100 for social security and $140,000 for Medicare. Irs 1040ez 2010 The SSA allocation will result in adjusted posted wages of $68,000 for social security and $68,000 for Medicare for 2012. Irs 1040ez 2010 ) Sam W. Irs 1040ez 2010 Evans–The back pay award was $30,000 for the periods 7/89-12/91. Irs 1040ez 2010 This employee was hired in 1989 and was subject to MQGE only. Irs 1040ez 2010 He was no longer employed by this governmental employer in 2012. Irs 1040ez 2010 (His Form W-2 for 2012 reported $30,000 for social security and $30,000 for Medicare. Irs 1040ez 2010 After the SSA allocation, he will not have any net posted wages for 2012. Irs 1040ez 2010 ) Roland S. Irs 1040ez 2010 Adams–The back pay award was $15,000 for the periods 7/80-12/81. Irs 1040ez 2010 He was no longer employed by this state and local government (Section 218) employer in 2012. Irs 1040ez 2010 (His Form W-2 for 2012 reported $15,000 for social security and $15,000 for Medicare; after the SSA allocation, he will not have any net posted wages for 2012. Irs 1040ez 2010 ) If the state Social Security Administrator's office needs more information, they can contact the SSA at the following address:   Social Security Administration Office of Income Security Programs Office of Earnings and Program Integrity Policy 6401 Security Boulevard 2506 OPS Baltimore, MD 21235 2. Irs 1040ez 2010 Special Wage Payments A special wage payment (SWP) is an amount paid by an employer to an employee (or former employee) for services performed in a prior year. Irs 1040ez 2010 Employers should report to the SSA special wage payments made to employees and former employees who are recipients of social security retirement benefits. Irs 1040ez 2010 Special wage payments made to a retired employee receiving social security or to an employee who continues to work while receiving social security benefits may reduce the benefits the individual receives if not reported to the SSA. Irs 1040ez 2010 Special wage payments may include (but are not limited to): Accumulated sick and vacation pay, Back pay, Bonuses, Deferred compensation, Payments because of retirement, Sales commissions, Severance pay, and Stock options. Irs 1040ez 2010 Note. Irs 1040ez 2010 Payments made after retirement that are part of the normal payroll cycle should not be routinely reported as special wage payments. Irs 1040ez 2010 Earnings Test. Irs 1040ez 2010   Benefits paid to a social security beneficiary under full retirement age may be reduced if the beneficiary continues to work. Irs 1040ez 2010 The SSA uses the information in boxes 1, 3, and 5 of Form W-2 to determine the beneficiary's current year earnings. Irs 1040ez 2010 Special wage payments, which are for services performed in a prior year, will increase the current year earnings on Form W-2, which also may result in a reduction in the beneficiary's benefits. Irs 1040ez 2010 If a benefit is reduced because of a special wage payment, the beneficiary must get documentation from the employer before the SSA can restore the deducted portion. Irs 1040ez 2010 Therefore, employer reports of special wage payments help prevent incorrect benefit reductions. Irs 1040ez 2010 Reporting Special Wage Payments Employers must report special wage payments for income tax purposes and social security and Medicare taxes in the year received. Irs 1040ez 2010 Report income, social security, and/or Medicare taxes for special wage payments on Form W-2. Irs 1040ez 2010 See Nonqualified Deferred Compensation and Section 457 Plans, later, for reporting nonqualified deferred compensation plan deferrals and payments on Form W-2. Irs 1040ez 2010 In addition, report to the SSA special wage payments made during the reporting year to retired employees and employees who continue to work while receiving social security benefits. Irs 1040ez 2010 Submit reports after the close of the tax year. Irs 1040ez 2010 To avoid delays in processing, submit reports in time to reach the SSA by April 1. Irs 1040ez 2010 Use one of the following reporting methods. Irs 1040ez 2010 Electronic reporting. Irs 1040ez 2010   Special wage payment files can be sent electronically by logging onto Business Services Online (BSO) via the socialsecurity. Irs 1040ez 2010 gov website. Irs 1040ez 2010 BSO enables organizations and authorized individuals to conduct business with and submit confidential information to the Social Security Administration. Irs 1040ez 2010 You must register to use this website. Irs 1040ez 2010 The web address is www. Irs 1040ez 2010 socialsecurity. Irs 1040ez 2010 gov/bso/bsowelcome. Irs 1040ez 2010 htm. Irs 1040ez 2010   Use the specifications and record layout shown in  Table 2, later. Irs 1040ez 2010 Only one file at a time may be submitted. Irs 1040ez 2010 If your file is large (>10MB), or you have a slow internet connection, the transmission will be faster if the file is zipped. Irs 1040ez 2010 A zipped file contains a file that has been compressed to reduce its file size. Irs 1040ez 2010 WinZip and PKZIP are examples of acceptable compression packages. Irs 1040ez 2010   Electronic submissions not meeting the specifications in Table 2 will be rejected. Irs 1040ez 2010 Paper listing. Irs 1040ez 2010   A paper listing can be used to report special wage payments to several employees. Irs 1040ez 2010 Use the format shown in Table 3, later. Irs 1040ez 2010 Submit paper listings to the local SSA office nearest your place of business. Irs 1040ez 2010 Visit www. Irs 1040ez 2010 socialsecurity. Irs 1040ez 2010 gov/locator to find a Social Security office near you. Irs 1040ez 2010 Form SSA-131. Irs 1040ez 2010   Use Form SSA-131 to report special wage payments made to an employee. Irs 1040ez 2010 Also use this form to report nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in box 11 of Form W-2. Irs 1040ez 2010    This image is too large to be displayed in the current screen. Irs 1040ez 2010 Please click the link to view the image. Irs 1040ez 2010 Publication 957 Reporting Back Pay to the Social Security Administration Instructions for Form SSA–131   EMPLOYER INSTRUCTIONS FOR COMPLETING SPECIAL WAGE PAYMENT FORM 1. Irs 1040ez 2010 Provide the EIN that was used or will be used to report the employee's wages on the Form W-2. Irs 1040ez 2010 2. Irs 1040ez 2010 Enter the date the employee retired. Irs 1040ez 2010 Enter “Not Retired” if the employee has not retired. Irs 1040ez 2010 3. Irs 1040ez 2010 Enter the date that the employee last performed services; was not expected to return to work; and was not subject to recall to render additional services. Irs 1040ez 2010 This date should be the same as or earlier than the date in item “2”. Irs 1040ez 2010 Enter “Not Retired” if the employee has not retired. Irs 1040ez 2010 4. Irs 1040ez 2010 Enter the wages that were paid to the employee in the tax year that were for services that were performed in years prior to the tax year or that were paid on account of retirement. Irs 1040ez 2010  Examples (not all inclusive) of payments to be included: Payments in lieu of vacation that were earned in a year prior to the tax year. Irs 1040ez 2010 Accumulated sick payments which were paid in a lump sum based on “retirement” as the sole condition of payment. Irs 1040ez 2010 Accumulated sick payments paid at or after the date in item 3, which were earned in a year prior to the tax year. Irs 1040ez 2010 Payments “on account of retirement”–dismissal, severance or termination pay paid because of retirement. Irs 1040ez 2010 Bonuses which are paid pursuant to a prior contract, agreement or promise causing the employee to expect such payments regularly; or announced to induce the employee to work more steadily, rapidly or efficiently or to remain with the employer. Irs 1040ez 2010 Stock Options. Irs 1040ez 2010   Do not include in item “4” payments: For annual, sick, holiday, or vacation pay if used (absence from work) prior to the date of retirement (earlier of items “2” or “3”). Irs 1040ez 2010 That were reported or will be reported under “Nonqualified Plans” on the Form W-2. Irs 1040ez 2010 That were deducted from the employee's wages and paid to a deferred compensation plan (e. Irs 1040ez 2010 g. Irs 1040ez 2010 , 401k). Irs 1040ez 2010 Employees health and dental plan benefits (non-covered/non-taxable for Social Security Wages). Irs 1040ez 2010 Bonuses earned and paid in the tax year. Irs 1040ez 2010 5. Irs 1040ez 2010 Check whether payments listed in item 4 will be made for years after the tax year. Irs 1040ez 2010 If yes, please show the amounts and years in which these will be paid, if known. Irs 1040ez 2010 6. Irs 1040ez 2010 Nonqualified deferred compensation and section 457 plans only. Irs 1040ez 2010 If you were unable to report nonqualified deferred compensation or section 457 plan payments and deferrals (contributions) on Form W-2 because both payments and deferrals occurred during the year, show the amount of wages earned by the employee during the tax year. Irs 1040ez 2010 Generally, the wages earned will be the compensation reported in block 1 of Form W-2 less payments from a nonqualified deferred compensation (or 457) plan, but including any amounts deferred under the plan during the tax year (See IRS Publication 957). Irs 1040ez 2010 Paperwork/Privacy Act Notice: This report is authorized by regulation 20 CFR 404. Irs 1040ez 2010 702. Irs 1040ez 2010 The information that you provide will be used in making a determination regarding the amount of Social Security benefits payable to the above named individual. Irs 1040ez 2010 While your response is voluntary, if you do not respond we may not be able to make a correct determination regarding the amount of Social Security benefits payable to the above named individual for the year in question. Irs 1040ez 2010 We may also use the information you give us when we match records by computer. Irs 1040ez 2010 Matching programs compare our records with those of other Federal, State, or local government agencies. Irs 1040ez 2010 Many agencies may use matching programs to find or prove that a person qualifies for benefits paid by the Federal Government. Irs 1040ez 2010 The law allows us to do this even if you do not agree to it. Irs 1040ez 2010 Explanations about these and other reasons why information you provide us may be used or given out are available in Social Security Offices. Irs 1040ez 2010 If you want to learn more about this, contact any Social Security Office. Irs 1040ez 2010 The Paperwork Reduction Act: This information collection meets the clearance requirements of 44 U. Irs 1040ez 2010 S. Irs 1040ez 2010 C. Irs 1040ez 2010 §3507, as amended by Section 2 of the Paperwork Reduction Act of 1995. Irs 1040ez 2010 You are not required to answer these questions unless we display a valid Office of Management and Budget control number. Irs 1040ez 2010 We estimate that it will take you about 20 minutes to read the instructions, gather the necessary facts, and answer the questions. Irs 1040ez 2010 Form SSA-131 (8-2001) EF (06-2002)   Submit Form SSA-131 to the SSA office nearest your place of business. Irs 1040ez 2010 Or, the employee can submit it to the SSA office handling the claim. Irs 1040ez 2010 You or the employee must submit this form before the SSA can exclude the special wage payments for purposes of the earnings test. Irs 1040ez 2010 If reporting on more than one employee, complete a separate Form SSA-131 for each employee or use the paper listing format (except for reporting nonqualified and section 457 plan deferrals and payments) in Table 3. Irs 1040ez 2010 Do not report payments from nonqualified deferred compensation or section 457 plans that were reported in box 11 of Form W-2. Irs 1040ez 2010 Use Form SSA-131 if deferrals to and payments from nonqualified or section 457 plans occurred during the tax year. Irs 1040ez 2010 Reporting Nonstatutory (Nonqualified) Stock Options as Special Wage Payments A nonstatutory (nonqualified) option to purchase stock which is exercised in a year after the year in which the option was earned is a special wage payment. Irs 1040ez 2010 It should not count for the social security earnings test. Irs 1040ez 2010 Nonstatutory (nonqualified) options exercised as special wage payments by retired employees or employees who continue to work while receiving social security benefits should be reported by employers using the above reporting methods. Irs 1040ez 2010 Nonqualified Deferred Compensation and Section 457 Plans A nonqualified deferred compensation plan is a plan or arrangement established and maintained by an employer for one or more of its employees that provides for the deferral of compensation, but does not meet the requirements for a tax-qualified deferred compensation plan. Irs 1040ez 2010 For social security and Medicare purposes, deferred compensation plans for employees of state and local governments (section 457 plans) are treated the same as nonqualified plans. Irs 1040ez 2010 Nonqualified and section 457 plans are reported differently than other special wage payments. Irs 1040ez 2010 See Reporting Amounts Deferred to Nonqualified and Section 457 Plans below for specific instructions. Irs 1040ez 2010 Reporting Amounts Deferred to Nonqualified and Section 457 Plans Generally, when the related services are performed, nonqualified deferred compensation is subject to social security and Medicare tax when deferred. Irs 1040ez 2010 However, if nonqualified and section 457 plans contain provisions that delay the employee's right to receive payments from the plan, a period of substantial risk of forfeiture exists. Irs 1040ez 2010 The plans' deferrals, or contributions, are not subject to social security and Medicare taxes until the period of substantial risk of forfeiture ends. Irs 1040ez 2010 No risk of forfeiture. Irs 1040ez 2010   If there is no risk of forfeiture, report wage amounts deferred to a nonqualified deferred compensation or section 457 plan in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. Irs 1040ez 2010 Example. Irs 1040ez 2010 Company X's nonqualified deferred compensation plan allows the deferral of up to $20,000 of employee salaries each year. Irs 1040ez 2010 The plan has no risk of forfeiture. Irs 1040ez 2010 In 2012, Employee A defers $20,000 to the plan from a total salary of $200,000. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 $200,000 Box 3* 110,100 Box 5 200,000 *Wage base maximum for tax year 2012 Risk of forfeiture lapses before retirement. Irs 1040ez 2010   If the substantial risk of forfeiture lapses before the employee retires, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. Irs 1040ez 2010 The accumulated deferrals are reported along with any other social security and Medicare wages earned during the year. Irs 1040ez 2010   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. Irs 1040ez 2010 If the employee continues working, future deferrals are social security and Medicare wages when they are earned. Irs 1040ez 2010    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. Irs 1040ez 2010 Risk of forfeiture lapses at retirement. Irs 1040ez 2010   When an employee's right to a payment is contingent upon working until retirement, report all past contributions to the plan (or the value of the plan), including accumulated earned interest, as social security and/or Medicare wages in the year of retirement. Irs 1040ez 2010 Add the amount to other wages paid in that year, and enter in box 3 (up to the wage base maximum) and/or box 5 of Form W-2. Irs 1040ez 2010   Report in box 11 of Form W-2 the amount of deferrals, including any accumulated interest, that became taxable for social security and Medicare taxes during the year (but were for prior year services) because the deferred amounts were no longer subject to a substantial risk of forfeiture. Irs 1040ez 2010    Do not include in box 11 deferrals that are included in boxes 3 and/or 5 and that are for current year services. Irs 1040ez 2010 Example—risk of forfeiture. Irs 1040ez 2010 At the end of the risk-of-forfeiture period for Company Y's nonqualified deferred compensation plan, Employee B's accumulated deferrals, plus interest earned by the plan, are $120,000, not including B's $20,000 deferral for this year. Irs 1040ez 2010 B's wages, including this year's deferred amount, are $80,000. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 $60,000 Box 3* 110,100 Box 5 200,000 Box 11 120,000 *Wage base maximum for tax year 2012 Reporting Payments From Nonqualified and Nongovernmental Section 457 Plans When an employee or former employee retires and begins receiving payments (distributions) from a nonqualified or nongovernmental section 457 plan, report the payments in boxes 1 and 11 of Form W-2. Irs 1040ez 2010 Report payments (distributions) from a governmental section 457 plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Irs 1040ez 2010 Example. Irs 1040ez 2010 Employee D retired from the XYZ company and began receiving social security benefits. Irs 1040ez 2010 XYZ paid D a $12,000 bonus upon retirement for sales made in a prior year, and D received $25,000 in payments from XYZ's nonqualified deferred compensation plan. Irs 1040ez 2010 In addition, D agreed to continue performing services for XYZ, but on a part-time basis for wages of $15,000 per year. Irs 1040ez 2010 D made no deferrals to the nonqualified plan this year. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 $52,000 Box 3 27,000 Box 5 27,000 Box 11 25,000 Report the $12,000 bonus to the SSA using electronic reporting, a paper listing, or Form SSA-131. Irs 1040ez 2010 For more information, see Reporting Special Wage Payments , earlier. Irs 1040ez 2010 Reporting Payments and Deferrals in the Same Year Do not complete box 11 when payments (distributions) are made from a nonqualified plan and deferrals are reported in boxes 3 and/or 5 of Form W-2 (including current year deferrals). Irs 1040ez 2010 Report to the SSA on Form SSA-131 the total amount the employee earned during the tax year. Irs 1040ez 2010 Normally, the amount earned is the amount reported in box 1 of Form W-2 less payments from a nonqualified or section 457 plan, but including any amounts deferred under the plan during the tax year. Irs 1040ez 2010 See Form SSA-131 and its instructions, earlier. Irs 1040ez 2010 Example. Irs 1040ez 2010 Employee K retired this year from Company XYZ and began receiving social security benefits. Irs 1040ez 2010 During the year he earned wages of $50,000 and deferred $35,000 of the wages into the company's nonqualified deferred compensation plan. Irs 1040ez 2010 K also received $75,000 in payments from the company's nonqualified plan. Irs 1040ez 2010 Form W-2 Completion Amount Special Wage Payment $75,000 Wages 50,000 Minus: deferral 35,000 Total reported in Box 1 $90,000     Wages including deferral reported in  Boxes 3 and 5 $50,000     Leave Box 11 blank. Irs 1040ez 2010 File Form SSA-131 -0-     Form SSA-131 Completion Amount from Box 1 of Form W-2 $90,000 Minus: payments from a nonqualified plan 75,000 Plus: amounts deferred into the plan during the year 35,000 Total wages earned for purposes of Form SSA-131 (item 6) $50,000 Additional Reporting Examples for Nonqualified Deferred Compensation (NQDC) Plans It is not necessary to show amounts deferred during the year under an NQDC plan subject to section 409A. Irs 1040ez 2010 If you report section 409A deferrals, show the amount in box 12 of Form W-2 using code Y. Irs 1040ez 2010 For more information, see Notice 2008-115, 2008-52 I. Irs 1040ez 2010 R. Irs 1040ez 2010 B. Irs 1040ez 2010 1367, available at www. Irs 1040ez 2010 irs. Irs 1040ez 2010 gov/irb/2008-52_IRB/ar10. Irs 1040ez 2010 html. Irs 1040ez 2010 Special reporting rules apply when an NQDC plan is not compliant with section 409A (when there has been a “plan failure”). Irs 1040ez 2010 Income included under section 409A from an NQDC plan is reported in box 1 and box 12 of Form W-2 using code Z. Irs 1040ez 2010 See Notice 2008-115. Irs 1040ez 2010 The following examples use small dollar amounts for illustrative purposes. Irs 1040ez 2010 However, the amount reported in box 3 of Form W-2 is always limited by the social security earnings wage base (for example, $110,100 for 2012). Irs 1040ez 2010 The term “vested” in the following examples means that the amount deferred is not subject to a substantial risk of forfeiture. Irs 1040ez 2010 Conversely, the term “not vested” means that the amount deferred is subject to a substantial risk of forfeiture. Irs 1040ez 2010 The examples assume that the NQDC plan is in compliance with section 409A, and that amounts deferred under the plan are not includible in gross income as they are deferred. Irs 1040ez 2010 For purposes of the examples, it is assumed that the regular pay of the employee is remuneration for employment and wages for employment tax purposes except to the extent the deferral of a portion of the regular pay results in a reduction in wages. Irs 1040ez 2010 Example 1: Deferral that is immediately vested (no substantial risk of forfeiture) with no distributions and no vesting of prior-year deferrals. Irs 1040ez 2010 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into her employer’s NQDC plan. Irs 1040ez 2010 The deferral of $20 was vested upon deferral and there was an employer match of $10 under the plan, which was also vested. Irs 1040ez 2010 Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 vested deferral) $180 Box 3 ($200 Regular pay plus $10 Employer match, vested) 210 Box 5 ($200 Regular pay plus $10 Employer match, vested) 210 Box 11 -0- Example 2: Deferral with delayed vesting (substantial risk of forfeiture) of employee and employer portions (no distributions and no vesting of prior-year deferrals). Irs 1040ez 2010 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. Irs 1040ez 2010 The deferral of $20 was not vested upon deferral, and there was an employer match of $10 under the plan, which was also not vested. Irs 1040ez 2010 Regular pay = $200; Deferral, not vested = $20; Employer match, not vested = $10. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, not vested) $180 Box 3 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 5 ($200 Regular pay minus $20 Deferral, not vested) 180 Box 11 -0- Example 3: Deferral that is immediately vested with prior-year deferrals and investment earnings on the prior-year deferrals that are now vesting (no distributions). Irs 1040ez 2010 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s nonqualified deferred compensation plan. Irs 1040ez 2010 The deferral of $20 was vested upon deferral. Irs 1040ez 2010 During the year, $100 of prior-year deferrals and $15 of investment earnings on the $100 of prior-year deferrals became vested. Irs 1040ez 2010 Regular pay = $200; Deferral, vested = $20; Vesting of prior-year deferrals = $100; Vesting of investment earnings on $100 of prior-year deferral = $15. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 ($200 Regular pay minus $20 Deferral, vested) $180 Box 3 ($200 Regular pay plus $100 vested prior-year deferral plus $15 earnings on deferral) 315 Box 5 ($200 Regular pay plus $100 vested prior-year deferral plus $15 vested investment earnings on prior year deferral) 315 Box 11 ($100 vested prior-year deferral plus $15 earnings) 115 Example 4: No deferrals but there are distributions (no vesting of prior-year deferrals). Irs 1040ez 2010 For the year, the employee’s regular pay was $100, and the employee deferred no pay into the employer’s NQDC plan. Irs 1040ez 2010 There was no vesting of prior-year deferrals under the plan. Irs 1040ez 2010 During the year, there were total distributions of $50 from the plan to the employee. Irs 1040ez 2010 Regular pay = $100; Distribution = $50. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 ($100 Regular pay plus $50 Distribution) $150 Box 3 ($100 Regular pay ) 100 Box 5 ($100 Regular pay) 100 Box 11 ($50 Distribution) 50 Special rule for box 11 of Form W-2 (distributions and deferral in the same year). Irs 1040ez 2010   If, in the same year, there are NQDC distributions and there are deferrals that are reportable in boxes 3 and/or 5 (current or prior-year deferrals) of Form W-2, do not complete box 11. Irs 1040ez 2010 Instead, report on Form SSA-131 the total amount the employee earned during the year. Irs 1040ez 2010 * Submit the SSA-131 to the nearest SSA office or give it to the employee. Irs 1040ez 2010   *Generally, the amount earned by the employee during the tax year for purposes of item 6 of Form SSA-131 is the amount reported in box 1 of Form W-2 plus current-year deferrals that are vested (employee and employer portions) less distributions. Irs 1040ez 2010 Do not consider prior-year deferrals that are vesting in the current year. Irs 1040ez 2010 If there was a plan failure, the box 1 amount in this calculation should be as if there were no plan failure. Irs 1040ez 2010 Example 5: Deferral that is immediately vested and there are distributions (no vesting of prior-year deferrals). Irs 1040ez 2010 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Irs 1040ez 2010 There was also an employer match of $10. Irs 1040ez 2010 The deferral and employer match were vested upon deferral. Irs 1040ez 2010 There was no vesting of prior-year deferrals under the plan. Irs 1040ez 2010 During the year, there were total distributions of $50 from the plan to the employee. Irs 1040ez 2010 Regular pay = $200; Deferral, vested = $20; Employer match, vested = $10; Distribution = $50. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, vested) $230 Boxes 3 and 5 ($200 Regular pay plus $10 vested employer match) 210 Leave Box 11 blank. Irs 1040ez 2010 File Form SSA-131 -0-     Form SSA-131 Completion Item 6 - amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $30 vested current year employee deferral and employer match) $210 Example 6: Deferral with delayed vesting and there are distributions (no vesting of prior-year deferrals). Irs 1040ez 2010 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Irs 1040ez 2010 The deferral was not vested upon deferral. Irs 1040ez 2010 There was no vesting of prior-year deferrals under the plan. Irs 1040ez 2010 During the year, there were total distributions of $50 from the plan to the employee. Irs 1040ez 2010 Regular pay = $200; Deferral, not vested = $20; Distribution = $50. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay minus $20 deferral that is not vested) 180 Box 11 ($50 Distribution). Irs 1040ez 2010 50 Example 7: Deferral that is immediately vested and there are distributions (also vesting of prior-year deferrals and earnings on those prior-year deferrals). Irs 1040ez 2010 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Irs 1040ez 2010 The deferral was vested upon deferral. Irs 1040ez 2010 There was vesting of $100 of prior-year deferrals and $15 of earnings on the $100 prior-year deferral under the plan. Irs 1040ez 2010 During the year, there were total distributions of $50 from the plan to the employee. Irs 1040ez 2010 Regular pay = $200; Deferral, vested = $20; Distribution = $50; Vesting of prior-year deferrals ($100) and earnings on those prior-year deferrals ($15) = $115. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 Regular pay minus $20 vested deferral $230 Boxes 3 and 5 ($200 Regular pay Plus $115 vested prior deferral (with vested earnings on the deferral)) 315 Leave Box 11 blank. Irs 1040ez 2010 File Form SSA-131 -0-     Form SSA-131 Completion Item 6, amount of wages earned by the employee during the tax year ($230 from Box 1 of Form W-2 minus $50 Distribution plus $20 vested current year deferral) $200 Example 8: Deferral with delayed vesting and there are distributions (vesting of prior-year deferrals, including employer matches, and earnings on those deferrals). Irs 1040ez 2010 For the year, the employee’s regular pay was $200, and the employee deferred $20 of the pay into the employer’s NQDC plan. Irs 1040ez 2010 The deferral was not vested upon deferral. Irs 1040ez 2010 There was also vesting of prior-year deferrals and employer matches and earnings on these amounts under the plan ($115). Irs 1040ez 2010 During the year, there were total distributions of $50 from the plan to the employee. Irs 1040ez 2010 Regular pay = $200; Deferral, not vested = $20; Distribution = $50; Vesting of prior-year deferrals and employer match = $100 plus earnings on that $100 of $15. Irs 1040ez 2010 Form W-2 Completion Amount Box 1 ($50 Special Wage Payment (Distribution) plus $200 regular pay minus $20 Deferral, not vested) $230 Boxes 3 and 5 ($200 Regular pay plus $115 vested prior-year deferral and prior year employer match and earning on the prior year amounts minus $20 deferral that is not vested) 295 Leave Box 11 blank. Irs 1040ez 2010 File Form SSA-131 -0-     Form SSA-131 Completion Item 6 ($230 Amount from Box 1 of Form W-2 minus $50 Distribution) $180 Table 2. Irs 1040ez 2010 Specifications for Electronic Reporting of Special Wage Payments Record Position  Field Size   Description Start End 1 3 3 Record Type—must include only the capital letters “SWP” 4 12 9 SSN—must be numeric and may not be all zeros 13 27 15 Last Name—all capitals and no punctuation; may have blanks on right only 28 38 11 First Name—all capitals and no punctuation; may have blanks on right only 39 39 1 Middle Initial—must be either a capital letter or blank 40 48 9 EIN—must be numeric and may not be all zeros 49 59 11 Payment—must be numeric; may not be all zeros; last two digits on right are assumed to be cents; no period or dollar sign 60 63 4 Payment Year—must be only a four-digit year 64 66 3 SSA Office Code—must be numeric and may be all zeros 67 67 1 Payment Type Code—must be the capital letter “T” 68 117 50 Filler  The record format is a fixed length of 117. Irs 1040ez 2010  The file format is ASCII. Irs 1040ez 2010  Submit only one file at a time. Irs 1040ez 2010   Table 3. Irs 1040ez 2010 Sample—Paper Listing for Reporting Special Wage Payments to Several Employees Report of Special Wage PaymentsTax Year: Page of A. Irs 1040ez 2010 Employer Name: EIN:   Address: Contact Name:     Phone: ( )   . Irs 1040ez 2010 1) B. Irs 1040ez 2010 Employee Name: (Last) (First) (MI)   C. Irs 1040ez 2010 SSN: D. Irs 1040ez 2010 SWP:$ E. Irs 1040ez 2010 Type: Other: 2) B. Irs 1040ez 2010 Employee Name: (Last) (First) (MI)   C. Irs 1040ez 2010 SSN: D. Irs 1040ez 2010 SWP:$ E. Irs 1040ez 2010 Type: Other: 3) B. Irs 1040ez 2010 Employee Name: (Last) (First) (MI)   C. Irs 1040ez 2010 SSN: D. Irs 1040ez 2010 SWP:$ E. Irs 1040ez 2010 Type: Other: 4) B. Irs 1040ez 2010 Employee Name: (Last) (First) (MI)   C. Irs 1040ez 2010 SSN: D. Irs 1040ez 2010 SWP:$ E. Irs 1040ez 2010 Type: Other: 5) B. Irs 1040ez 2010 Employee Name: (Last) (First) (MI)   C. Irs 1040ez 2010 SSN: D. Irs 1040ez 2010 SWP:$ E. Irs 1040ez 2010 Type: Other:     INSTRUCTIONS:   Enter tax year and page number. Irs 1040ez 2010   A. Irs 1040ez 2010 Employer name, employer identification number (EIN), address, the name of a contact person, and a phone number where the contact person can be reached during normal business hours. Irs 1040ez 2010   B. Irs 1040ez 2010 Employee's name. Irs 1040ez 2010   C. Irs 1040ez 2010 Employee's social security number (SSN). Irs 1040ez 2010   D. Irs 1040ez 2010 Total amount of special wage payments made to the employee. Irs 1040ez 2010   E. Irs 1040ez 2010 Type of special wage payment from the following list: (1) Vacation Pay, (2) Sick Pay, (3) Severance Pay,  (4) Bonus, (5) Deferred Compensation, (6) Stock Options, and (7) Other—Please explain. Irs 1040ez 2010   Do not use a paper listing for nonqualified deferred compensation and section 457 plan deferrals and payments that could not be reported in block 11 of Form W-2. Irs 1040ez 2010 (Get Form SSA-131. 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The Irs 1040ez 2010

Irs 1040ez 2010 2. Irs 1040ez 2010   Employees' Pay Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Tests for Deducting PayTest 1—Reasonableness Test 2—For Services Performed Kinds of PayAwards Bonuses Education Expenses Fringe Benefits Loans or Advances Property Reimbursements for Business Expenses Sick and Vacation Pay Introduction You can generally deduct the amount you pay your employees for the services they perform. Irs 1040ez 2010 The pay may be in cash, property, or services. Irs 1040ez 2010 It may include wages, salaries, bonuses, commissions, or other non-cash compensation such as vacation allowances and fringe benefits. Irs 1040ez 2010 For information about deducting employment taxes, see chapter 5. Irs 1040ez 2010 You can claim employment credits, such as the following, if you hire individuals who meet certain requirements. Irs 1040ez 2010 Empowerment zone employment credit (Form 8844). Irs 1040ez 2010 Indian employment credit (Form 8845). Irs 1040ez 2010 Work opportunity credit (Form 5884). Irs 1040ez 2010 Credit for employer differential wage payments (Form 8932). Irs 1040ez 2010 Reduce your deduction for employee wages by the amount of employment credits you claim. Irs 1040ez 2010 For more information about these credits, see the form on which the credit is claimed. Irs 1040ez 2010 Topics - This chapter discusses: Tests for deducting pay Kinds of pay Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits See chapter 12 for information about getting publications and forms. Irs 1040ez 2010 Tests for Deducting Pay To be deductible, your employees' pay must be an ordinary and necessary business expense and you must pay or incur it. Irs 1040ez 2010 These and other requirements that apply to all business expenses are explained in chapter 1. Irs 1040ez 2010 In addition, the pay must meet both of the following tests. Irs 1040ez 2010 Test 1. Irs 1040ez 2010 It must be reasonable. Irs 1040ez 2010 Test 2. Irs 1040ez 2010 It must be for services performed. Irs 1040ez 2010 The form or method of figuring the pay does not affect its deductibility. Irs 1040ez 2010 For example, bonuses and commissions based on sales or earnings, and paid under an agreement made before the services were performed, are both deductible. Irs 1040ez 2010 Test 1—Reasonableness You must be able to prove that the pay is reasonable. Irs 1040ez 2010 Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when reasonableness is questioned. Irs 1040ez 2010 If the pay is excessive, the excess pay is disallowed as a deduction. Irs 1040ez 2010 Factors to consider. Irs 1040ez 2010   Determine the reasonableness of pay by the facts and circumstances. Irs 1040ez 2010 Generally, reasonable pay is the amount that a similar business would pay for the same or similar services. Irs 1040ez 2010   To determine if pay is reasonable, also consider the following items and any other pertinent facts. Irs 1040ez 2010 The duties performed by the employee. Irs 1040ez 2010 The volume of business handled. Irs 1040ez 2010 The character and amount of responsibility. Irs 1040ez 2010 The complexities of your business. Irs 1040ez 2010 The amount of time required. Irs 1040ez 2010 The cost of living in the locality. Irs 1040ez 2010 The ability and achievements of the individual employee performing the service. Irs 1040ez 2010 The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation. Irs 1040ez 2010 Your policy regarding pay for all your employees. Irs 1040ez 2010 The history of pay for each employee. Irs 1040ez 2010 Test 2—For Services Performed You must be able to prove the payment was made for services actually performed. Irs 1040ez 2010 Employee-shareholder salaries. Irs 1040ez 2010   If a corporation pays an employee who is also a shareholder a salary that is unreasonably high considering the services actually performed, the excessive part of the salary may be treated as a constructive dividend to the employee-shareholder. Irs 1040ez 2010 The excessive part of the salary would not be allowed as a salary deduction by the corporation. Irs 1040ez 2010 For more information on corporate distributions to shareholders, see Publication 542, Corporations. Irs 1040ez 2010 Kinds of Pay Some of the ways you may provide pay to your employees in addition to regular wages or salaries are discussed next. Irs 1040ez 2010 For specialized and detailed information on employees' pay and the employment tax treatment of employees' pay, see Publications 15, 15-A, and 15-B. Irs 1040ez 2010 Awards You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. Irs 1040ez 2010 If you give property to an employee as an employee achievement award, your deduction may be limited. Irs 1040ez 2010 Achievement awards. Irs 1040ez 2010   An achievement award is an item of tangible personal property that meets all the following requirements. Irs 1040ez 2010 It is given to an employee for length of service or safety achievement. Irs 1040ez 2010 It is awarded as part of a meaningful presentation. Irs 1040ez 2010 It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay. Irs 1040ez 2010 Length-of-service award. Irs 1040ez 2010    An award will qualify as a length-of-service award only if either of the following applies. Irs 1040ez 2010 The employee receives the award after his or her first 5 years of employment. Irs 1040ez 2010 The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Irs 1040ez 2010 Safety achievement award. Irs 1040ez 2010    An award for safety achievement will qualify as an achievement award unless one of the following applies. Irs 1040ez 2010 It is given to a manager, administrator, clerical employee, or other professional employee. Irs 1040ez 2010 During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value). Irs 1040ez 2010 Deduction limit. Irs 1040ez 2010   Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. Irs 1040ez 2010 $400 for awards that are not qualified plan awards. Irs 1040ez 2010 $1,600 for all awards, whether or not qualified plan awards. Irs 1040ez 2010   A qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. Irs 1040ez 2010   A highly compensated employee is an employee who meets either of the following tests. Irs 1040ez 2010 The employee was a 5% owner at any time during the year or the preceding year. Irs 1040ez 2010 The employee received more than $115,000 in pay for the preceding year. Irs 1040ez 2010 You can choose to ignore test (2) if the employee was not also in the top 20% of employees ranked by pay for the preceding year. Irs 1040ez 2010   An award is not a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. Irs 1040ez 2010 To figure this average cost, ignore awards of nominal value. Irs 1040ez 2010 Deduct achievement awards as a nonwage business expense on your return or business schedule. Irs 1040ez 2010 You may not owe employment taxes on the value of some achievement awards you provide to an employee. Irs 1040ez 2010 See Publication 15-B. Irs 1040ez 2010 Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. Irs 1040ez 2010 However, the total bonuses, salaries, and other pay must be reasonable for the services performed. Irs 1040ez 2010 If the bonus is paid in property, see Property , later. Irs 1040ez 2010 Gifts of nominal value. Irs 1040ez 2010    If, to promote employee goodwill, you distribute food or merchandise of nominal value to your employees at holidays, you can deduct the cost of these items as a nonwage business expense. Irs 1040ez 2010 Your deduction for de minimis gifts of food or drink are not subject to the 50% deduction limit that generally applies to meals. Irs 1040ez 2010 For more information on this deduction limit, see Meals and lodging , later. Irs 1040ez 2010 Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. Irs 1040ez 2010 Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. Irs 1040ez 2010 For information on educational assistance programs, see Educational Assistance in section 2 of Publication 15-B. Irs 1040ez 2010 Fringe Benefits A fringe benefit is a form of pay for the performance of services. Irs 1040ez 2010 You can generally deduct the cost of fringe benefits. Irs 1040ez 2010 You may be able to exclude all or part of the value of some fringe benefits from your employees' pay. Irs 1040ez 2010 You also may not owe employment taxes on the value of the fringe benefits. Irs 1040ez 2010 See Table 2-1, Special Rules for Various Types of Fringe Benefits, in Publication 15-B for details. Irs 1040ez 2010 Your deduction for the cost of fringe benefits for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such an activity (for example, a company aircraft) for certain officers, directors, and more-than-10% shareholders is limited. Irs 1040ez 2010 Certain fringe benefits are discussed next. Irs 1040ez 2010 See Publication 15-B for more details on these and other fringe benefits. Irs 1040ez 2010 Meals and lodging. Irs 1040ez 2010   You can usually deduct the cost of furnishing meals and lodging to your employees. Irs 1040ez 2010 Deduct the cost in whatever category the expense falls. Irs 1040ez 2010 For example, if you operate a restaurant, deduct the cost of the meals you furnish to employees as part of the cost of goods sold. Irs 1040ez 2010 If you operate a nursing home, motel, or rental property, deduct the cost of furnishing lodging to an employee as expenses for utilities, linen service, salaries, depreciation, etc. Irs 1040ez 2010 Deduction limit on meals. Irs 1040ez 2010   You can generally deduct only 50% of the cost of furnishing meals to your employees. Irs 1040ez 2010 However, you can deduct the full cost of the following meals. Irs 1040ez 2010 Meals whose value you include in an employee's wages. Irs 1040ez 2010 Meals that qualify as a de minimis fringe benefit as discussed in section 2 of Publication 15-B. Irs 1040ez 2010 This generally includes meals you furnish to employees at your place of business if more than half of these employees are provided the meals for your convenience. Irs 1040ez 2010 Meals you furnish to your employees at the work site when you operate a restaurant or catering service. Irs 1040ez 2010 Meals you furnish to your employees as part of the expense of providing recreational or social activities, such as a company picnic. Irs 1040ez 2010 Meals you are required by federal law to furnish to crew members of certain commercial vessels (or would be required to furnish if the vessels were operated at sea). Irs 1040ez 2010 This does not include meals you furnish on vessels primarily providing luxury water transportation. Irs 1040ez 2010 Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. Irs 1040ez 2010 This includes meals you furnish at a support camp that is near and integral to an oil or gas drilling rig located in Alaska. Irs 1040ez 2010 Employee benefit programs. Irs 1040ez 2010   Employee benefit programs include the following. Irs 1040ez 2010 Accident and health plans. Irs 1040ez 2010 Adoption assistance. Irs 1040ez 2010 Cafeteria plans. Irs 1040ez 2010 Dependent care assistance. Irs 1040ez 2010 Education assistance. Irs 1040ez 2010 Life insurance coverage. Irs 1040ez 2010 Welfare benefit funds. Irs 1040ez 2010   You can generally deduct amounts you spend on employee benefit programs on the applicable line of your tax return. Irs 1040ez 2010 For example, if you provide dependent care by operating a dependent care facility for your employees, deduct your costs in whatever categories they fall (utilities, salaries, etc. Irs 1040ez 2010 ). Irs 1040ez 2010 Life insurance coverage. Irs 1040ez 2010   You cannot deduct the cost of life insurance coverage for you, an employee, or any person with a financial interest in your business, if you are directly or indirectly the beneficiary of the policy. Irs 1040ez 2010 See Regulations section 1. Irs 1040ez 2010 264-1 for more information. Irs 1040ez 2010 Welfare benefit funds. Irs 1040ez 2010   A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Irs 1040ez 2010 Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Irs 1040ez 2010   Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. Irs 1040ez 2010 If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Irs 1040ez 2010   Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. Irs 1040ez 2010 The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. Irs 1040ez 2010 The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. Irs 1040ez 2010 These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. Irs 1040ez 2010   For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations. Irs 1040ez 2010 Loans or Advances You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. Irs 1040ez 2010 However, if the employee performs no services, treat the amount you advanced as a loan. Irs 1040ez 2010 If the employee does not repay the loan, treat it as income to the employee. Irs 1040ez 2010 Below-market interest rate loans. Irs 1040ez 2010   On certain loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest. Irs 1040ez 2010 See Below-Market Loans in chapter 4. Irs 1040ez 2010 Property If you transfer property (including your company's stock) to an employee as payment for services, you can generally deduct it as wages. Irs 1040ez 2010 The amount you can deduct is the property's fair market value on the date of the transfer less any amount the employee paid for the property. Irs 1040ez 2010 You can claim the deduction only for the tax year in which your employee includes the property's value in income. Irs 1040ez 2010 Your employee is deemed to have included the value in income if you report it on Form W-2, Wage and Tax Statement, in a timely manner. Irs 1040ez 2010 You treat the deductible amount as received in exchange for the property, and you must recognize any gain or loss realized on the transfer, unless it is the company's stock transferred as payment for services. Irs 1040ez 2010 Your gain or loss is the difference between the fair market value of the property and its adjusted basis on the date of transfer. Irs 1040ez 2010 These rules also apply to property transferred to an independent contractor for services, generally reported on Form 1099-MISC, Miscellaneous Income. Irs 1040ez 2010 Restricted property. Irs 1040ez 2010   If the property you transfer for services is subject to restrictions that affect its value, you generally cannot deduct it and do not report gain or loss until it is substantially vested in the recipient. Irs 1040ez 2010 However, if the recipient pays for the property, you must report any gain at the time of the transfer up to the amount paid. Irs 1040ez 2010    “Substantially vested” means the property is not subject to a substantial risk of forfeiture. Irs 1040ez 2010 This means that the recipient is not likely to have to give up his or her rights in the property in the future. Irs 1040ez 2010 Reimbursements for Business Expenses You can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business. Irs 1040ez 2010 However, your deduction may be limited. Irs 1040ez 2010 If you make the payment under an accountable plan, deduct it in the category of the expense paid. Irs 1040ez 2010 For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. Irs 1040ez 2010 If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W-2. Irs 1040ez 2010 See Reimbursement of Travel, Meals, and Entertainment in chapter 11 for more information about deducting reimbursements and an explanation of accountable and nonaccountable plans. Irs 1040ez 2010 Sick and Vacation Pay Sick pay. Irs 1040ez 2010   You can deduct amounts you pay to your employees for sickness and injury, including lump-sum amounts, as wages. Irs 1040ez 2010 However, your deduction is limited to amounts not compensated by insurance or other means. Irs 1040ez 2010 Vacation pay. Irs 1040ez 2010   Vacation pay is an employee benefit. Irs 1040ez 2010 It includes amounts paid for unused vacation leave. Irs 1040ez 2010 You can deduct vacation pay only in the tax year in which the employee actually receives it. Irs 1040ez 2010 This rule applies regardless of whether you use the cash or accrual method of accounting. Irs 1040ez 2010 Prev  Up  Next   Home   More Online Publications