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Past Year Taxes

Past year taxes Publication 15-A - Main Content Table of Contents 1. Past year taxes Who Are Employees?Independent Contractors Common-Law Employees Statutory Employees Statutory Nonemployees Misclassification of Employees 2. Past year taxes Employee or Independent Contractor?Common-Law Rules Industry Examples 3. Past year taxes Employees of Exempt OrganizationsSocial security and Medicare taxes. Past year taxes FUTA tax. Past year taxes 4. Past year taxes Religious Exemptions and Special Rules for MinistersForm W-2. Past year taxes Self-employed. Past year taxes Employees. Past year taxes 5. Past year taxes Wages and Other CompensationRelocating for Temporary Work Assignments Employee Achievement Awards Scholarship and Fellowship Payments Outplacement Services Withholding for Idle Time Back Pay Supplemental Unemployment Benefits Golden Parachute Payments Interest-Free and Below-Market-Interest-Rate Loans Leave Sharing Plans Nonqualified Deferred Compensation Plans Tax-Sheltered Annuities Contributions to a Simplified Employee Pension (SEP) SIMPLE Retirement Plans 6. Past year taxes Sick Pay ReportingSick Pay Payments That Are Not Sick Pay Sick Pay Plan Third-Party Payers of Sick Pay Social Security, Medicare, and FUTA Taxes on Sick Pay Income Tax Withholding on Sick Pay Depositing and Reporting Example of Figuring and Reporting Sick Pay 7. Past year taxes Special Rules for Paying TaxesCommon Paymaster Agents Reporting Agents Employee's Portion of Taxes Paid by Employer International Social Security Agreements 8. Past year taxes Pensions and AnnuitiesFederal Income Tax Withholding 9. Past year taxes Alternative Methods for Figuring WithholdingTerm of continuous employment. Past year taxes Formula Tables for Percentage Method Withholding (for Automated Payroll Systems) Wage Bracket Percentage Method Tables (for Automated Payroll Systems) Combined Federal Income Tax, Employee Social Security Tax, and Employee Medicare Tax Withholding Tables 10. Past year taxes Tables for Withholding on Distributions of Indian Gaming Profits to Tribal MembersWithholding Tables How To Get Tax Help 1. Past year taxes Who Are Employees? Before you can know how to treat payments that you make to workers for services, you must first know the business relationship that exists between you and the person performing the services. Past year taxes The person performing the services may be: An independent contractor, A common-law employee, A statutory employee, or A statutory nonemployee. Past year taxes This discussion explains these four categories. Past year taxes A later discussion, Employee or Independent Contractor in section 2, points out the differences between an independent contractor and an employee and gives examples from various types of occupations. Past year taxes If an individual who works for you is not an employee under the common-law rules (see section 2), you generally do not have to withhold federal income tax from that individual's pay. Past year taxes However, in some cases you may be required to withhold under the backup withholding requirements on these payments. Past year taxes See Publication 15 (Circular E) for information on backup withholding. Past year taxes Independent Contractors People such as doctors, veterinarians, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. Past year taxes However, whether such people are employees or independent contractors depends on the facts in each case. Past year taxes The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Past year taxes Common-Law Employees Under common-law rules, anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. Past year taxes This is so even when you give the employee freedom of action. Past year taxes What matters is that you have the right to control the details of how the services are performed. Past year taxes For a discussion of facts that indicate whether an individual providing services is an independent contractor or employee, see section 2. Past year taxes If you have an employer-employee relationship, it makes no difference how it is labeled. Past year taxes The substance of the relationship, not the label, governs the worker's status. Past year taxes It does not matter whether the individual is employed full time or part time. Past year taxes For employment tax purposes, no distinction is made between classes of employees. Past year taxes Superintendents, managers, and other supervisory personnel are all employees. Past year taxes An officer of a corporation is generally an employee; however, an officer who performs no services or only minor services, and neither receives nor is entitled to receive any pay, is not considered an employee. Past year taxes A director of a corporation is not an employee with respect to services performed as a director. Past year taxes You generally have to withhold and pay income, social security, and Medicare taxes on wages that you pay to common-law employees. Past year taxes However, the wages of certain employees may be exempt from one or more of these taxes. Past year taxes See Employees of Exempt Organizations (section 3) and Religious Exemptions and Special Rules for Ministers (section 4). Past year taxes Leased employees. Past year taxes   Under certain circumstances, a firm that furnishes workers to other firms is the employer of those workers for employment tax purposes. Past year taxes For example, a temporary staffing service may provide the services of secretaries, nurses, and other similarly trained workers to its clients on a temporary basis. Past year taxes   The staffing service enters into contracts with the clients under which the clients specify the services to be provided and a fee is paid to the staffing service for each individual furnished. Past year taxes The staffing service has the right to control and direct the worker's services for the client, including the right to discharge or reassign the worker. Past year taxes The staffing service hires the workers, controls the payment of their wages, provides them with unemployment insurance and other benefits, and is the employer for employment tax purposes. Past year taxes For information on employee leasing as it relates to pension plan qualification requirements, see Leased employee in Publication 560, Retirement Plans for Small Business. Past year taxes Additional information. Past year taxes   For more information about the treatment of special types of employment, the treatment of special types of payments, and similar subjects, see Publication 15 (Circular E) or Publication 51 (Circular A), Agricultural Employer's Tax Guide. Past year taxes Statutory Employees If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute, (also known as “statutory employees”) for certain employment tax purposes. Past year taxes This would happen if they fall within any one of the following four categories and meet the three conditions described next under Social security and Medicare taxes . Past year taxes A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission. Past year taxes A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company. Past year taxes An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. Past year taxes A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. Past year taxes The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. Past year taxes The work performed for you must be the salesperson's principal business activity. Past year taxes See Salesperson in section 2. Past year taxes Social security and Medicare taxes. Past year taxes   You must withhold social security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply. Past year taxes The service contract states or implies that substantially all the services are to be performed personally by them. Past year taxes They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation, such as a car or truck). Past year taxes The services are performed on a continuing basis for the same payer. Past year taxes Federal unemployment (FUTA) tax. Past year taxes   For FUTA tax (the unemployment tax paid under the Federal Unemployment Tax Act), the term “employee” means the same as it does for social security and Medicare taxes, except that it does not include statutory employees defined above in categories 2 and 3. Past year taxes Any individual who is a statutory employee described above under category 1 or 4 is also an employee for FUTA tax purposes and subject to FUTA tax. Past year taxes Income tax. Past year taxes   Do not withhold federal income tax from the wages of statutory employees. Past year taxes Reporting payments to statutory employees. Past year taxes   Furnish Form W-2 to a statutory employee, and check “Statutory employee” in box 13. Past year taxes Show your payments to the employee as “other compensation” in box 1. Past year taxes Also, show social security wages in box 3, social security tax withheld in box 4, Medicare wages in box 5, and Medicare tax withheld in box 6. Past year taxes The statutory employee can deduct his or her trade or business expenses from the payments shown on Form W-2. Past year taxes He or she reports earnings as a statutory employee on line 1 of Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Past year taxes A statutory employee's business expenses are deductible on Schedule C (Form 1040) or C-EZ (Form 1040) and are not subject to the reduction by 2% of his or her adjusted gross income that applies to common-law employees. Past year taxes H-2A agricultural workers. Past year taxes   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Past year taxes Statutory Nonemployees There are three categories of statutory nonemployees: direct sellers, licensed real estate agents, and certain companion sitters. Past year taxes Direct sellers and licensed real estate agents are treated as self-employed for all federal tax purposes, including income and employment taxes, if: Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and Their services are performed under a written contract providing that they will not be treated as employees for federal tax purposes. Past year taxes Direct sellers. Past year taxes   Direct sellers include persons falling within any of the following three groups. Past year taxes Persons engaged in selling (or soliciting the sale of) consumer products in the home or place of business other than in a permanent retail establishment. Past year taxes Persons engaged in selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis prescribed by regulations, for resale in the home or at a place of business other than in a permanent retail establishment. Past year taxes Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution). Past year taxes   Direct selling includes activities of individuals who attempt to increase direct sales activities of their direct sellers and who earn income based on the productivity of their direct sellers. Past year taxes Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting. Past year taxes Licensed real estate agents. Past year taxes   This category includes individuals engaged in appraisal activities for real estate sales if they earn income based on sales or other output. Past year taxes Companion sitters. Past year taxes   Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled. Past year taxes A person engaged in the trade or business of putting the sitters in touch with individuals who wish to employ them (that is, a companion sitting placement service) will not be treated as the employer of the sitters if that person does not receive or pay the salary or wages of the sitters and is compensated by the sitters or the persons who employ them on a fee basis. Past year taxes Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Past year taxes Misclassification of Employees Consequences of treating an employee as an independent contractor. Past year taxes   If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you are liable for employment taxes for that worker and the relief provision, discussed next, will not apply. Past year taxes See section 2 in Publication 15 (Circular E) for more information. Past year taxes Relief provision. Past year taxes   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. Past year taxes To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. Past year taxes You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Past year taxes Technical service specialists. Past year taxes   This relief provision does not apply for a technical services specialist you provide to another business under an arrangement between you and the other business. Past year taxes A technical service specialist is an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work. Past year taxes   This limit on the application of the rule does not affect the determination of whether such workers are employees under the common-law rules. Past year taxes The common-law rules control whether the specialist is treated as an employee or an independent contractor. Past year taxes However, if you directly contract with a technical service specialist to provide services for your business and not for another business, you may still be entitled to the relief provision. Past year taxes Test proctors and room supervisors. Past year taxes   The consistent treatment requirement does not apply to services performed after December 31, 2006, by an individual as a test proctor or room supervisor assisting in the administration of college entrance or placement examinations if the individual: Is performing the services for a section 501(c) organization exempt from tax under section 501(a) of the code, and Is not otherwise treated as an employee of the organization for employment taxes. Past year taxes Voluntary Classification Settlement Program (VCSP). Past year taxes   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. Past year taxes To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Past year taxes For more information, visit IRS. Past year taxes gov and enter “VCSP” in the search box. Past year taxes 2. Past year taxes Employee or Independent Contractor? An employer must generally withhold federal income taxes, withhold and pay over social security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Past year taxes An employer does not generally have to withhold or pay over any federal taxes on payments to independent contractors. Past year taxes Common-Law Rules To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. Past year taxes In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Past year taxes Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Past year taxes These facts are discussed next. Past year taxes Behavioral control. Past year taxes   Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: Instructions that the business gives to the worker. Past year taxes   An employee is generally subject to the business' instructions about when, where, and how to work. Past year taxes All of the following are examples of types of instructions about how to do work. Past year taxes When and where to do the work. Past year taxes What tools or equipment to use. Past year taxes What workers to hire or to assist with the work. Past year taxes Where to purchase supplies and services. Past year taxes What work must be performed by a specified  individual. Past year taxes What order or sequence to follow. Past year taxes   The amount of instruction needed varies among different jobs. Past year taxes Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. Past year taxes A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. Past year taxes The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. Past year taxes Training that the business gives to the worker. Past year taxes   An employee may be trained to perform services in a particular manner. Past year taxes Independent contractors ordinarily use their own methods. Past year taxes Financial control. Past year taxes   Facts that show whether the business has a right to control the business aspects of the worker's job include: The extent to which the worker has unreimbursed business expenses. Past year taxes   Independent contractors are more likely to have unreimbursed expenses than are employees. Past year taxes Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. Past year taxes However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. Past year taxes The extent of the worker's investment. Past year taxes   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. Past year taxes However, a significant investment is not necessary for independent contractor status. Past year taxes The extent to which the worker makes his or her services available to the relevant market. Past year taxes   An independent contractor is generally free to seek out business opportunities. Past year taxes Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. Past year taxes How the business pays the worker. Past year taxes   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. Past year taxes This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. Past year taxes An independent contractor is often paid a flat fee or on a time and materials basis for the job. Past year taxes However, it is common in some professions, such as law, to pay independent contractors hourly. Past year taxes The extent to which the worker can realize a profit or loss. Past year taxes   An independent contractor can make a profit or loss. Past year taxes Type of relationship. Past year taxes   Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Past year taxes Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. Past year taxes The permanency of the relationship. Past year taxes If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship. Past year taxes The extent to which services performed by the worker are a key aspect of the regular business of the company. Past year taxes If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. Past year taxes For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. Past year taxes This would indicate an employer-employee relationship. Past year taxes IRS help. Past year taxes   If you want the IRS to determine whether or not a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. Past year taxes Industry Examples The following examples may help you properly classify your workers. Past year taxes Building and Construction Industry Example 1. Past year taxes Jerry Jones has an agreement with Wilma White to supervise the remodeling of her house. Past year taxes She did not advance funds to help him carry on the work. Past year taxes She makes direct payments to the suppliers for all necessary materials. Past year taxes She carries liability and workers' compensation insurance covering Jerry and others that he engaged to assist him. Past year taxes She pays them an hourly rate and exercises almost constant supervision over the work. Past year taxes Jerry is not free to transfer his assistants to other jobs. Past year taxes He may not work on other jobs while working for Wilma. Past year taxes He assumes no responsibility to complete the work and will incur no contractual liability if he fails to do so. Past year taxes He and his assistants perform personal services for hourly wages. Past year taxes Jerry Jones and his assistants are employees of Wilma White. Past year taxes Example 2. Past year taxes Milton Manning, an experienced tile setter, orally agreed with a corporation to perform full-time services at construction sites. Past year taxes He uses his own tools and performs services in the order designated by the corporation and according to its specifications. Past year taxes The corporation supplies all materials, makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Past year taxes He does not have a place of business or hold himself out to perform similar services for others. Past year taxes Either party can end the services at any time. Past year taxes Milton Manning is an employee of the corporation. Past year taxes Example 3. Past year taxes Wallace Black agreed with the Sawdust Co. Past year taxes to supply the construction labor for a group of houses. Past year taxes The company agreed to pay all construction costs. Past year taxes However, he supplies all the tools and equipment. Past year taxes He performs personal services as a carpenter and mechanic for an hourly wage. Past year taxes He also acts as superintendent and foreman and engages other individuals to assist him. Past year taxes The company has the right to select, approve, or discharge any helper. Past year taxes A company representative makes frequent inspections of the construction site. Past year taxes When a house is finished, Wallace is paid a certain percentage of its costs. Past year taxes He is not responsible for faults, defects of construction, or wasteful operation. Past year taxes At the end of each week, he presents the company with a statement of the amount that he has spent, including the payroll. Past year taxes The company gives him a check for that amount from which he pays the assistants, although he is not personally liable for their wages. Past year taxes Wallace Black and his assistants are employees of the Sawdust Co. Past year taxes Example 4. Past year taxes Bill Plum contracted with Elm Corporation to complete the roofing on a housing complex. Past year taxes A signed contract established a flat amount for the services rendered by Bill Plum. Past year taxes Bill is a licensed roofer and carries workers' compensation and liability insurance under the business name, Plum Roofing. Past year taxes He hires his own roofers who are treated as employees for federal employment tax purposes. Past year taxes If there is a problem with the roofing work, Plum Roofing is responsible for paying for any repairs. Past year taxes Bill Plum, doing business as Plum Roofing, is an independent contractor. Past year taxes Example 5. Past year taxes Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. Past year taxes She is to receive $1,280 every 2 weeks for the next 10 weeks. Past year taxes This is not considered payment by the hour. Past year taxes Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. Past year taxes She also performs additional electrical installations under contracts with other companies, that she obtained through advertisements. Past year taxes Vera is an independent contractor. Past year taxes Trucking Industry Example. Past year taxes Rose Trucking contracts to deliver material for Forest, Inc. Past year taxes , at $140 per ton. Past year taxes Rose Trucking is not paid for any articles that are not delivered. Past year taxes At times, Jan Rose, who operates as Rose Trucking, may also lease another truck and engage a driver to complete the contract. Past year taxes All operating expenses, including insurance coverage, are paid by Jan Rose. Past year taxes All equipment is owned or rented by Jan and she is responsible for all maintenance. Past year taxes None of the drivers are provided by Forest, Inc. Past year taxes Jan Rose, operating as Rose Trucking, is an independent contractor. Past year taxes Computer Industry Example. Past year taxes Steve Smith, a computer programmer, is laid off when Megabyte, Inc. Past year taxes , downsizes. Past year taxes Megabyte agrees to pay Steve a flat amount to complete a one-time project to create a certain product. Past year taxes It is not clear how long that it will take to complete the project, and Steve is not guaranteed any minimum payment for the hours spent on the program. Past year taxes Megabyte provides Steve with no instructions beyond the specifications for the product itself. Past year taxes Steve and Megabyte have a written contract, which provides that Steve is considered to be an independent contractor, is required to pay federal and state taxes, and receives no benefits from Megabyte. Past year taxes Megabyte will file Form 1099-MISC, Miscellaneous Income, to report the amount paid to Steve. Past year taxes Steve works at home and is not expected or allowed to attend meetings of the software development group. Past year taxes Steve is an independent contractor. Past year taxes Automobile Industry Example 1. Past year taxes Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. Past year taxes She works six days a week and is on duty in Bob's showroom on certain assigned days and times. Past year taxes She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Past year taxes Lists of prospective customers belong to the dealer. Past year taxes She is required to develop leads and report results to the sales manager. Past year taxes Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. Past year taxes She is paid a commission and is eligible for prizes and bonuses offered by Bob. Past year taxes Bob also pays the cost of health insurance and group-term life insurance for Donna. Past year taxes Donna is an employee of Bob Blue. Past year taxes Example 2. Past year taxes Sam Sparks performs auto repair services in the repair department of an auto sales company. Past year taxes He works regular hours and is paid on a percentage basis. Past year taxes He has no investment in the repair department. Past year taxes The sales company supplies all facilities, repair parts, and supplies; issues instructions on the amounts to be charged, parts to be used, and the time for completion of each job; and checks all estimates and repair orders. Past year taxes Sam is an employee of the sales company. Past year taxes Example 3. Past year taxes An auto sales agency furnishes space for Helen Bach to perform auto repair services. Past year taxes She provides her own tools, equipment, and supplies. Past year taxes She seeks out business from insurance adjusters and other individuals and does all of the body and paint work that comes to the agency. Past year taxes She hires and discharges her own helpers, determines her own and her helpers' working hours, quotes prices for repair work, makes all necessary adjustments, assumes all losses from uncollectible accounts, and receives, as compensation for her services, a large percentage of the gross collections from the auto repair shop. Past year taxes Helen is an independent contractor and the helpers are her employees. Past year taxes Attorney Example. Past year taxes Donna Yuma is a sole practitioner who rents office space and pays for the following items: telephone, computer, on-line legal research linkup, fax machine, and photocopier. Past year taxes Donna buys office supplies and pays bar dues and membership dues for three other professional organizations. Past year taxes Donna has a part-time receptionist who also does the bookkeeping. Past year taxes She pays the receptionist, withholds and pays federal and state employment taxes, and files a Form W-2 each year. Past year taxes For the past 2 years, Donna has had only three clients, corporations with which there have been long-standing relationships. Past year taxes Donna charges the corporations an hourly rate for her services, sending monthly bills detailing the work performed for the prior month. Past year taxes The bills include charges for long distance calls, on-line research time, fax charges, photocopies, postage, and travel, costs for which the corporations have agreed to reimburse her. Past year taxes Donna is an independent contractor. Past year taxes Taxicab Driver Example. Past year taxes Tom Spruce rents a cab from Taft Cab Co. Past year taxes for $150 per day. Past year taxes He pays the costs of maintaining and operating the cab. Past year taxes Tom Spruce keeps all fares that he receives from customers. Past year taxes Although he receives the benefit of Taft's two-way radio communication equipment, dispatcher, and advertising, these items benefit both Taft and Tom Spruce. Past year taxes Tom Spruce is an independent contractor. Past year taxes Salesperson To determine whether salespersons are employees under the usual common-law rules, you must evaluate each individual case. Past year taxes If a salesperson who works for you does not meet the tests for a common-law employee, discussed earlier in this section, you do not have to withhold federal income tax from his or her pay (see Statutory Employees in section 1). Past year taxes However, even if a salesperson is not an employee under the usual common-law rules for income tax withholding, his or her pay may still be subject to social security, Medicare, and FUTA taxes as a statutory employee. Past year taxes To determine whether a salesperson is an employee for social security, Medicare, and FUTA tax purposes, the salesperson must meet all eight elements of the statutory employee test. Past year taxes A salesperson is a statutory employee for social security, Medicare, and FUTA tax purposes if he or she: Works full time for one person or company except, possibly, for sideline sales activities on behalf of some other person, Sells on behalf of, and turns his or her orders over to, the person or company for which he or she works, Sells to wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments, Sells merchandise for resale, or supplies for use in the customer's business, Agrees to do substantially all of this work personally, Has no substantial investment in the facilities used to do the work, other than in facilities for transportation, Maintains a continuing relationship with the person or company for which he or she works, and Is not an employee under common-law rules. Past year taxes 3. Past year taxes Employees of Exempt Organizations Many nonprofit organizations are exempt from federal income tax. Past year taxes Although they do not have to pay federal income tax themselves, they must still withhold federal income tax from the pay of their employees. Past year taxes However, there are special social security, Medicare, and FUTA tax rules that apply to the wages that they pay their employees. Past year taxes Section 501(c)(3) organizations. Past year taxes   Nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code include any community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Past year taxes These organizations are usually corporations and are exempt from federal income tax under section 501(a). Past year taxes Social security and Medicare taxes. Past year taxes   Wages paid to employees of section 501(c)(3) organizations are subject to social security and Medicare taxes unless one of the following situations applies. Past year taxes The organization pays an employee less than $100 in a calendar year. Past year taxes The organization is a church or church-controlled organization opposed for religious reasons to the payment of social security and Medicare taxes and has filed Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes, to elect exemption from social security and Medicare taxes. Past year taxes The organization must have filed for exemption before the first date on which a quarterly employment tax return (Form 941) or annual employment tax return (Form 944) would otherwise be due. Past year taxes   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes must pay self-employment tax if the employee is paid $108. Past year taxes 28 or more in a year. Past year taxes However, an employee who is a member of a qualified religious sect can apply for an exemption from the self-employment tax by filing Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Past year taxes See Members of recognized religious sects opposed to insurance in section 4. Past year taxes FUTA tax. Past year taxes   An organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from FUTA tax. Past year taxes This exemption cannot be waived. Past year taxes Do not file Form 940 to report wages paid by these organizations or pay the tax. Past year taxes Note. Past year taxes An organization wholly owned by a state or its political subdivision should contact the appropriate state official for information about reporting and getting social security and Medicare coverage for its employees. Past year taxes Other than section 501(c)(3) organizations. Past year taxes   Nonprofit organizations that are not section 501(c)(3) organizations may also be exempt from federal income tax under section 501(a) or section 521. Past year taxes However, these organizations are not exempt from withholding federal income, social security, or Medicare tax from their employees' pay, or from paying FUTA tax. Past year taxes Two special rules for social security, Medicare, and FUTA taxes apply. Past year taxes If an employee is paid less than $100 during a calendar year, his or her wages are not subject to social security and Medicare taxes. Past year taxes If an employee is paid less than $50 in a calendar quarter, his or her wages are not subject to FUTA tax for the quarter. Past year taxes The above rules do not apply to employees who work for pension plans and other similar organizations described in section 401(a). Past year taxes 4. Past year taxes Religious Exemptions and Special Rules for Ministers Special rules apply to the treatment of ministers for social security and Medicare tax purposes. Past year taxes An exemption from social security and Medicare taxes is available for ministers and certain other religious workers and members of certain recognized religious sects. Past year taxes For more information on getting an exemption, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Past year taxes Ministers. Past year taxes   Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Past year taxes They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances and sacraments according to the prescribed tenets and practices of that religious organization. Past year taxes   Ministers are employees if they perform services in the exercise of ministry and are subject to your will and control. Past year taxes The common-law rules discussed in section 1 and section 2 should be applied to determine whether a minister is your employee or is self-employed. Past year taxes Whether the minister is an employee or self-employed, the earnings of a minister are not subject to federal income, social security, and Medicare tax withholding. Past year taxes However, even if the minister is a common law employee, the earnings as reported on the minister's Form 1040 are subject to self-employment tax and federal income tax. Past year taxes You do not withhold these taxes from wages earned by a minister, but if the minister is your employee, you may agree with the minister to voluntarily withhold tax to cover the minister's liability for self-employment tax and federal income tax. Past year taxes For more information, see Publication 517. Past year taxes Form W-2. Past year taxes   If your minister is an employee, report all taxable compensation as wages in box 1 on Form W-2. Past year taxes Include in this amount expense allowances or reimbursements paid under a nonaccountable plan, discussed in section 5 of Publication 15 (Circular E). Past year taxes Do not include a parsonage allowance (excludable housing allowance) in this amount. Past year taxes You may report a designated parsonage or rental allowance (housing allowance) and a utilities allowance, or the rental value of housing provided in a separate statement or in box 14 on Form W-2. Past year taxes Do not show on Form W-2, Form 941, or Form 944 any amount as social security or Medicare wages, or any withholding for social security or Medicare taxes. Past year taxes If you withheld federal income tax from the minister under a voluntary agreement, this amount should be shown in box 2 on Form W-2 as federal income tax withheld. Past year taxes For more information on ministers, see Publication 517. Past year taxes Exemptions for ministers and others. Past year taxes   Certain ordained ministers, Christian Science practitioners, and members of religious orders who have not taken a vow of poverty may apply to exempt their earnings from self-employment tax on religious grounds. Past year taxes The application must be based on conscientious opposition because of personal considerations to public insurance that makes payments in the event of death, disability, old age, or retirement, or that makes payments toward the cost of, or provides services for, medical care, including social security and Medicare benefits. Past year taxes The exemption applies only to qualified services performed for the religious organization. Past year taxes See Revenue Procedure 91-20, 1991-1 C. Past year taxes B. Past year taxes 524, for guidelines to determine whether an organization is a religious order or whether an individual is a member of a religious order. Past year taxes   To apply for the exemption, the employee should file Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. Past year taxes See Publication 517 for more information about claiming an exemption from self-employment tax using Form 4361. Past year taxes Members of recognized religious sects opposed to insurance. Past year taxes   If you belong to a recognized religious sect or to a division of such sect that is opposed to insurance, you may qualify for an exemption from the self-employment tax. Past year taxes To qualify, you must be conscientiously opposed to accepting the benefits of any public or private insurance that makes payments because of death, disability, old age, or retirement, or makes payments toward the cost of, or provides services for, medical care (including social security and Medicare benefits). Past year taxes If you buy a retirement annuity from an insurance company, you will not be eligible for this exemption. Past year taxes Religious opposition based on the teachings of the sect is the only legal basis for the exemption. Past year taxes In addition, your religious sect (or division) must have existed since December 31, 1950. Past year taxes Self-employed. Past year taxes   If you are self-employed and a member of a recognized religious sect opposed to insurance, you can apply for exemption by filing Form 4029 to waive all social security and Medicare benefits. Past year taxes Employees. Past year taxes   The social security and Medicare tax exemption available to the self-employed who are members of a recognized religious sect opposed to insurance is also available to their employees who are members of such a sect. Past year taxes This applies to partnerships only if each partner is a member of the sect. Past year taxes This exemption for employees applies only if both the employee and the employer are members of such a sect, and the employer has an exemption. Past year taxes To get the exemption, the employee must file Form 4029. Past year taxes   An employee of a church or church-controlled organization that is exempt from social security and Medicare taxes can also apply for an exemption on Form 4029. Past year taxes 5. Past year taxes Wages and Other Compensation Publication 15 (Circular E) provides a general discussion of taxable wages. Past year taxes Publication 15-B discusses fringe benefits. Past year taxes The following topics supplement those discussions. Past year taxes Relocating for Temporary Work Assignments If an employee is given a temporary work assignment away from his or her regular place of work, certain travel expenses reimbursed or paid directly by the employer in accordance with an accountable plan (see section 5 in Publication 15 (Circular E)) may be excludable from the employee's wages. Past year taxes Generally, a temporary work assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Past year taxes If the employee's new work assignment is indefinite, any living expenses reimbursed or paid by the employer (other than qualified moving expenses) must be included in the employee's wages as compensation. Past year taxes For the travel expenses to be excludable: The new work location must be outside of the city or general area of the employee's regular work place or post of duty, The travel expenses must otherwise qualify as deductible by the employee, and The expenses must be for the period during which the employee is at the temporary work location. Past year taxes If you reimburse or pay any personal expenses of an employee during his or her temporary work assignment, such as expenses for home leave for family members or for vacations, these amounts must be included in the employee's wages. Past year taxes See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses, and section 5 of Publication 15 (Circular E), for more information. Past year taxes These rules generally apply to temporary work assignments both inside and outside the U. Past year taxes S. Past year taxes Employee Achievement Awards Do not withhold federal income, social security, or Medicare taxes on the fair market value of an employee achievement award if it is excludable from your employee's gross income. Past year taxes To be excludable from your employee's gross income, the award must be tangible personal property (not cash, gift certificates, or securities) given to an employee for length of service or safety achievement, awarded as part of a meaningful presentation, and awarded under circumstances that do not indicate that the payment is disguised compensation. Past year taxes Excludable employee achievement awards also are not subject to FUTA tax. Past year taxes Limits. Past year taxes   The most that you can exclude for the cost of all employee achievement awards to the same employee for the year is $400. Past year taxes A higher limit of $1,600 applies to qualified plan awards. Past year taxes Qualified plan awards are employee achievement awards under a written plan that does not discriminate in favor of highly compensated employees. Past year taxes An award cannot be treated as a qualified plan award if the average cost per recipient of all awards under all of your qualified plans is more than $400. Past year taxes   If during the year an employee receives awards not made under a qualified plan and also receives awards under a qualified plan, the exclusion for the total cost of all awards to that employee cannot be more than $1,600. Past year taxes The $400 and $1,600 limits cannot be added together to exclude more than $1,600 for the cost of awards to any one employee during the year. Past year taxes Scholarship and Fellowship Payments Only amounts that you pay as a qualified scholarship to a candidate for a degree may be excluded from the recipient's gross income. Past year taxes A qualified scholarship is any amount granted as a scholarship or fellowship that is used for: Tuition and fees required to enroll in, or to attend, an educational institution, or Fees, books, supplies, and equipment that are required for courses at the educational institution. Past year taxes The exclusion from income does not apply to the portion of any amount received that represents payment for teaching, research, or other services required as a condition of receiving the scholarship or tuition reduction. Past year taxes These amounts are reportable on Form W-2. Past year taxes However, the exclusion will still apply for any amount received under two specific programs—the National Health Service Corps Scholarship Program and the Armed Forces Health Professions Scholarship and Financial Assistance Program—despite any service condition attached to those amounts. Past year taxes Any amounts that you pay for room and board are not excludable from the recipient's gross income. Past year taxes A qualified scholarship is not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Past year taxes For more information, see Publication 970, Tax Benefits for Education. Past year taxes Outplacement Services If you provide outplacement services to your employees to help them find new employment (such as career counseling, resume assistance, or skills assessment), the value of these benefits may be income to them and subject to all withholding taxes. Past year taxes However, the value of these services will not be subject to any employment taxes if: You derive a substantial business benefit from providing the services (such as improved employee morale or business image) separate from the benefit that you would receive from the mere payment of additional compensation, and The employee would be able to deduct the cost of the services as employee business expenses if he or she had paid for them. Past year taxes However, if you receive no additional benefit from providing the services, or if the services are not provided on the basis of employee need, then the value of the services is treated as wages and is subject to federal income tax withholding and social security and Medicare taxes. Past year taxes Similarly, if an employee receives the outplacement services in exchange for reduced severance pay (or other taxable compensation), then the amount the severance pay is reduced is treated as wages for employment tax purposes. Past year taxes Withholding for Idle Time Payments made under a voluntary guarantee to employees for idle time (any time during which an employee performs no services) are wages for the purposes of social security, Medicare, and FUTA taxes, and federal income tax withholding. Past year taxes Back Pay Treat back pay as wages in the year paid and withhold and pay employment taxes as required. Past year taxes If back pay was awarded by a court or government agency to enforce a federal or state statute protecting an employee's right to employment or wages, special rules apply for reporting those wages to the Social Security Administration. Past year taxes These rules also apply to litigation actions and settlement agreements or agency directives that are resolved out of court and not under a court decree or order. Past year taxes Examples of pertinent statutes include, but are not limited to, the National Labor Relations Act, Fair Labor Standards Act, Equal Pay Act, and Age Discrimination in Employment Act. Past year taxes See Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration, and Form SSA-131, Employer Report of Special Wage Payments, for details. Past year taxes Supplemental Unemployment Benefits If you pay, under a plan, supplemental unemployment benefits to a former employee, all or part of the payments may be taxable and subject to federal income tax withholding, depending on how the plan is funded. Past year taxes Amounts that represent a return to the employee of amounts previously subject to tax are not taxable and are not subject to withholding. Past year taxes You should withhold federal income tax on the taxable part of the payments made, under a plan, to an employee who is involuntarily separated because of a reduction in force, discontinuance of a plant or operation, or other similar condition. Past year taxes It does not matter whether the separation is temporary or permanent. Past year taxes There are special rules that apply in determining whether benefits qualify as supplemental unemployment benefits that are excluded from wages for social security, Medicare, and FUTA tax purposes. Past year taxes To qualify as supplemental unemployment benefits for these purposes, the benefits must meet the following requirements. Past year taxes Benefits are paid only to unemployed former employees who are laid off by the employer. Past year taxes Eligibility for benefits depends on meeting prescribed conditions after termination. Past year taxes The amount of weekly benefits payable is based upon state unemployment benefits, other compensation allowable under state law, and the amount of regular weekly pay. Past year taxes The right to benefits does not accrue until a prescribed period after termination. Past year taxes Benefits are not attributable to the performance of particular services. Past year taxes No employee has any right to the benefits until qualified and eligible to receive benefits. Past year taxes Benefits may not be paid in a lump sum. Past year taxes Withholding on taxable supplemental unemployment benefits must be based on the withholding certificate (Form W-4) that the employee gave to you. Past year taxes Golden Parachute Payments A golden parachute payment, in general, is a payment made under a contract entered into by a corporation and key personnel. Past year taxes Under the agreement, the corporation agrees to pay certain amounts to its key personnel in the event of a change in ownership or control of the corporation. Past year taxes Payments to employees under golden parachute contracts are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Past year taxes See Regulations section 1. Past year taxes 280G-1 for more information. Past year taxes No deduction is allowed to the corporation for any excess parachute payment. Past year taxes To determine the amount of the excess parachute payment, you must first determine if there is a parachute payment for purposes of section 280G. Past year taxes A parachute payment for purposes of section 280G is any payment that meets all of the following. Past year taxes The payment is in the nature of compensation. Past year taxes The payment is to, or for the benefit of, a disqualified individual. Past year taxes A disqualified individual is anyone who at any time during the 12-month period prior to and ending on the date of the change in ownership or control of the corporation (the disqualified individual determination period) was an employee or independent contractor and was, in regard to that corporation, a shareholder, an officer, or highly compensated individual. Past year taxes The payment is contingent on a change in ownership of the corporation, the effective control of the corporation, or the ownership of a substantial portion of the assets of the corporation. Past year taxes The payment has an aggregate present value of at least three times the individual's base amount. Past year taxes The base amount is the average annual compensation for service includible in the individual's gross income over the most recent 5 taxable years. Past year taxes An excess parachute payment amount is the excess of any parachute payment over the base amount. Past year taxes For more information, see Regulations section 1. Past year taxes 280G-1. Past year taxes The recipient of an excess parachute payment is subject to a 20% nondeductible excise tax. Past year taxes If the recipient is an employee, the 20% excise tax is to be withheld by the corporation. Past year taxes Example. Past year taxes An officer of a corporation receives a golden parachute payment of $400,000. Past year taxes This is more than three times greater than his or her average compensation of $100,000 over the previous 5-year period. Past year taxes The excess parachute payment is $300,000 ($400,000 minus $100,000). Past year taxes The corporation cannot deduct the $300,000 and must withhold the excise tax of $60,000 (20% of $300,000). Past year taxes Reporting golden parachute payments. Past year taxes   Golden parachute payments to employees must be reported on Form W-2. Past year taxes See the General Instructions for Forms W-2 and W-3 for details. Past year taxes For nonemployee reporting of these payments, see Box 7. Past year taxes Nonemployee Compensation in the Instructions for Form 1099-MISC. Past year taxes Exempt payments. Past year taxes   Payments by most small business corporations and payments under certain qualified plans are exempt from the golden parachute rules. Past year taxes See section 280G(b)(5) and (6) for more information. Past year taxes Interest-Free and Below-Market-Interest-Rate Loans In general, if an employer lends an employee more than $10,000 at an interest rate less than the current applicable federal rate (AFR), the difference between the interest paid and the interest that would be paid under the AFR is considered additional compensation to the employee. Past year taxes This rule applies to a loan of $10,000 or less if one of its principal purposes is the avoidance of federal tax. Past year taxes This additional compensation to the employee is subject to social security, Medicare, and FUTA taxes, but not to federal income tax withholding. Past year taxes Include it in compensation on Form W-2 (or Form 1099-MISC for an independent contractor). Past year taxes The AFR is established monthly and published by the IRS each month in the Internal Revenue Bulletin. Past year taxes You can get these rates by calling 1-800-829-4933 or by visiting IRS. Past year taxes gov. Past year taxes For more information, see section 7872 and its related regulations. Past year taxes Leave Sharing Plans If you establish a leave sharing plan for your employees that allows them to transfer leave to other employees for medical emergencies, the amounts paid to the recipients of the leave are considered wages. Past year taxes These amounts are includible in the gross income of the recipients and are subject to social security, Medicare, and FUTA taxes, and federal income tax withholding. Past year taxes Do not include these amounts in the income of the transferors. Past year taxes These rules apply only to leave sharing plans that permit employees to transfer leave to other employees for medical emergencies. Past year taxes Nonqualified Deferred Compensation Plans Income Tax and Reporting Section 409A provides that all amounts deferred under a nonqualified deferred compensation (NQDC) plan for all tax years are currently includible in gross income (to the extent not subject to a substantial risk of forfeiture and not previously included in gross income) and subject to additional taxes, unless certain requirements are met pertaining to, among other things, elections to defer compensation and distributions under a NQDC plan. Past year taxes Section 409A also includes rules that apply to certain trusts or similar arrangements associated with NQDC plans if the trusts or arrangements are located outside of the United States, are restricted to the provision of benefits in connection with a decline in the financial health of the plan sponsor, or contributions are made to the trust during certain periods such as when a qualified plan of the service recipient is underfunded. Past year taxes Employers must withhold federal income tax (but not the additional Section 409A taxes) on any amount includible in gross income under section 409A. Past year taxes Other changes to the Internal Revenue Code provide that the deferrals under a NQDC plan must be reported separately on Form W-2 or Form 1099-MISC, whichever applies. Past year taxes Specific rules for reporting are provided in the instructions to the forms. Past year taxes The provisions do not affect the application or reporting of social security, Medicare, or FUTA taxes. Past year taxes The provisions do not prevent the inclusion of amounts in income or wages under other provisions of the Internal Revenue Code or common law principles, such as when amounts are actually or constructively received or irrevocably contributed to a separate fund. Past year taxes For more information about nonqualified deferred compensation plans, see Regulations sections 1. Past year taxes 409A-1 through 1. Past year taxes 409A-6. Past year taxes Notice 2008-113 provides guidance on the correction of certain operation failures of a NQDC plan. Past year taxes Notice 2008-113, 2008-51 I. Past year taxes R. Past year taxes B. Past year taxes 1305, is available at www. Past year taxes irs. Past year taxes gov/irb/2008-51_IRB/ar12. Past year taxes html. Past year taxes Also see Notice 2010-6, 2010-3 I. Past year taxes R. Past year taxes B. Past year taxes 275, available at www. Past year taxes irs. Past year taxes gov/irb/2010-03_IRB/ar08. Past year taxes html and Notice 2010-80, 2010-51 I. Past year taxes R. Past year taxes B. Past year taxes 853, available at www. Past year taxes irs. Past year taxes gov/irb/2010-51_IRB/ar08. Past year taxes html. Past year taxes Social security, Medicare, and FUTA taxes. Past year taxes   Employer contributions to nonqualified deferred compensation (NQDC) plans, as defined in the applicable regulations, are treated as wages subject to social security, Medicare, and FUTA taxes when the services are performed or the employee no longer has a substantial risk of forfeiting the right to the deferred compensation, whichever is later. Past year taxes   Amounts deferred are subject to social security, Medicare, and FUTA taxes at that time unless the amount that is deferred cannot be reasonably ascertained; for example, if benefits are based on final pay. Past year taxes If the value of the future benefit is based on any factors that are not yet reasonably ascertainable, you may choose to estimate the value of the future benefit and withhold and pay social security, Medicare, and FUTA taxes on that amount. Past year taxes You will have to determine later, when the amount is reasonably ascertainable, whether any additional taxes are required. Past year taxes If taxes are not paid before the amounts become reasonably ascertainable, when the amounts become reasonably ascertainable they are subject to social security, Medicare, and FUTA taxes on the amounts deferred plus the income attributable to those amounts deferred. Past year taxes For more information, see Regulations sections 31. Past year taxes 3121(v)(2)-1 and 31. Past year taxes 3306(r)(2)-1. Past year taxes Tax-Sheltered Annuities Employer payments made by a public educational institution or a tax-exempt organization to purchase a tax-sheltered annuity for an employee (annual deferrals) are included in the employee's social security and Medicare wages, if the payments are made because of a salary reduction agreement. Past year taxes However, they are not included in box 1 on Form W-2 in the year the deferrals are made and are not subject to federal income tax withholding. Past year taxes See Regulations section 31. Past year taxes 3121(a)(5)-2 for the definition of a salary reduction agreement. Past year taxes Contributions to a Simplified Employee Pension (SEP) An employer's SEP contributions to an employee's individual retirement arrangement (IRA) are excluded from the employee's gross income. Past year taxes These excluded amounts are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding. Past year taxes However, any SEP contributions paid under a salary reduction agreement (SARSEP) are included in wages for purposes of social security, Medicare, and FUTA taxes. Past year taxes See Publication 560 for more information about SEPs. Past year taxes Salary reduction simplified employee pensions (SARSEP) repealed. Past year taxes   You may not establish a SARSEP after 1996. Past year taxes However, SARSEPs established before January 1, 1997, may continue to receive contributions. Past year taxes SIMPLE Retirement Plans Employer and employee contributions to a savings incentive match plan for employees (SIMPLE) retirement account (subject to limitations) are excludable from the employee's income and are exempt from federal income tax withholding. Past year taxes An employer's nonelective (2%) or matching contributions are exempt from social security, Medicare, and FUTA taxes. Past year taxes However, an employee's salary reduction contributions to a SIMPLE are subject to social security, Medicare, and FUTA taxes. Past year taxes For more information about SIMPLE retirement plans, see Publication 560. Past year taxes 6. Past year taxes Sick Pay Reporting The IRS expects to change the third-party sick pay recap reporting and filing requirements for wages paid in 2014. Past year taxes Information about this change will be included in the revision of Publication 15-A that is expected to post to IRS. Past year taxes gov in December 2014. Past year taxes Special rules apply to the reporting of sick pay payments to employees. Past year taxes How these payments are reported depends on whether the payments are made by the employer or a third party, such as an insurance company. Past year taxes Sick pay is usually subject to social security, Medicare, and FUTA taxes. Past year taxes For exceptions, see Social Security, Medicare, and FUTA Taxes on Sick Pay , later in this section. Past year taxes Sick pay may also be subject to either mandatory or voluntary federal income tax withholding, depending on who pays it. Past year taxes Sick Pay Sick pay generally means any amount paid under a plan because of an employee's temporary absence from work due to injury, sickness, or disability. Past year taxes It may be paid by either the employer or a third party, such as an insurance company. Past year taxes Sick pay includes both short- and long-term benefits. Past year taxes It is often expressed as a percentage of the employee's regular wages. Past year taxes Payments That Are Not Sick Pay Sick pay does not include the following payments. Past year taxes Disability retirement payments. Past year taxes Disability retirement payments are not sick pay and are not discussed in this section. Past year taxes Those payments are subject to the rules for federal income tax withholding from pensions and annuities. Past year taxes See section 8. Past year taxes Workers' compensation. Past year taxes Payments because of a work-related injury or sickness that are made under a workers' compensation law are not sick pay and are not subject to employment taxes. Past year taxes But see Payments in the nature of workers' compensation—public employees next. Past year taxes Payments in the nature of workers' compensation—public employees. Past year taxes State and local government employees, such as police officers and firefighters, sometimes receive payments due to an injury in the line of duty under a statute that is not the general workers' compensation law of a state. Past year taxes If the statute limits benefits to work-related injuries or sickness and does not base payments on the employee's age, length of service, or prior contributions, the statute is “in the nature of” a workers' compensation law. Past year taxes Payments under a statute in the nature of a workers' compensation law are not sick pay and are not subject to employment taxes. Past year taxes For more information, see Regulations section 31. Past year taxes 3121(a)(2)-1. Past year taxes Medical expense payments. Past year taxes Payments under a definite plan or system for medical and hospitalization expenses, or for insurance covering these expenses, are not sick pay and are not subject to employment taxes. Past year taxes Payments unrelated to absence from work. Past year taxes Accident or health insurance payments unrelated to absence from work are not sick pay and are not subject to employment taxes. Past year taxes These include payments for: Permanent loss of a member or function of the body, Permanent loss of the use of a member or function of the body, or Permanent disfigurement of the body. Past year taxes Example. Past year taxes Donald was injured in a car accident and lost an eye. Past year taxes Under a policy paid for by Donald's employer, Delta Insurance Co. Past year taxes paid Donald $20,000 as compensation for the loss of his eye. Past year taxes Because the payment was determined by the type of injury and was unrelated to Donald's absence from work, it is not sick pay and is not subject to federal employment taxes. Past year taxes Sick Pay Plan A sick pay plan is a plan or system established by an employer under which sick pay is available to employees generally or to a class or classes of employees. Past year taxes This does not include a situation in which benefits are provided on a discretionary or occasional basis with merely an intention to aid particular employees in time of need. Past year taxes You have a sick pay plan or system if the plan is in writing or is otherwise made known to employees, such as by a bulletin board notice or your long and established practice. Past year taxes Some indications that you have a sick pay plan or system include references to the plan or system in the contract of employment, employer contributions to a plan, or segregated accounts for the payment of benefits. Past year taxes Definition of employer. Past year taxes   The employer for whom the employee normally works, a term used in the following discussion, is either the employer for whom the employee was working at the time that the employee became sick or disabled or the last employer for whom the employee worked before becoming sick or disabled, if that employer made contributions to the sick pay plan on behalf of the sick or disabled employee. Past year taxes Note. Past year taxes Contributions to a sick pay plan through a cafeteria plan (by direct employer contributions or salary reduction) are employer contributions unless they are after-tax employee contributions (that is, included in taxable wages). Past year taxes Third-Party Payers of Sick Pay Employer's agent. Past year taxes   An employer's agent is a third party that bears no insurance risk and is reimbursed on a cost-plus-fee basis for payment of sick pay and similar amounts. Past year taxes A third party may be your agent even if the third party is responsible for determining which employees are eligible to receive payments. Past year taxes For example, if a third party provides administrative services only, the third party is your agent. Past year taxes If the third party is paid an insurance premium and is not reimbursed on a cost-plus-fee basis, the third party is not your agent. Past year taxes Whether an insurance company or other third party is your agent depends on the terms of their agreement with you. Past year taxes   A third party that makes payments of sick pay as your agent is not considered the employer and generally has no responsibility for employment taxes. Past year taxes This responsibility remains with you. Past year taxes However, under an exception to this rule, the parties may enter into an agreement that makes the third-party agent responsible for employment taxes. Past year taxes In this situation, the third-party agent should use its own name and EIN (rather than your name and EIN) for the responsibilities that it has assumed. Past year taxes Third party not employer's agent. Past year taxes   A third party that makes payments of sick pay other than as an agent of the employer is liable for federal income tax withholding (if requested by the employee) and the employee part of the social security and Medicare taxes. Past year taxes   The third party is also liable for the employer part of the social security and Medicare taxes, and the FUTA tax, unless the third party transfers this liability to the employer for whom the employee normally works. Past year taxes This liability is transferred if the third party takes the following steps. Past year taxes Withholds the employee social security and Medicare taxes from the sick pay payments. Past year taxes Makes timely deposits of the employee social security and Medicare taxes. Past year taxes Notifies the employer for whom the employee normally works of the payments on which employee taxes were withheld and deposited. Past year taxes The third party must notify the employer within the time required for the third party's deposit of the employee part of the social security and Medicare taxes. Past year taxes For instance, if the third party is a monthly schedule depositor, it must notify the employer by the 15th day of the month following the month in which the sick pay payment is made because that is the day by which the deposit is required to be made. Past year taxes The third party should notify the employer as soon as information on payments is available so that an employer required to make electronic deposits can make them timely. Past year taxes For multi-employer plans, see the special rule discussed next. Past year taxes Multi-employer plan timing rule. Past year taxes   A special rule applies to sick pay payments made to employees by a third-party insurer under an insurance contract with a multi-employer plan established under a collectively bargained agreement. Past year taxes If the third-party insurer making the payments complies wi
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The Past Year Taxes

Past year taxes Publication 556 - Main Content Table of Contents Examination of ReturnsIf Your Return Is Examined Interest Netting Abatement of Interest Due to Error or Delay by the IRS Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Offer in Compromise Appeal RightsAppeal Within the IRS Appeals to the Courts Refund or Credit of Overpayments Before Final Determination Claims for RefundTime for Filing a Claim for Refund Limit on Amount of Refund Processing Claims for Refund Reduced Refund How To Get Tax Help Examination of Returns Your return may be examined for a variety of reasons, and the examination may take place in any one of several ways. Past year taxes After the examination, if any changes to your tax are proposed, you can either agree with those changes and pay any additional tax you may owe, or you can disagree with the changes and appeal the decision. Past year taxes Examination selection criteria. Past year taxes   Your return may be selected for examination on the basis of computer scoring. Past year taxes A computer program called the Discriminant Inventory Function System (DIF) assigns a numeric score to each individual and some corporate tax returns after they have been processed. Past year taxes If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability. Past year taxes   Your return may also be selected for examination on the basis of information received from third-party documentation, such as Forms 1099 and W-2, that does not match the information reported on your return. Past year taxes Or, your return may be selected to address both the questionable treatment of an item and to study the behavior of similar taxpayers (a market segment) in handling a tax issue. Past year taxes   In addition, your return may be selected as a result of information received from other sources on potential noncompliance with the tax laws or inaccurate filing. Past year taxes This information can come from a number of sources, including newspapers, public records, and individuals. Past year taxes The information is evaluated for reliability and accuracy before it is used as the basis of an examination or investigation. Past year taxes Notice of IRS contact of third parties. Past year taxes    The IRS must give you reasonable notice before contacting other persons about your tax matters. Past year taxes You must be given reasonable notice in advance that, in examining or collecting your tax liability, the IRS may contact third parties such as your neighbors, banks, employers, or employees. Past year taxes The IRS must also give you notice of specific contacts by providing you with a record of persons contacted on both a periodic basis and upon your request. Past year taxes    This provision does not apply: To any pending criminal investigation, When providing notice would jeopardize collection of any tax liability, Where providing notice may result in reprisal against any person, or When you authorized the contact. Past year taxes Taxpayer Advocate Service. Past year taxes   The Taxpayer Advocate Service is an independent organization within the IRS whose goal is to help taxpayers resolve problems with the IRS. Past year taxes If you have an ongoing issue with the IRS that has not been resolved through normal processes, or your problems with the IRS are causing financial difficulty, contact the Taxpayer Advocate Service. Past year taxes    Before contacting the Taxpayer Advocate Service, you should first discuss any problem with a supervisor. Past year taxes Your local Taxpayer Advocate will assist you if you are unable to resolve the problem with the supervisor. Past year taxes   For more information, see Publication 1546. Past year taxes See How To Get Tax Help , near the end of this publication, for more information about contacting the Taxpayer Advocate Service. Past year taxes Comments from small business. Past year taxes    The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards have been established to receive comments from small business about federal agency enforcement actions. Past year taxes The Ombudsman will annually evaluate the enforcement activities of each agency and rate their responsiveness to small business. Past year taxes If you wish to comment on the enforcement actions of the IRS, you can take any of the following steps. Past year taxes Fax your comments to 1-202-481-5719. Past year taxes Write to the following address: Office of the National Ombudsman U. Past year taxes S. Past year taxes Small Business Administration 409 3rd Street, SW Washington, DC 20416 Call 1-888-734-3247. Past year taxes Send an email to ombudsman@sba. Past year taxes gov. Past year taxes File a comment or complaint online at www. Past year taxes sba. Past year taxes gov/ombudsman. Past year taxes If Your Return Is Examined Some examinations are handled entirely by mail. Past year taxes Examinations not handled by mail can take place in your home, your place of business, an Internal Revenue office, or the office of your authorized representative. Past year taxes If the time, place, or method is not convenient for you, the examiner will try to work out something more suitable. Past year taxes However, the IRS makes the final determination of when, where, and how the examination will take place. Past year taxes Throughout the examination, you can act on your own behalf or have someone represent you or accompany you. Past year taxes If you filed a joint return, either you or your spouse, or both, can meet with the IRS. Past year taxes The person representing you can be any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled agent (a person enrolled to practice before the IRS), an enrolled actuary, or the person who prepared the return and signed it as the preparer. Past year taxes If you want someone to represent you in your absence, you must furnish that person with proper written authorization. Past year taxes You can use Form 2848 or any other properly written authorization. Past year taxes If you want to consult with an attorney, a certified public accountant, an enrolled agent, or any other person permitted to represent a taxpayer during an interview for examining a tax return or collecting tax, you should make arrangements with that person to be available for the interview. Past year taxes In most cases, the IRS must suspend the interview and reschedule it. Past year taxes The IRS cannot suspend the interview if you are there because of an administrative summons. Past year taxes Third party authorization. Past year taxes   If you checked the box in the signature area of your income tax return (Form 1040, Form 1040A, or Form 1040EZ) to allow the IRS to discuss your return with another person (a third party designee), this authorization does not replace Form 2848. Past year taxes The box you checked on your return only authorizes the other person to receive information about the processing of your return and the status of your refund during the period your return is being processed. Past year taxes For more information, see the instructions for your return. Past year taxes Confidentiality privilege. Past year taxes   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. Past year taxes   Confidential communications are those that: Advise you on tax matters within the scope of the practitioner's authority to practice before the IRS, Would be confidential between an attorney and you, and Relate to noncriminal tax matters before the IRS, or Relate to noncriminal tax proceedings brought in federal court by or against the United States. Past year taxes   In the case of communications in connection with the promotion of a person's participation in a tax shelter, the confidentiality privilege does not apply to written communications between a federally authorized practitioner and that person, any director, officer, employee, agent, or representative of that person, or any other person holding a capital or profits interest in that person. Past year taxes   A tax shelter is any entity, plan, or arrangement, a significant purpose of which is the avoidance or evasion of income tax. Past year taxes Recordings. Past year taxes    You can make an audio recording of the examination interview. Past year taxes Your request to record the interview should be made in writing. Past year taxes You must notify the examiner 10 days in advance and bring your own recording equipment. Past year taxes The IRS also can record an interview. Past year taxes If the IRS initiates the recording, you must be notified 10 days in advance and you can get a copy of the recording at your expense. Past year taxes Transfers to another area. Past year taxes    Generally, your return is examined in the area where you live. Past year taxes But if your return can be examined more quickly and conveniently in another area, such as where your books and records are located, you can ask to have the case transferred to that area. Past year taxes Repeat examinations. Past year taxes    The IRS tries to avoid repeat examinations of the same items, but sometimes this happens. Past year taxes If your tax return was examined for the same items in either of the 2 previous years and no change was proposed to your tax liability, please contact the IRS as soon as possible to see if the examination should be discontinued. Past year taxes The Examination An examination usually begins when you are notified that your return has been selected. Past year taxes The IRS will tell you which records you will need. Past year taxes The examination can proceed more easily if you gather your records before any interview. Past year taxes Any proposed changes to your return will be explained to you or your authorized representative. Past year taxes It is important that you understand the reasons for any proposed changes. Past year taxes You should not hesitate to ask about anything that is unclear to you. Past year taxes The IRS must follow the tax laws set forth by Congress in the Internal Revenue Code. Past year taxes The IRS also follows Treasury Regulations, other rules, and procedures that were written to administer the tax laws and court decisions. Past year taxes However, the IRS can lose cases that involve taxpayers with the same issue and still apply its interpretation of the law to your situation. Past year taxes Most taxpayers agree to changes proposed by examiners, and the examinations are closed at this level. Past year taxes If you do not agree, you can appeal any proposed change by following the procedures provided to you by the IRS. Past year taxes A more complete discussion of appeal rights is found later under Appeal Rights . Past year taxes If You Agree If you agree with the proposed changes, you can sign an agreement form and pay any additional tax you may owe. Past year taxes You must pay interest on any additional tax. Past year taxes If you pay when you sign the agreement, the interest is generally figured from the due date of your return (excluding any extension of time to file) to the date of your payment. Past year taxes If you do not pay the additional tax when you sign the agreement, you will receive a bill that includes interest. Past year taxes If you pay the amount due within 10 business days of the billing date, you will not have to pay more interest or penalties. Past year taxes This period is extended to 21 calendar days if the amount due is less than $100,000. Past year taxes If you are due a refund, you will receive it sooner if you sign the agreement form. Past year taxes You will be paid interest on the refund. Past year taxes If the IRS accepts your tax return as filed, you will receive a letter in a few weeks stating that the examiner proposed no changes to your return. Past year taxes You should keep this letter with your tax records. Past year taxes If You Do Not Agree If you do not agree with the proposed changes, the examiner will explain your appeal rights. Past year taxes If your examination takes place in an IRS office, you can request an immediate meeting with the examiner's supervisor to explain your position. Past year taxes If an agreement is reached, your case will be closed. Past year taxes If you cannot reach an agreement with the supervisor at this meeting, or if the examination took place outside of an IRS office, the examiner will write up your case explaining your position and the IRS's position. Past year taxes The examiner will forward your case for processing. Past year taxes Fast track mediation. Past year taxes   The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from: Examinations (audits), Offers in compromise, Trust fund recovery penalties, and Other collection actions. Past year taxes   Most cases that are not docketed in any court qualify for fast track mediation. Past year taxes Mediation can take place at a conference you request with a supervisor, or later. Past year taxes The process involves an Appeals Officer who has been trained in mediation. Past year taxes You may represent yourself at the mediation session, or someone else can act as your representative. Past year taxes For more information, see Publication 3605. Past year taxes 30-day letter and 90-day letter. Past year taxes   Within a few weeks after your closing conference with the examiner and/or supervisor, you will receive a package with: A letter (known as a 30-day letter) notifying you of your right to appeal the proposed changes within 30 days, A copy of the examination report explaining the examiner's proposed changes, An agreement or waiver form, and A copy of Publication 5. Past year taxes You generally have 30 days from the date of the 30-day letter to tell the IRS whether you will accept or appeal the proposed changes. Past year taxes The letter will explain what steps you should take, depending on which action you choose. Past year taxes Be sure to follow the instructions carefully. Past year taxes Appeal Rights are explained later. Past year taxes 90-day letter. Past year taxes   If you do not respond to the 30-day letter, or if you later do not reach an agreement with an Appeals Officer, the IRS will send you a 90-day letter, which is also known as a notice of deficiency. Past year taxes You will have 90 days (150 days if it is addressed to you outside the United States) from the date of this notice to file a petition with the Tax Court. Past year taxes Filing a petition with the Tax Court is discussed later under Appeals to the Courts and Tax Court . Past year taxes The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. Past year taxes Suspension of interest and penalties. Past year taxes   Generally, the IRS has 3 years from the date you filed your return (or the date the return was due, if later) to assess any additional tax. Past year taxes However, if you file your return timely (including extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you, stating your liability and the basis for that liability, within a 36-month period beginning on the later of: The date on which you filed your tax return, or The due date (without extensions) of your tax return. Past year taxes If the IRS mails a notice after the 36-month period, interest and certain penalties applicable to the suspension period will be suspended. Past year taxes   The suspension period begins the day after the close of the 36-month period and ends 21 days after the IRS mails a notice to you stating your liability and the basis for that liability. Past year taxes Also, the suspension period applies separately to each notice stating your liability and the basis for that liability received by you. Past year taxes    The suspension does not apply to a: Failure-to-pay penalty, Fraudulent tax return, Penalty, interest, addition to tax, or additional amount with respect to any tax liability shown on your return or with respect to any gross misstatement, Penalty, interest, addition to tax, or additional amount with respect to any reportable transaction that is not adequately disclosed or any listed transaction, or Criminal penalty. Past year taxes Seeking relief from improperly assessed interest. Past year taxes   You can seek relief if interest is assessed for periods during which interest should have been suspended because the IRS did not mail a notice to you in a timely manner. Past year taxes   If you believe that interest was assessed with respect to a period during which interest should have been suspended, submit Form 843, writing “Section 6404(g) Notification” at the top of the form, with the IRS Service Center where you filed your return. Past year taxes The IRS will review the Form 843 and notify you whether interest will be abated. Past year taxes If the IRS does not abate interest, you can pay the disputed interest assessment and file a claim for refund. Past year taxes If your claim is denied or not acted upon within 6 months from the date you filed it, you can file suit for a refund in your United States District Court or in the United States Court of Federal Claims. Past year taxes   If you believe that an IRS officer or employee has made an unreasonable error or delay in performing a ministerial or managerial act (discussed later under Abatement of Interest Due to Error or Delay by the IRS ), file Form 843 with the IRS Service Center where you filed the tax return. Past year taxes If the IRS denies your claim, the Tax Court may be able to review that determination. Past year taxes See Tax Court can review failure to abate interest later under Abatement of Interest Due to Error or Delay by the IRS . Past year taxes If you later agree. Past year taxes    If you agree with the examiner's changes after receiving the examination report or the 30-day letter, sign and return either the examination report or the waiver form. Past year taxes Keep a copy for your records. Past year taxes You can pay any additional amount you owe without waiting for a bill. Past year taxes Include interest on the additional tax at the applicable rate. Past year taxes This interest rate is usually for the period from the due date of the return (excluding any extension of time to file) to the date of payment. Past year taxes The examiner can tell you the interest rate(s) or help you figure the amount. Past year taxes   You must pay interest on penalties and additions to tax for failing to file returns, for overstating valuations, for understating valuations on estate and gift tax returns, and for substantially understating tax liability. Past year taxes Interest is generally figured from the date (including extensions) the tax return is required to be filed to the date you pay the penalty and/or additions to tax. Past year taxes   If you pay the amount due within 10 business days after the date of notice and demand for immediate payment, you will not have to pay any additional penalties and interest. Past year taxes This period is extended to 21 calendar days if the amount due is less than $100,000. Past year taxes How To Stop Interest From Accruing If you think that you will owe additional tax at the end of the examination, you can stop the further accrual of interest by sending money to the IRS to cover all or part of the amount you think you will owe. Past year taxes Interest on part or all of any amount you owe will stop accruing on the date the IRS receives your money. Past year taxes You can send an amount either in the form of a deposit in the nature of a cash bond or as a payment of tax. Past year taxes Both a deposit and a payment stop any further accrual of interest. Past year taxes However, making a deposit or payment will stop the accrual of interest on only the amount you sent. Past year taxes Because of compounding rules, interest will continue to accrue on accrued interest, even though you have paid the underlying tax. Past year taxes To stop the accrual of interest on both tax and interest, you must make a deposit or payment for both the tax and interest that has accrued as of the date of deposit or payment. Past year taxes Payment or Deposit Deposits differ from payments in two ways: You can have all or part of your deposit returned to you without filing for a refund. Past year taxes However, if you request and receive your deposit and the IRS later assesses a deficiency for that period and type of tax, interest will be figured as if the funds were never on deposit. Past year taxes Also, your deposit will not be returned if one of the following situations applies: The IRS assesses a tax liability. Past year taxes The IRS determines that, by returning the deposit, it may not be able to collect a future deficiency. Past year taxes The IRS determines that the deposit should be applied against another tax liability. Past year taxes Deposits returned to you will include interest based on the Federal short-term rate determined under section 6621(b). Past year taxes The deposit returned will be treated as a tax payment to the extent of the disputed tax. Past year taxes A disputed tax means the amount of tax specified at the time of deposit as a reasonable estimate of the maximum amount of any tax owed by you, such as the deficiency proposed in the 30-day letter. Past year taxes Notice not mailed. Past year taxes    If you send money before the IRS mails you a notice of deficiency, you can ask the IRS to treat it as a deposit. Past year taxes You must make your request in writing. Past year taxes   If, after being notified of a proposed liability but before the IRS mails you a notice of deficiency, you send an amount large enough to cover the proposed liability, it will be considered a payment unless you request in writing that it be treated as a deposit. Past year taxes Keep copies of all correspondence you send to the IRS. Past year taxes   If the amount you send is at least as much as the proposed liability and you do not request that it be treated as a deposit, the IRS will not send you a notice of deficiency. Past year taxes If you do not receive a notice of deficiency, you cannot take your case to the Tax Court. Past year taxes See Tax Court , later under Appeal Rights . Past year taxes Notice mailed. Past year taxes    If, after the IRS mails the notice of deficiency, you send money without written instructions, it will be treated as a payment. Past year taxes You will still be able to petition the Tax Court. Past year taxes   If you send money after receiving a notice of deficiency and you have specified in writing that it is a “deposit in the nature of a cash bond,” the IRS will treat it as a deposit if you send it before either: The close of the 90-day or 150-day period for filing a petition with the Tax Court to appeal the deficiency, or The date the Tax Court decision is final, if you have filed a petition. Past year taxes Using a Deposit To Pay the Tax If you agree with the examiner's proposed changes after the examination, your deposit will be applied against any amount you may owe. Past year taxes The IRS will not mail you a notice of deficiency and you will not have the right to take your case to the Tax Court. Past year taxes If you do not agree to the full amount of the deficiency after the examination, the IRS will mail you a notice of deficiency. Past year taxes Your deposit will be applied against the proposed deficiency unless you write to the IRS before the end of the 90-day or 150-day period stating that you still want the money to be treated as a deposit. Past year taxes You will still have the right to take your case to the Tax Court. Past year taxes Installment Agreement Request You can request a monthly installment plan if you cannot pay the full amount you owe. Past year taxes To be valid, your request must be approved by the IRS. Past year taxes However, if you owe $10,000 or less in tax and you meet certain other criteria, the IRS must accept your request. Past year taxes Before you request an installment agreement, you should consider other less costly alternatives, such as a bank loan. Past year taxes You will continue to be charged interest and penalties on the amount you owe until it is paid in full. Past year taxes Unless your income is below a certain level, the fee for an approved installment agreement has increased to $105 ($52 if you make your payments by electronic funds withdrawal). Past year taxes If your income is below a certain level, you may qualify to pay a reduced fee of $43. Past year taxes For more information about installment agreements, see Form 9465, Installment Agreement Request. Past year taxes Interest Netting If you owe interest to the IRS on an underpayment for the same period the IRS owes you interest on an overpayment, the IRS will figure interest on the underpayment and overpayment at the same interest rate (up to the amount of the overpayment). Past year taxes As a result, the net rate is zero for that period. Past year taxes Abatement of Interest Due to Error or Delay by the IRS The IRS may abate (reduce) the amount of interest you owe if the interest is due to an unreasonable error or delay by an IRS officer or employee in performing a ministerial or managerial act (discussed later). Past year taxes Only the amount of interest on income, estate, gift, generation-skipping, and certain excise taxes can be reduced. Past year taxes The amount of interest will not be reduced if you or anyone related to you contributed significantly to the error or delay. Past year taxes Also, the interest will be reduced only if the error or delay happened after the IRS contacted you in writing about the deficiency or payment on which the interest is based. Past year taxes An audit notification letter is such a contact. Past year taxes The IRS cannot reduce the amount of interest due to a general administrative decision, such as a decision on how to organize the processing of tax returns. Past year taxes Ministerial act. Past year taxes    This is a procedural or mechanical act, not involving the exercise of judgment or discretion, during the processing of a case after all prerequisites (for example, conferences and review by supervisors) have taken place. Past year taxes A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act. Past year taxes Example 1. Past year taxes You move from one state to another before the IRS selects your tax return for examination. Past year taxes A letter stating that your return has been selected is sent to your old address and then forwarded to your new address. Past year taxes When you get the letter, you respond with a request that the examination be transferred to the area office closest to your new address. Past year taxes The examination group manager approves your request. Past year taxes After your request has been approved, the transfer is a ministerial act. Past year taxes The IRS can reduce the interest because of any unreasonable delay in transferring the case. Past year taxes Example 2. Past year taxes An examination of your return reveals tax due for which a notice of deficiency (90-day letter) will be issued. Past year taxes After you and the IRS discuss the issues, the notice is prepared and reviewed. Past year taxes After the review process, issuing the notice of deficiency is a ministerial act. Past year taxes If there is an unreasonable delay in sending the notice of deficiency to you, the IRS can reduce the interest resulting from the delay. Past year taxes Managerial act. Past year taxes    This is an administrative act during the processing of a case that involves the loss of records or the exercise of judgment or discretion concerning the management of personnel. Past year taxes A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. Past year taxes Example. Past year taxes A revenue agent is examining your tax return. Past year taxes During the middle of the examination, the agent is sent to an extended training course. Past year taxes The agent's supervisor decides not to reassign your case, so the work is unreasonably delayed until the agent returns. Past year taxes Interest from the unreasonable delay can be abated since both the decision to send the agent to the training class and not to reassign the case are managerial acts. Past year taxes How to request abatement of interest. Past year taxes    You request an abatement (reduction) of interest on Form 843. Past year taxes You should file the claim with the IRS Service Center where you filed the tax return that was affected by the error or delay. Past year taxes   If you have already paid the interest and you would like a credit or refund of interest paid, you must file Form 843 within 3 years from the date you filed your original return or 2 years from the date you paid the interest, whichever is later. Past year taxes If you have not paid any of the interest, these time limitations for filing Form 843 do not apply. Past year taxes   Generally, you should file a separate Form 843 for each tax period and each type of tax. Past year taxes However, complete only one Form 843 if the interest is from an IRS error or delay that affected your tax for more than one tax period or for more than one type of tax (for example, where 2 or more tax years were being examined). Past year taxes   If your request for abatement of interest is denied, you can appeal the decision to the IRS Appeals Office. Past year taxes Tax Court can review failure to abate interest. Past year taxes    The Tax Court can review the IRS's refusal to abate (reduce) interest if all of the following requirements are met: You filed a request for abatement of interest (Form 843) with the IRS after July 30,1996. Past year taxes The IRS has mailed you a notice of final determination or a notice of disallowance. Past year taxes You file a petition with the Tax Court within 180 days of the mailing of the notice of final determination or the notice of disallowance. Past year taxes   The following requirements must also be met: For individual and estate taxpayers — your net worth must not exceed $2 million as of the filing date of your petition for review. Past year taxes For this purpose, individuals filing a joint return shall be treated as separate individuals. Past year taxes For charities and certain cooperatives — you must not have more than 500 employees as of the filing date of your petition for review. Past year taxes For all other taxpayers — your net worth must not exceed $7 million, and you must not have more than 500 employees as of the filing date of your petition for review. Past year taxes Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions If you are (or were) affected by a Presidentially declared disaster occurring after 1996 or a terrorist or military action occurring after September 10, 2001, the IRS may abate (reduce) the amount of interest you owe on certain taxes. Past year taxes The IRS may abate interest for the period of any additional time to file or pay that the IRS provides on account of the disaster or the terrorist or military action. Past year taxes The IRS will issue a notice or news release indicating who are affected taxpayers and stating the period of relief. Past year taxes If you are eligible for relief from interest, but were charged interest for the period of relief, the IRS may retroactively abate your interest. Past year taxes To the extent possible, the IRS can take the following actions: Make appropriate adjustments to your account. Past year taxes Notify you when the adjustments are made. Past year taxes Refund any interest paid by you where appropriate. Past year taxes For more information on disaster area losses, see Disaster Area Losses in Publication 547. Past year taxes For more information on other tax relief for victims of terrorist attacks, see Publication 3920. Past year taxes Offer in Compromise In certain circumstances, the IRS will allow you to pay less than the full amount you owe. Past year taxes If you think you may qualify, you should submit your offer by filing Form 656, Offer in Compromise. Past year taxes The IRS may accept your offer for any of the following reasons: There is doubt about the amount you owe (or whether you owe it). Past year taxes There is doubt as to whether you can pay the amount you owe based on your financial situation. Past year taxes An economic hardship would result if you had to pay the full amount owed. Past year taxes Your case presents compelling reasons that the IRS determines are a sufficient basis for compromise. Past year taxes If your offer is rejected, you have 30 days to ask the Appeals Office of the IRS to reconsider your offer. Past year taxes The IRS offers fast track mediation services to help taxpayers resolve many issues including a dispute regarding an offer in compromise. Past year taxes For more information, see Publication 3605. Past year taxes Generally, if you submit an offer in compromise, the IRS will delay certain collection activities. Past year taxes The IRS usually will not levy (take) your property to settle your tax bill during the following periods: While the IRS is evaluating your offer in compromise. Past year taxes The 30 days immediately after the offer is rejected. Past year taxes While your timely-filed appeal is being considered by Appeals. Past year taxes Also, if the IRS rejects your original offer and you submit a revised offer within 30 days of the rejection, the IRS generally will not levy your property while it considers your revised offer. Past year taxes For more information about submitting an offer in compromise, see Form 656. Past year taxes Appeal Rights Because people sometimes disagree on tax matters, the IRS has an appeals system. Past year taxes Most differences can be settled within this system without expensive and time-consuming court trials. Past year taxes However, your reasons for disagreeing must come within the scope of the tax laws. Past year taxes For example, you cannot appeal your case based only on moral, religious, political, constitutional, conscientious, or similar grounds. Past year taxes In most instances, you may be eligible to take your case to court if you do not reach an agreement at your appeals conference, or if you do not want to appeal your case to the IRS Office of Appeals. Past year taxes See Appeals to the Courts , later, for more information. Past year taxes Appeal Within the IRS You can appeal an IRS tax decision to a local Appeals Office, which is separate from and independent of the IRS office taking the action you disagree with. Past year taxes The Appeals Office is the only level of appeal within the IRS. Past year taxes Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference. Past year taxes If you want an appeals conference, follow the instructions in the letter you received. Past year taxes Your request will be sent to the Appeals Office to arrange a conference at a convenient time and place. Past year taxes You or your representative should be prepared to discuss all disputed issues at the conference. Past year taxes Most differences are settled at this level. Past year taxes If agreement is not reached at your appeals conference, you may be eligible to take your case to court. Past year taxes See Appeals to the Courts , later. Past year taxes Protests and Small Case Requests When you request an Appeals conference, you may also need to file either a formal written protest or a small case request with the office named in the letter you received. Past year taxes Also, see the special appeal request procedures in Publication 1660. Past year taxes Written protest. Past year taxes   You need to file a written protest in the following cases: All employee plan and exempt organization cases without regard to the dollar amount at issue. Past year taxes All partnership and S corporation cases without regard to the dollar amount at issue. Past year taxes All other cases, unless you qualify for the small case request procedure, or other special appeal procedures such as requesting Appeals consideration of liens, levies, seizures, or installment agreements. Past year taxes   If you must submit a written protest, see the instructions in Publication 5 about the information you need to provide. Past year taxes The IRS urges you to provide as much information as you can, as it will help speed up your appeal. Past year taxes That will save you both time and money. Past year taxes    Be sure to send the protest within the time limit specified in the letter you received. Past year taxes Small case request. Past year taxes   If the total amount for any tax period is not more than $25,000, you may make a small case request instead of filing a formal written protest. Past year taxes In figuring the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund. Past year taxes If you are making an offer in compromise, include total unpaid tax, penalty, and interest due. Past year taxes For a small case request, follow the instructions in our letter to you by sending a letter: Requesting Appeals consideration, Indicating the changes you do not agree with, and Indicating the reasons why you do not agree. Past year taxes Representation You can represent yourself at your appeals conference, or you can be represented by any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled actuary, or an enrolled agent. Past year taxes If your representative attends a conference without you, he or she can receive or inspect confidential information only if you have filed a power of attorney or a tax information authorization. Past year taxes You can use a Form 2848 or any other properly written power of attorney or authorization. Past year taxes You can also bring witnesses to support your position. Past year taxes Confidentiality privilege. Past year taxes   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. Past year taxes See Confidentiality privilege under If Your Return Is Examined , earlier. Past year taxes Appeals to the Courts If you and the IRS still disagree after the appeals conference, you may be entitled to take your case to the United States Tax Court, the United States Court of Federal Claims, or a United States District Court. Past year taxes These courts are independent of the IRS. Past year taxes If you elect to bypass the IRS's appeals system, you may be able to take your case to one of the courts listed above. Past year taxes However, a case petitioned to the United States Tax Court will normally be considered for settlement by an Appeals Officer before the Tax Court hears the case. Past year taxes If you unreasonably fail to pursue the IRS's appeals system, or if your case is intended primarily to cause a delay, or your position is frivolous or groundless, the Tax Court may impose a penalty of up to $25,000. Past year taxes See Appeal Within the IRS, earlier. Past year taxes Prohibition on requests to taxpayers to give up rights to bring civil action. Past year taxes   The Government cannot ask you to waive your right to sue the United States or a Government officer or employee for any action taken in connection with the tax laws. Past year taxes However, your right to sue can be waived if: You knowingly and voluntarily waive that right, The request to waive that right is made in writing to your attorney or other federally authorized practitioner, or The request is made in person and your attorney or other representative is present. Past year taxes Burden of proof. Past year taxes   For court proceedings resulting from examinations started after July 22, 1998, the IRS generally has the burden of proof for any factual issue if you have met the following requirements: You introduced credible evidence relating to the issue. Past year taxes You complied with all substantiation requirements of the Internal Revenue Code. Past year taxes You maintained all records required by the Internal Revenue Code. Past year taxes You cooperated with all reasonable requests by the IRS for information regarding the preparation and related tax treatment of any item reported on your tax return. Past year taxes You had a net worth of $7 million or less and not more than 500 employees at the time your tax liability is contested in any court proceeding if your tax return is for a corporation, partnership, or trust. Past year taxes    The burden of proof does not change on an issue when another provision of the tax laws requires a specific burden of proof with respect to that issue. Past year taxes Use of statistical information. Past year taxes   In the case of an individual, the IRS has the burden of proof in court proceedings based on any IRS reconstruction of income solely through the use of statistical information on unrelated taxpayers. Past year taxes Penalties. Past year taxes   The IRS has the burden of initially producing evidence in court proceedings with respect to the liability of any individual taxpayer for any penalty, addition to tax, or additional amount imposed by the tax laws. Past year taxes Recovering litigation or administrative costs. Past year taxes   These are the expenses that you pay to defend your position to the IRS or the courts. Past year taxes You may be able to recover reasonable litigation or administrative costs if all of the following conditions apply: You are the prevailing party. Past year taxes You exhaust all administrative remedies within the IRS. Past year taxes Your net worth is below a certain limit (see Net worth requirements , later). Past year taxes You do not unreasonably delay the proceeding. Past year taxes You apply for administrative costs within 90 days of the date on which the final decision of the IRS Office of Appeals as to the determination of the tax, interest, or penalty was mailed to you. Past year taxes You apply for litigation costs within the time frames provided by Tax Court Rule 231, found at http://www. Past year taxes ustaxcourt. Past year taxes gov  www. Past year taxes ustaxcourt. Past year taxes gov . Past year taxes   Prevailing party, reasonable litigation costs, and reasonable administrative costs are explained later. Past year taxes Note. Past year taxes If the IRS denies your award of administrative costs, and you want to appeal, you must petition the Tax Court within 90 days of the date on which the IRS mails the denial notice. Past year taxes Prevailing party. Past year taxes   Generally, you are the prevailing party if: You substantially prevail with respect to the amount in controversy or on the most significant tax issue or set of issues in question, and You meet the net worth requirements, discussed later. Past year taxes   You will not be treated as the prevailing party if the United States establishes that its position was substantially justified. Past year taxes The position of the United States is presumed not to be substantially justified if the IRS: Did not follow its applicable published guidance (such as regulations, revenue rulings, notices, announcements, private letter rulings, technical advice memoranda, and determination letters issued to the taxpayer) in the proceeding (This presumption can be overcome by evidence. Past year taxes ), or Has lost in courts of appeal for other circuits on substantially similar issues. Past year taxes   The court will generally decide who is the prevailing party. Past year taxes Reasonable litigation costs. Past year taxes   These include the following costs: Reasonable court costs. Past year taxes The reasonable costs of studies, analyses, engineering reports, tests, or projects found by the court to be necessary for the preparation of your case. Past year taxes The reasonable costs of expert witnesses. Past year taxes Attorney fees that generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. Past year taxes See Attorney fees , later. Past year taxes Reasonable administrative costs. Past year taxes   These include the following costs: Any administrative fees or similar charges imposed by the IRS. Past year taxes The reasonable costs of studies, analyses, engineering reports, tests, or projects. Past year taxes The reasonable costs of expert witnesses. Past year taxes Attorney fees that generally may not exceed $125 per hour. Past year taxes See Attorney fees , later. Past year taxes Timing of costs. Past year taxes    Administrative costs can be awarded for costs incurred after the earliest of: The date the first letter of proposed deficiency is sent that allows you an opportunity to request administrative review in the IRS Office of Appeals, The date you receive notice of the IRS Office of Appeals' decision, or The date of the notice of deficiency. Past year taxes Net worth requirements. Past year taxes   An individual taxpayer may be able to recover litigation or administrative costs if the following requirements are met: For individuals — your net worth does not exceed $2 million as of the filing date of your petition for review. Past year taxes For this purpose, individuals filing a joint return are treated as separate individuals. Past year taxes For estates — your net worth does not exceed $2 million as of the date of the decedent's death. Past year taxes For charities and certain cooperatives — you do not have more than 500 employees as of the filing date of your petition for review. Past year taxes For all other taxpayers — as of the filing date of your petition for review, your net worth does not exceed $7 million, and you must not have more than 500 employees. Past year taxes Qualified offer rule. Past year taxes    You can also receive reasonable costs and fees and be treated as a prevailing party in a civil action or proceeding if: You make a qualified offer to the IRS to settle your case, The IRS does not accept that offer, and The tax liability (not including interest, unless interest is at issue) later determined by the court is equal to or less than the amount of your qualified offer. Past year taxes You must also meet the remaining requirements, including the exhaustion of administrative remedies and the net worth requirement, discussed earlier, to get the benefit of the qualified offer rule. Past year taxes Qualified offer. Past year taxes    This is a written offer made by you during the qualified offer period. Past year taxes It must specify both the offered amount of your liability (not including interest) and that it is a qualified offer. Past year taxes   To be a qualified offer, it must remain open from the date it is made until the earliest of: The date it is rejected, The date the trial begins, or 90 days from the date it is made. Past year taxes Qualified offer period. Past year taxes    This period begins on the day the IRS mails you the first letter of proposed deficiency that allows you to request review by the IRS Office of Appeals. Past year taxes It ends 30 days before your case is first set for trial. Past year taxes Attorney fees. Past year taxes   Attorney fees generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. Past year taxes However, this amount can be higher in certain limited circumstances depending on the level of difficulty of the issues in the case and the local availability of tax expertise. Past year taxes See IRS. Past year taxes gov for more information. Past year taxes    Attorney fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or before the IRS. Past year taxes In addition, attorney fees can be awarded in civil actions for unauthorized inspection or disclosure of a taxpayer's return or return information. Past year taxes   Fees can be awarded in excess of the actual amount charged if: You are represented for no fee, or for a nominal fee, as a pro bono service, and The award is paid to your representative or to your representative's employer. Past year taxes Jurisdiction for determination of employment status. Past year taxes    The Tax Court can review IRS employment status determinations (for example, whether individuals hired by you are in fact your employees or independent contractors) and the amount of employment tax under such determinations. Past year taxes Tax Court review can take place only if, in connection with an audit of any person, there is a controversy involving a determination by the IRS that either: One or more individuals performing services for that person are employees of that person, or That person is not entitled to relief under Section 530(a) of the Revenue Act of 1978 (discussed later). Past year taxes   The following rules also apply to a Tax Court review of employment status: A Tax Court petition to review these determinations can be filed only by the person for whom the services are performed, If you receive a Notice of Determination by certified or registered mail, you must file a petition for Tax Court review within 90 days of the date of mailing that notice (150 days if the notice is addressed to you outside the United States), If during the Tax Court proceeding, you begin to treat as an employee an individual whose employment status is at issue, the Tax Court will not consider that change in its decision, Assessment and collection of tax is suspended while the Tax Court review is taking place, Payment of the asserted employment tax deficiency is not required to petition the U. Past year taxes S. Past year taxes Tax Court for a determination of employment status. Past year taxes There can be a de novo review by the Tax Court (a review which does not consider IRS administrative findings), and At your request and with the Tax Court's agreement, small tax case procedures (discussed later) are available to simplify the case resolution process when the amount at issue (including additions to tax and penalties) is $50,000 or less for each tax period involved. Past year taxes   For further information, see Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436. Past year taxes Section 530(a) of the Revenue Act of 1978. Past year taxes   This section relieves an employer of certain employment tax responsibilities for individuals not treated as employees. Past year taxes It also provides relief to taxpayers under audit or involved in administrative or judicial proceedings. Past year taxes Tax Court review of request for relief from joint and several liability on a joint return. Past year taxes    As discussed later, at Relief from joint and several liability on a joint return under Claims for Refund, you can request relief from liability for tax you owe, plus related penalties and interest, that you believe should be paid by your spouse (or former spouse). Past year taxes You also can petition (ask) the Tax Court to review your request for innocent spouse relief or separation of liability if either: The IRS sends you a determination notice denying, in whole or in part, your request, or You do not receive a determination notice from the IRS within 6 months from the date you file Form 8857. Past year taxes   If you receive a determination notice, you must petition the Tax Court to review your request during the 90-day period that begins on the date the IRS mails the notice. Past year taxes See Publication 971 for more information. Past year taxes Note. Past year taxes Your spouse or former spouse may file a written protest and request an Appeals conference to protest your claim of innocent spouse relief or separation of liability. Past year taxes See Rev. Past year taxes Proc. Past year taxes 2003-19, which is on page 371 of the Internal Revenue Bulletin 2003-5 at  www. Past year taxes irs. Past year taxes gov/pub/irs-irbs/irb03-05. Past year taxes pdf. Past year taxes Tax Court You can take your case to the United States Tax Court if you disagree with the IRS over: Income tax, Estate tax, Gift tax, Employment tax involving IRS employment status determinations, or Certain excise taxes of private foundations, public charities, qualified pension and other retirement plans, or real estate investment trusts. Past year taxes For information on Tax Court review of a determination of employment status, see Jurisdiction for determination of employment status, earlier. Past year taxes For information on Tax Court review of an IRS refusal to abate interest, see Tax Court can review failure to abate interest, earlier under Examination of Returns. Past year taxes For information on Tax Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660. Past year taxes You cannot take your case to the Tax Court before the IRS sends you a notice of deficiency. Past year taxes You can only appeal your case if you file a petition within 90 days from the date the notice is mailed to you (150 days if it is addressed to you outside the United States). Past year taxes The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. Past year taxes Withdrawal of notice of deficiency. Past year taxes If you consent, the IRS can withdraw a notice of deficiency. Past year taxes A notice of deficiency may be rescinded if the notice was issued as a result of an administrative error; the taxpayer submits information establishing the actual tax due is less than the amount shown in the notice; the taxpayer specifically requests a conference with the appropriate Appeals office for the purpose of entering into settlement negotiations. Past year taxes However, the notice may be rescinded only if the appropriate Appeals office first decides that the case is susceptible to agreement. Past year taxes See Revenue Procedure 98-54 for a more detailed explanation of the requirements. Past year taxes Once withdrawn, the limits on credits, refunds, and assessments concerning the notice are void, and you and the IRS have the rights and obligations that you had before the notice was issued. Past year taxes The suspension of any time limitation while the notice of deficiency was issued will not change when the notice is withdrawn. Past year taxes After the notice is withdrawn, you cannot file a petition with the Tax Court based on the notice. Past year taxes Also, the IRS can later issue a notice of deficiency in a greater or lesser amount than the amount in the withdrawn deficiency. Past year taxes Generally, the Tax Court hears cases before any tax has been assessed and paid; however, you can pay the tax after the notice of deficiency has been issued and still petition the Tax Court for review. Past year taxes If you do not file your petition on time, the proposed tax will be assessed, a bill will be sent, and you will not be able to take your case to the Tax Court. Past year taxes Under the law, you must pay the tax within 21 days (10 business days if the amount is $100,000 or more). Past year taxes Collection can proceed even if you think that the amount is excessive. Past year taxes Publication 594 explains IRS collection procedures. Past year taxes If you filed your petition on time, the court will schedule your case for trial at a location convenient to you. Past year taxes You can represent yourself before the Tax Court or you can be represented by anyone admitted to practice before that court. Past year taxes Small tax case procedure. Past year taxes   If the amount in your case is $50,000 or less for any 1 tax year or period, you can request that your case be handled under the small tax case procedure. Past year taxes If the Tax Court approves, you can present your case to the Tax Court for a decision that is final and that you cannot appeal. Past year taxes You can get more information regarding the small tax case procedure and other Tax Court matters from the United States Tax Court, 400 Second Street, N. Past year taxes W. Past year taxes , Washington, DC 20217. Past year taxes More information can be found on the Tax Court's website at www. Past year taxes ustaxcourt. Past year taxes gov. Past year taxes Motion to request redetermination of interest. Past year taxes   In certain cases, you can file a motion asking the Tax Court to redetermine the amount of interest on either an underpayment or an overpayment. Past year taxes You can do this only in a situation that meets all of the following requirements: The IRS has assessed a deficiency that was determined by the Tax Court. Past year taxes The assessment included interest. Past year taxes You have paid the entire amount of the deficiency plus the interest claimed by the IRS. Past year taxes The Tax Court has found that you made an overpayment. Past year taxes You must file the motion within one year after the decision of the Tax Court becomes final. Past year taxes District Court and Court of Federal Claims Generally, the District Courts and the Court of Federal Claims hear tax cases only after you have paid the entire tax and penalties, and filed a claim for a credit or refund. Past year taxes The taxpayer may litigate certain types of employment tax cases in either the United States District Court or the United States Court of Federal Claims. Past year taxes Before taxpayers can initiate suit in either of these courts with respect to certain employment taxes, they will have to pay, at a minimum, the employment tax assessment attributable to one employee for any one quarter and file a claim for refund of the tax. Past year taxes Once the claim for refund is denied or 6 months elapse without any action by the IRS, the taxpayer may initiate suit. Past year taxes As explained later under Claims for Refund, you can file a claim with the IRS for a credit or refund if you think that the tax you paid is incorrect or excessive. Past year taxes If your claim is totally or partially disallowed by the IRS, you should receive a notice of claim disallowance. Past year taxes If the IRS does not act on your claim within 6 months from the date you filed it, you can then file suit for a refund. Past year taxes You generally must file suit for a credit or refund no later than 2 years after the IRS informs you that your claim has been rejected. Past year taxes However, you can file suit if it has been 6 months since you filed your claim and the IRS has not yet delivered a decision. Past year taxes You can file suit for a credit or refund in your United States District Court or in the United States Court of Federal Claims. Past year taxes However, you cannot appeal to the United States Court of Federal Claims if your claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else's return. Past year taxes For information about procedures for filing suit in either court, contact the Clerk of your District Court or of the United States Court of Federal Claims. Past year taxes Refund or Credit of Overpayments Before Final Determination Any court with proper jurisdiction, including the Tax Court, can order the IRS to refund any part of a tax deficiency that the IRS collects from you during a period when the IRS is not permitted to assess that deficiency, or to levy or engage in any court proceeding to collect that deficiency. Past year taxes In addition, the court can order a refund of any part of an overpayment determined by the Tax Court that is not at issue on appeal to a higher court. Past year taxes The court can order these refunds before its decision on the case is final. Past year taxes Taxpayers should thoroughly review IRS settlement offers before signing a Tax Court Decision document to ensure that all adjustments are correct, including the inclusion of any tax credits that the taxpayer is allowed to claim. Past year taxes Note. Past year taxes The court may no longer order a refund of an overpayment after the case is final. Past year taxes Generally, the IRS is not permitted to take action on a tax deficiency during: The 90-day (or 150-day if outside the United States) period that you have to petition a notice of deficiency to the Tax Court, or The period that the case is under appeal if a bond is provided. Past year taxes Claims for Refund If you believe you have overpaid your tax, you have a limited amount of time in which to file a claim for a credit or refund. Past year taxes You can claim a credit or refund by filing Form 1040X. Past year taxes See Time for Filing a Claim for Refund , later. Past year taxes File your claim by mailing it to the IRS Service Center where you filed your original return. Past year taxes File a separate form for each year or period involved. Past year taxes Include an explanation of each item of income, deduction, or credit on which you are basing your claim. Past year taxes Corporations should file Form 1120X, Amended U. Past year taxes S. Past year taxes Corporation Income Tax Return, or other form appropriate to the type of credit or refund claimed. Past year taxes See Publication 3920 for information on filing claims for tax forgiveness for individuals affected by terrorist attacks. Past year taxes Requesting a copy of your tax return. Past year taxes   You can obtain a copy of the actual return and all attachments you filed with the IRS for an earlier year. Past year taxes This includes a copy of the Form W-2 or Form 1099 filed with your return. Past year taxes Use Form 4506 to make your request. Past year taxes You will be charged a fee, which you must pay when you submit Form 4506. Past year taxes Requesting a copy of your tax account information. Past year taxes   Use Form 4506-T, Request for Transcript of Tax Return, to request free copies of your tax return transcript, tax account transcript, record of account, verification of nonfiling, or Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript. Past year taxes The tax return transcript contains most of the line items of a tax return. Past year taxes A tax account transcript contains information on the financial status of the account, such as payments, penalty assessments, and adjustments. Past year taxes A record of account is a combination of line item information and later adjustments to the account. Past year taxes Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript contains data from these information returns. Past year taxes Penalty for erroneous claim for refund. Past year taxes   If you claim an excessive amount of tax refund or credit relating to income tax (other than a claim relating to the earned income credit), you may be liable for a penalty of 20% of the amount that is determined to be excessive. Past year taxes An excessive amount is the amount of the claim for refund or credit that is more than the amount of claim allowable for the tax year. Past year taxes The penalty may be waived if you can show that you had a reasonable basis for making the claim. Past year taxes Time for Filing a Claim for Refund Generally, you must file a claim for a credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. Past year taxes If you do not file a claim within this period, you may no longer be entitled to a credit or a refund. Past year taxes If the due date to file a return or a claim for a credit or refund is a Saturday, Sunday, or legal holiday, it is filed on time if it is filed on the next business day. Past year taxes Returns you filed before the due date are considered filed on the due date. Past year taxes This is true even when the due date is a Saturday, Sunday, or legal holiday. Past year taxes Disaster area claims for refund. Past year taxes   If you live in a Presidentially declared disaster area or are affected by terroristic or military action, the deadline to file a claim for a refund may be postponed. Past year taxes This section discusses the special rules that apply to Presidentially declared disaster area refunds. Past year taxes    A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act. Past year taxes Postponed refund deadlines. Past year taxes   The IRS may postpone for up to 1 year the deadlines for filing a claim for refund. Past year taxes The postponement can be used by taxpayers who are affected by a Presidentially declared disaster. Past year taxes The IRS may also postpone deadlines for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Past year taxes For more information, see Publication 547. Past year taxes   If any deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin. Past year taxes A list of the areas eligible for assistance under the Disaster Relief and Emergency Assistance Act is available at the Federal Emergency Management Agency (FEMA) website at www. Past year taxes fema. Past year taxes gov and at the IRS website at www. Past year taxes irs. Past year taxes gov. Past year taxes Nonfilers can get refund of overpayments paid within 3-year period. Past year taxes   The Tax Court can consider taxes paid during the 3-year period preceding the date of a notice of deficiency for determining any refund due to a nonfiler. Past year taxes This means that if you do not file your return, and you receive a notice of deficiency in the third year after the due date (with extensions) of your return and file suit with the Tax Court to contest the notice of deficiency, you may be able to receive a refund of excessive amounts paid within the 3-year period preceding the date of the notice of deficiency. Past year taxes The IRS may postpone for up to 1 year certain tax deadlines, including the time for filing claims for refund, for taxpayers who are affected by a terrorist attack occurring after September 10, 2001. Past year taxes For more information, see Publication 3920. Past year taxes Claim for refund by estates electing the installment method of payment. Past year taxes   In certain cases where an estate has elected to make tax payments through the installment method, the executor can file a suit for refund with a U. Past year taxes S. Past year taxes District Court or the U. Past year taxes S. Past year taxes Court of Federal Claims before all the installment payments have been made. Past year taxes However, all the following must be true before a suit can be filed: The estate consists largely of an interest in a closely-held business. Past year taxes All installment payments due on or before the date the suit is filed have been made. Past year taxes No accelerated installment payments have been made. Past year taxes No Tax Court case is pending with respect to any estate tax liability. Past year taxes If a notice of deficiency was issued to the estate regarding its liability for estate tax, the time for petitioning the Tax Court has passed. Past year taxes No proceeding is pending for a declaratory judgment by the Tax Court on whether the estate is eligible to pay tax in installments. Past year taxes The executor has not included any previously litigated issues in the current suit for refund. Past year taxes The executor does not discontinue making installment payments timely, while the court considers the suit for refund. Past year taxes    If in its final decision on the suit for refund the court redetermines the estate's tax liability, the IRS must refund any part of the estate tax amount that is disallowed. Past year taxes This includes any part of the disallowed amount previously collected by the IRS. Past year taxes Protective claim for refund. Past year taxes   If your right to a refund is contingent on future events and may not be determinable until after the time period for filing a claim for refund expires, you can file a protective claim for refund. Past year taxes A protective claim can be either a formal claim or an amended return for credit or refund. Past year taxes Protective claims are often based on current litigation or expected changes in the tax law, other legislation, or regulations. Past year taxes A protective claim preserves your right to claim a refund when the contingency is resolved. Past year taxes A protective claim does not have to state a particular dollar amount or demand an immediate refund. Past year taxes However, to be valid, a protective claim must: Be in writing and be signed, Include your name, address, social security number or individual taxpayer identification number, and other contact information, Identify and describe the contingencies affecting the claim, Clearly alert the IRS to the essential nature of the claim, and Identify the specific year(s) for which a refund is sought. Past year taxes   Generally, the IRS will delay action on the protective claim until the contingency is resolved. Past year taxes Once the contingency is resolved, the IRS may obtain additional information necessary to process the claim and then either allow or disallow the claim. Past year taxes   Mail your protective claim for refund to the address listed in the instructions for Form 1040X, under Where To File. Past year taxes Exceptions The limits on your claim for refund can be affected by the type of item that forms the basis of your claim. Past year taxes Special refunds. Past year taxes   If you file a claim for refund based on one of the items listed below, the limits discussed earlier under Time for Filing a Claim for Refund may not apply. Past year taxes These special items are: A bad debt, A worthless security, A payment or accrual of foreign tax, A net operating loss carryback, and A carryback of certain tax credits. Past year taxes   The limits discussed earlier also may not apply if you have signed an agreement to extend the period of assessment of tax. Past year taxes For information on special rules on filing claims for an individual affected by a terrorist attack, see Publication 3920. Past year taxes Periods of financial disability. Past year taxes   If you are an individual (not a corporation or other taxpaying entity), the period of limitations on credits and refunds can be suspended during periods when you cannot manage your financial affairs because of physical or mental impairment that is medically determinable and either: Has lasted or can be expected to last continuously for at least 12 months, or Can be expected to result in death. Past year taxes    The period for filing a claim for refund will not be suspended for any time that someone else, such as your spouse or guardian, was authorized to act for you in financial matters. Past year taxes   To claim financial disability, you generally must submit the following statements with your claim for credit or refund: A written statement signed by a physician, qualified to make the determination, that sets forth: The name and a description of your physical or mental impairment, The physician's medical opinion that your physical or mental impairment prevented you from managing your financial affairs, The physician's medical opinion that your physical or mental impairment was or can be expected to result in death, or that it has lasted (or can be expected to last) for a continuous period of not less than 12 months, and To the best of the physician's knowledge, the specific time period during which you were prevented by such physical or mental impairment from managing your financial affairs, and A written statement by the person signing the claim for credit or refund that no person, including your spouse, was authorized to act on your behalf in financial matters during the period described in paragraph (1)(d) of the physician's statement. Past year taxes Alternatively, if a person was authorized to act on your behalf in financial matters during any part of the period described in that paragraph, the beginning and ending dates of the period of time the person was so authorized. Past year taxes    The period of limitations will not be suspended on any claim for refund that (without regard to this provision) was barred as of July 22, 1998. Past year taxes Limit on Amount of Refund If you file your claim within 3 years after filing your return, the credit or refund cannot be more than the part of the tax paid wi