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Turbotax Military Edition

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Turbotax Military Edition

Turbotax military edition 6. Turbotax military edition   How To Report Table of Contents Where To ReportGifts. Turbotax military edition Statutory employees. Turbotax military edition Vehicle Provided by Your Employer ReimbursementsAccountable Plans Nonaccountable Plans Rules for Independent Contractors and Clients How To Use Per Diem Rate TablesThe Two Substantiation Methods Transition Rules Completing Forms 2106 and 2106-EZInformation on use of cars. Turbotax military edition Standard mileage rate. Turbotax military edition Actual expenses. Turbotax military edition Car rentals. Turbotax military edition Hours of service limits. Turbotax military edition Allocating your reimbursement. Turbotax military edition 1. Turbotax military edition Limit on meals and entertainment. Turbotax military edition 2. Turbotax military edition Limit on miscellaneous itemized deductions. Turbotax military edition 3. Turbotax military edition Limit on total itemized deductions. Turbotax military edition Special Rules This chapter explains where and how to report the expenses discussed in this publication. Turbotax military edition It discusses reimbursements and how to treat them under accountable and nonaccountable plans. Turbotax military edition It also explains rules for independent contractors and clients, fee-basis officials, certain performing artists, Armed Forces reservists, and certain disabled employees. Turbotax military edition The chapter ends with illustrations of how to report travel, entertainment, gift, and car expenses on Forms 2106 and 2106-EZ. Turbotax military edition Where To Report This section provides general information on where to report the expenses discussed in this publication. Turbotax military edition Self-employed. Turbotax military edition   You must report your income and expenses on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. Turbotax military edition You do not use Form 2106 or 2106-EZ. Turbotax military edition    If you claim car or truck expenses, you must provide certain information on the use of your vehicle. Turbotax military edition You provide this information on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Form 4562. Turbotax military edition   If you file Schedule C (Form 1040): Report your travel expenses, except meals, on line 24a, Report your deductible meals (actual cost or standard meal allowance) and entertainment on line 24b, Report your gift expenses and transportation expenses, other than car expenses, on line 27a, and Report your car expenses on line 9. Turbotax military edition Complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization. Turbotax military edition   If you file Schedule C-EZ (Form 1040), report the total of all business expenses on line 2. Turbotax military edition You can only include 50% of your meals and entertainment in that total. Turbotax military edition If you include car expenses, you must also complete Part III of the form. Turbotax military edition    If you file Schedule F (Form 1040): Report your car expenses on line 10. Turbotax military edition Attach Form 4562 and provide information on the use of your car in Part V of Form 4562. Turbotax military edition Report all other business expenses discussed in this publication on line 32. Turbotax military edition You can only include 50% of your meals and entertainment on that line. Turbotax military edition See your form instructions for more information on how to complete your tax return. Turbotax military edition Both self-employed and an employee. Turbotax military edition   If you are both self-employed and an employee, you must keep separate records for each business activity. Turbotax military edition Report your business expenses for self-employment on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040), as discussed earlier. Turbotax military edition Report your business expenses for your work as an employee on Form 2106 or 2106-EZ, as discussed next. Turbotax military edition Employees. Turbotax military edition    If you are an employee, you generally must complete Form 2106 to deduct your travel, transportation, and entertainment expenses. Turbotax military edition However, you can use the shorter Form 2106-EZ instead of Form 2106 if you meet all of the following conditions. Turbotax military edition You are an employee deducting expenses attributable to your job. Turbotax military edition You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Turbotax military edition If you claim car expenses, you use the standard mileage rate. Turbotax military edition   For more information on how to report your expenses on Forms 2106 and 2106-EZ, see Completing Forms 2106 and 2106-EZ , later. Turbotax military edition Gifts. Turbotax military edition   If you did not receive any reimbursements (or the reimbursements were all included in box 1 of your Form W-2), the only business expense you are claiming is for gifts, and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Turbotax military edition Instead, claim the amount of your deductible gifts directly on line 21 of Schedule A (Form 1040). Turbotax military edition Statutory employees. Turbotax military edition    If you received a Form W-2 and the “Statutory employee” box in box 13 was checked, report your income and expenses related to that income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Turbotax military edition Do not complete Form 2106 or 2106-EZ. Turbotax military edition   Statutory employees include full-time life insurance salespersons, certain agent or commission drivers, traveling salespersons, and certain homeworkers. Turbotax military edition If you are entitled to a reimbursement from your employer but you do not claim it, you cannot claim a deduction for the expenses to which that unclaimed reimbursement applies. Turbotax military edition Reimbursement for personal expenses. Turbotax military edition    If your employer reimburses you for nondeductible personal expenses, such as for vacation trips, your employer must report the reimbursement as wage income in box 1 of your Form W-2. Turbotax military edition You cannot deduct personal expenses. Turbotax military edition Income-producing property. Turbotax military edition   If you have travel or transportation expenses related to income-producing property, report your deductible expenses on the form appropriate for that activity. Turbotax military edition   For example, if you have rental real estate income and expenses, report your expenses on Schedule E (Form 1040), Supplemental Income and Loss. Turbotax military edition See Publication 527, Residential Rental Property, for more information on the rental of real estate. Turbotax military edition If you have deductible investment-related transportation expenses, report them on Schedule A (Form 1040), line 23. Turbotax military edition Vehicle Provided by Your Employer If your employer provides you with a car, you may be able to deduct the actual expenses of operating that car for business purposes. Turbotax military edition The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year. Turbotax military edition You cannot use the standard mileage rate. Turbotax military edition Value reported on Form W-2. Turbotax military edition   Your employer can figure and report either the actual value of your personal use of the car or the value of the car as if you used it only for personal purposes (100% income inclusion). Turbotax military edition Your employer must separately state the amount if 100% of the annual lease value was included in your income. Turbotax military edition If you are unsure of the amount included on your Form W-2, ask your employer. Turbotax military edition Full value included in your income. Turbotax military edition   You can deduct the value of the business use of an employer-provided car if your employer reported 100% of the value of the car in your income. Turbotax military edition On your 2013 Form W-2, the amount of the value will be included in box 1, Wages, tips, other compensation, and box 14. Turbotax military edition    To claim your expenses, complete Form 2106, Part II, Sections A and C. Turbotax military edition Enter your actual expenses on line 23 of Section C and include the entire value of the employer-provided car on line 25. Turbotax military edition Complete the rest of the form. Turbotax military edition Less than full value included in your income. Turbotax military edition   If less than the full annual lease value of the car was included on your Form W-2, this means that your Form W-2 only includes the value of your personal use of the car. Turbotax military edition Do not enter this value on your Form 2106 because it is not deductible. Turbotax military edition   If you paid any actual costs (that your employer did not provide or reimburse you for) to operate the car, you can deduct the business portion of those costs. Turbotax military edition Examples of costs that you may have are gas, oil, and repairs. Turbotax military edition Complete Form 2106, Part II, Sections A and C. Turbotax military edition Enter your actual costs on line 23 of Section C and leave line 25 blank. Turbotax military edition Complete the rest of the form. Turbotax military edition Reimbursements This section explains what to do when you receive an advance or are reimbursed for any of the employee business expenses discussed in this publication. Turbotax military edition If you received an advance, allowance, or reimbursement for your expenses, how you report this amount and your expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Turbotax military edition This section explains the two types of plans, how per diem and car allowances simplify proving the amount of your expenses, and the tax treatment of your reimbursements and expenses. Turbotax military edition It also covers rules for independent contractors. Turbotax military edition No reimbursement. Turbotax military edition   You are not reimbursed or given an allowance for your expenses if you are paid a salary or commission with the understanding that you will pay your own expenses. Turbotax military edition In this situation, you have no reimbursement or allowance arrangement, and you do not have to read this section on reimbursements. Turbotax military edition Instead, see Completing Forms 2106 and 2106-EZ , later, for information on completing your tax return. Turbotax military edition Reimbursement, allowance, or advance. Turbotax military edition   A reimbursement or other expense allowance arrangement is a system or plan that an employer uses to pay, substantiate, and recover the expenses, advances, reimbursements, and amounts charged to the employer for employee business expenses. Turbotax military edition Arrangements include per diem and car allowances. Turbotax military edition    A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging, meals, and incidental expenses when you are away from home on business. Turbotax military edition (The term “ incidental expenses ” is defined in chapter 1 under Standard Meal Allowance. Turbotax military edition ) A car allowance is an amount your employer gives you for the business use of your car. Turbotax military edition   Your employer should tell you what method of reimbursement is used and what records you must provide. Turbotax military edition Employers. Turbotax military edition   If you are an employer and you reimburse employee business expenses, how you treat this reimbursement on your employee's Form W-2 depends in part on whether you have an accountable plan. Turbotax military edition Reimbursements treated as paid under an accountable plan, as explained next, are not reported as pay. Turbotax military edition Reimbursements treated as paid under nonaccountable plans , as explained later, are reported as pay. Turbotax military edition See Publication 15 (Circular E), Employer's Tax Guide, for information on employee pay. Turbotax military edition Accountable Plans To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules: Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Turbotax military edition You must adequately account to your employer for these expenses within a reasonable period of time. Turbotax military edition You must return any excess reimbursement or allowance within a reasonable period of time. Turbotax military edition “ Adequate accounting ” and “ returning excess reimbursements ” are discussed later. Turbotax military edition An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. Turbotax military edition Reasonable period of time. Turbotax military edition   The definition of reasonable period of time depends on the facts and circumstances of your situation. Turbotax military edition However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Turbotax military edition You receive an advance within 30 days of the time you have an expense. Turbotax military edition You adequately account for your expenses within 60 days after they were paid or incurred. Turbotax military edition You return any excess reimbursement within 120 days after the expense was paid or incurred. Turbotax military edition You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. Turbotax military edition Employee meets accountable plan rules. Turbotax military edition   If you meet the three rules for accountable plans, your employer should not include any reimbursements in your income in box 1 of your Form W-2. Turbotax military edition If your expenses equal your reimbursements, you do not complete Form 2106. Turbotax military edition You have no deduction since your expenses and reimbursement are equal. Turbotax military edition    If your employer included reimbursements in box 1 of your Form W-2 and you meet all the rules for accountable plans, ask your employer for a corrected Form W-2. Turbotax military edition Accountable plan rules not met. Turbotax military edition   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules. Turbotax military edition All reimbursements that fail to meet all three rules for accountable plans are generally treated as having been reimbursed under a nonaccountable plan (discussed later). Turbotax military edition Failure to return excess reimbursements. Turbotax military edition   If you are reimbursed under an accountable plan, but you fail to return, within a reasonable time, any amounts in excess of the substantiated amounts, the amounts paid in excess of the substantiated expenses are treated as paid under a nonaccountable plan. Turbotax military edition See Reasonable period of time , earlier, and Returning Excess Reimbursements , later. Turbotax military edition Reimbursement of nondeductible expenses. Turbotax military edition   You may be reimbursed under your employer's accountable plan for expenses related to that employer's business, some of which are deductible as employee business expenses and some of which are not deductible. Turbotax military edition The reimbursements you receive for the nondeductible expenses do not meet rule (1) for accountable plans, and they are treated as paid under a nonaccountable plan. Turbotax military edition Example. Turbotax military edition Your employer's plan reimburses you for travel expenses while away from home on business and also for meals when you work late at the office, even though you are not away from home. Turbotax military edition The part of the arrangement that reimburses you for the nondeductible meals when you work late at the office is treated as paid under a nonaccountable plan. Turbotax military edition The employer makes the decision whether to reimburse employees under an accountable plan or a nonaccountable plan. Turbotax military edition If you are an employee who receives payments under a nonaccountable plan, you cannot convert these amounts to payments under an accountable plan by voluntarily accounting to your employer for the expenses and voluntarily returning excess reimbursements to the employer. Turbotax military edition Adequate Accounting One of the rules for an accountable plan is that you must adequately account to your employer for your expenses. Turbotax military edition You adequately account by giving your employer a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it, along with documentary evidence (such as receipts) of your travel, mileage, and other employee business expenses. Turbotax military edition (See Table 5-1 in chapter 5 for details you need to enter in your record and documents you need to prove certain expenses. Turbotax military edition ) A per diem or car allowance satisfies the adequate accounting requirement under certain conditions. Turbotax military edition See Per Diem and Car Allowances , later. Turbotax military edition You must account for all amounts you received from your employer during the year as advances, reimbursements, or allowances. Turbotax military edition This includes amounts you charged to your employer by credit card or other method. Turbotax military edition You must give your employer the same type of records and supporting information that you would have to give to the IRS if the IRS questioned a deduction on your return. Turbotax military edition You must pay back the amount of any reimbursement or other expense allowance for which you do not adequately account or that is more than the amount for which you accounted. Turbotax military edition Per Diem and Car Allowances If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. Turbotax military edition A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply. Turbotax military edition Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business. Turbotax military edition The allowance is similar in form to and not more than the federal rate (defined later). Turbotax military edition You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1 ) within a reasonable period of time. Turbotax military edition You are not related to your employer (as defined next). Turbotax military edition If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement. Turbotax military edition If the IRS finds that an employer's travel allowance practices are not based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for per diem amounts), you will not be considered to have accounted to your employer. Turbotax military edition In this case, you must be able to prove your expenses to the IRS. Turbotax military edition Related to employer. Turbotax military edition   You are related to your employer if: Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant, Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer. Turbotax military edition You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a member of your family or your partner owns the stock. Turbotax military edition The federal rate. Turbotax military edition   The federal rate can be figured using any one of the following methods. Turbotax military edition For per diem amounts: The regular federal per diem rate. Turbotax military edition The standard meal allowance. Turbotax military edition The high-low rate. Turbotax military edition For car expenses: The standard mileage rate. Turbotax military edition A fixed and variable rate (FAVR). Turbotax military edition    For per diem amounts, use the rate in effect for the area where you stop for sleep or rest. Turbotax military edition Regular federal per diem rate. Turbotax military edition   The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging, meals, and incidental expenses (or meals and incidental expenses only) while they are traveling away from home in a particular area. Turbotax military edition The rates are different for different locations. Turbotax military edition Your employer should have these rates available. Turbotax military edition You can also find federal per diem rates at www. Turbotax military edition gsa. Turbotax military edition gov/perdiem. Turbotax military edition The standard meal allowance. Turbotax military edition   The standard meal allowance (discussed in chapter 1) is the federal rate for meals and incidental expenses (M&IE). Turbotax military edition The rate for most small localities in the United States is $46 a day. Turbotax military edition Most major cities and many other localities qualify for higher rates. Turbotax military edition You can find this information on the Internet at www. Turbotax military edition gsa. Turbotax military edition gov/perdiem. Turbotax military edition   You receive an allowance only for meals and incidental expenses when your employer does one of the following. Turbotax military edition Provides you with lodging (furnishes it in kind). Turbotax military edition Reimburses you, based on your receipts, for the actual cost of your lodging. Turbotax military edition Pays the hotel, motel, etc. Turbotax military edition , directly for your lodging. Turbotax military edition Does not have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck. Turbotax military edition Figures the allowance on a basis similar to that used in computing your compensation, such as number of hours worked or miles traveled. Turbotax military edition High-low rate. Turbotax military edition   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Turbotax military edition It eliminates the need to keep a current list of the per diem rates for each city. Turbotax military edition   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 (including $65 for M&IE) for certain high-cost locations. Turbotax military edition All other areas have a per diem amount of $163 (including $52 for M&IE). Turbotax military edition For more information, see Notice 2012-63, which can be found on the Internet at www. Turbotax military edition irs. Turbotax military edition gov/irb/2012-42_IRB/ar12. Turbotax military edition html. Turbotax military edition    Effective October 1, 2013, the per diem rate for certain high-cost locations increased to $251 (including $65 for M&IE). Turbotax military edition The rate for all other locations increased to $170 (including $52 for M&IE). Turbotax military edition Employers who did not use the high-low method during the first 9 months of 2013 cannot begin to use it before 2014. Turbotax military edition For more information, see Notice 2013-65, which can be found on the Internet at www. Turbotax military edition irs. Turbotax military edition gov/pub/irs-drop/n-13–65. Turbotax military edition pdf and Revenue Procedure 2011-47 at www. Turbotax military edition irs. Turbotax military edition gov/irb/2011-42_IRB/ar12. Turbotax military edition html. Turbotax military edition Prorating the standard meal allowance on partial days of travel. Turbotax military edition   The standard meal allowance is for a full 24-hour day of travel. Turbotax military edition If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. Turbotax military edition This rule also applies if your employer uses the regular federal per diem rate or the high-low rate. Turbotax military edition   You can use either of the following methods to figure the federal M&IE for that day. Turbotax military edition Method 1: For the day you depart, add 3/4 of the standard meal allowance amount for that day. Turbotax military edition For the day you return, add 3/4 of the standard meal allowance amount for the preceding day. Turbotax military edition Method 2: Prorate the standard meal allowance using any method you consistently apply in accordance with reasonable business practice. Turbotax military edition For example, an employer can treat 2 full days of per diem (that includes M&IE) paid for travel away from home from 9 a. Turbotax military edition m. Turbotax military edition of one day to 5 p. Turbotax military edition m. Turbotax military edition of the next day as being no more than the federal rate. Turbotax military edition This is true even though a federal employee would be limited to a reimbursement of M&IE for only 1½ days of the federal M&IE rate. Turbotax military edition The standard mileage rate. Turbotax military edition   This is a set rate per mile that you can use to compute your deductible car expenses. Turbotax military edition For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Turbotax military edition Fixed and variable rate (FAVR). Turbotax military edition   This is an allowance your employer may use to reimburse your car expenses. Turbotax military edition Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc. Turbotax military edition ) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc. Turbotax military edition ). Turbotax military edition If your employer chooses to use this method, your employer will request the necessary records from you. Turbotax military edition Reporting your expenses with a per diem or car allowance. Turbotax military edition   If your reimbursement is in the form of an allowance received under an accountable plan, the following facts affect your reporting. Turbotax military edition The federal rate. Turbotax military edition Whether the allowance or your actual expenses were more than the federal rate. Turbotax military edition The following discussions explain where to report your expenses depending upon how the amount of your allowance compares to the federal rate. Turbotax military edition Allowance less than or equal to the federal rate. Turbotax military edition   If your allowance is less than or equal to the federal rate, the allowance will not be included in box 1 of your Form W-2. Turbotax military edition You do not need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance. Turbotax military edition   However, if your actual expenses are more than your allowance, you can complete Form 2106 and deduct the excess amount on Schedule A (Form 1040). Turbotax military edition If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. Turbotax military edition If you are using the standard meal allowance or the standard mileage rate, you do not have to prove that amount. Turbotax military edition Example 1. Turbotax military edition In April, Jeremy takes a 2-day business trip to Denver. Turbotax military edition The federal rate for Denver is $215 per day. Turbotax military edition As required by his employer's accountable plan, he accounts for the time (dates), place, and business purpose of the trip. Turbotax military edition His employer reimburses him $215 a day ($430 total) for living expenses. Turbotax military edition Jeremy's living expenses in Denver are not more than $215 a day. Turbotax military edition Jeremy's employer does not include any of the reimbursement on his Form W-2 and Jeremy does not deduct the expenses on his return. Turbotax military edition Example 2. Turbotax military edition In June, Matt takes a 2-day business trip to Boston. Turbotax military edition Matt's employer uses the high-low method to reimburse employees. Turbotax military edition Since Boston is a high-cost area, Matt is given an advance of $242 a day ($484 total) for his lodging, meals, and incidental expenses. Turbotax military edition Matt's actual expenses totaled $700. Turbotax military edition Since Matt's $700 of expenses are more than his $484 advance, he includes the excess expenses when he itemizes his deductions. Turbotax military edition Matt completes Form 2106 (showing all of his expenses and reimbursements). Turbotax military edition He must also allocate his reimbursement between his meals and other expenses as discussed later under Completing Forms 2106 and 2106-EZ . Turbotax military edition Example 3. Turbotax military edition Nicole drives 10,000 miles in 2013 for business. Turbotax military edition Under her employer's accountable plan, she accounts for the time (dates), place, and business purpose of each trip. Turbotax military edition Her employer pays her a mileage allowance of 40 cents a mile. Turbotax military edition Since Nicole's $5,650 expense computed under the standard mileage rate (10,000 miles x 56½ cents) is more than her $4,000 reimbursement (10,000 miles × 40 cents), she itemizes her deductions to claim the excess expense. Turbotax military edition Nicole completes Form 2106 (showing all her expenses and reimbursements) and enters $1,650 ($5,650 − $4,000) as an itemized deduction. Turbotax military edition Allowance more than the federal rate. Turbotax military edition   If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate in box 12 of your Form W-2. Turbotax military edition This amount is not taxable. Turbotax military edition However, the excess allowance will be included in box 1 of your Form W-2. Turbotax military edition You must report this part of your allowance as if it were wage income. Turbotax military edition   If your actual expenses are less than or equal to the federal rate, you do not complete Form 2106 or claim any of your expenses on your return. Turbotax military edition   However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. Turbotax military edition You must report on Form 2106 your reimbursements up to the federal rate (as shown in box 12 of your Form W-2) and all your expenses. Turbotax military edition You should be able to prove these amounts to the IRS. Turbotax military edition Example 1. Turbotax military edition Laura lives and works in Austin. Turbotax military edition In July her employer sent her to Albuquerque for 4 days on business. Turbotax military edition Laura's employer paid the hotel directly for her lodging and reimbursed Laura $65 a day ($260 total) for meals and incidental expenses. Turbotax military edition Laura's actual meal expenses were not more than the federal rate for Albuquerque, which is $56 per day. Turbotax military edition Table 6-1. Turbotax military edition Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements IF the type of reimbursement (or  other expense allowance)  arrangement is under: THEN the employer reports on Form W-2: AND the employee reports on  Form 2106: * An accountable plan with: Actual expense reimbursement: Adequate accounting made and excess returned. Turbotax military edition No amount. Turbotax military edition No amount. Turbotax military edition Actual expense reimbursement: Adequate accounting and return of excess both required but excess not returned. Turbotax military edition The excess amount as wages in box 1. Turbotax military edition No amount. Turbotax military edition Per diem or mileage allowance up to the federal rate: Adequate accounting made and excess returned. Turbotax military edition No amount. Turbotax military edition All expenses and reimbursements only if excess expenses are claimed. Turbotax military edition Otherwise, form is not filed. Turbotax military edition Per diem or mileage allowance up to the federal rate: Adequate accounting and return of excess both required but excess not returned. Turbotax military edition The excess amount as wages in box 1. Turbotax military edition The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Turbotax military edition No amount. Turbotax military edition Per diem or mileage allowance exceeds the federal rate: Adequate accounting up to the federal rate only and excess not returned. Turbotax military edition The excess amount as wages in box 1. Turbotax military edition The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Turbotax military edition All expenses (and reimbursements reported on Form W-2, box 12) only if expenses in excess of the federal rate are claimed. Turbotax military edition Otherwise, form is not filed. Turbotax military edition A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan. Turbotax military edition The entire amount as wages in box 1. Turbotax military edition All expenses. Turbotax military edition No reimbursement plan: The entire amount as wages in box 1. Turbotax military edition All expenses. Turbotax military edition * You may be able to use Form 2106-EZ. Turbotax military edition See Completing Forms 2106 and 2106-EZ . Turbotax military edition Her employer included the $36 that was more than the federal rate (($65 − $56) × 4) in box 1 of Laura's Form W-2. Turbotax military edition Her employer shows $224 ($56 a day × 4) in box 12 of her Form W-2. Turbotax military edition This amount is not included in Laura's income. Turbotax military edition Laura does not have to complete Form 2106; however, she must include the $36 in her gross income as wages (by reporting the total amount shown in box 1 of her Form W-2). Turbotax military edition Example 2. Turbotax military edition Joe also lives in Austin and works for the same employer as Laura. Turbotax military edition In May the employer sent Joe to San Diego for 4 days and paid the hotel directly for Joe's hotel bill. Turbotax military edition The employer reimbursed Joe $75 a day for his meals and incidental expenses. Turbotax military edition The federal rate for San Diego is $71 a day. Turbotax military edition Joe can prove that his actual meal expenses totaled $380. Turbotax military edition His employer's accountable plan will not pay more than $75 a day for travel to San Diego, so Joe does not give his employer the records that prove that he actually spent $380. Turbotax military edition However, he does account for the time, place, and business purpose of the trip. Turbotax military edition This is Joe's only business trip this year. Turbotax military edition Joe was reimbursed $300 ($75 × 4 days), which is $16 more than the federal rate of $284 ($71 × 4 days). Turbotax military edition The employer includes the $16 as income on Joe's Form W-2 in box 1. Turbotax military edition The employer also enters $284 in box 12 of Joe's Form W-2. Turbotax military edition Joe completes Form 2106 to figure his deductible expenses. Turbotax military edition He enters the total of his actual expenses for the year ($380) on Form 2106. Turbotax military edition He also enters the reimbursements that were not included in his income ($284). Turbotax military edition His total deductible expense, before the 50% limit, is $96. Turbotax military edition After he figures the 50% limit on his unreimbursed meals and entertainment, he will include the balance, $48, as an itemized deduction. Turbotax military edition Example 3. Turbotax military edition Debbie drives 10,000 miles in 2013 for business. Turbotax military edition Under her employer's accountable plan, she gets reimbursed 60 cents a mile, which is more than the standard mileage rate. Turbotax military edition Her total reimbursement is $6,000. Turbotax military edition Debbie's employer must include the reimbursement amount up to the standard mileage rate, $5,650 (10,000 × 56½ cents), in box 12 of her Form W-2. Turbotax military edition That amount is not taxable. Turbotax military edition Her employer must also include $350 ($6,000 − $5,650) in box 1 of her Form W-2. Turbotax military edition This is the reimbursement that is more than the standard mileage rate. Turbotax military edition If Debbie's expenses are equal to or less than the standard mileage rate, she would not complete Form 2106. Turbotax military edition If her expenses are more than the standard mileage rate, she would complete Form 2106 and report her total expenses and reimbursement (shown in box 12 of her Form W-2). Turbotax military edition She would then claim the excess expenses as an itemized deduction. Turbotax military edition Returning Excess Reimbursements Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Turbotax military edition Excess reimbursement means any amount for which you did not adequately account within a reasonable period of time. Turbotax military edition For example, if you received a travel advance and you did not spend all the money on business-related expenses or you do not have proof of all your expenses, you have an excess reimbursement. Turbotax military edition “ Adequate accounting ” and “ reasonable period of time ” were discussed earlier in this chapter. Turbotax military edition Travel advance. Turbotax military edition   You receive a travel advance if your employer provides you with an expense allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Turbotax military edition Under an accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time. Turbotax military edition   If you do not adequately account for or do not return any excess advance within a reasonable period of time, the amount you do not account for or return will be treated as having been paid under a nonaccountable plan (discussed later). Turbotax military edition Unproved amounts. Turbotax military edition   If you do not prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 5-1 ), you must return this unproved amount of the travel advance within a reasonable period of time. Turbotax military edition If you do not do this, the unproved amount will be considered paid under a nonaccountable plan (discussed later). Turbotax military edition Per diem allowance more than federal rate. Turbotax military edition   If your employer's accountable plan pays you an allowance that is higher than the federal rate, you do not have to return the difference between the two rates for the period you can prove business-related travel expenses. Turbotax military edition However, the difference will be reported as wages on your Form W-2. Turbotax military edition This excess amount is considered paid under a nonaccountable plan (discussed later). Turbotax military edition Example. Turbotax military edition Your employer sends you on a 5-day business trip to Phoenix in March 2013 and gives you a $400 ($80 × 5 days) advance to cover your meals and incidental expenses. Turbotax military edition The federal per diem for meals and incidental expenses for Phoenix is $71. Turbotax military edition Your trip lasts only 3 days. Turbotax military edition Under your employer's accountable plan, you must return the $160 ($80 × 2 days) advance for the 2 days you did not travel. Turbotax military edition For the 3 days you did travel you do not have to return the $27 difference between the allowance you received and the federal rate for Phoenix (($80 − $71) × 3 days). Turbotax military edition However, the $27 will be reported on your Form W-2 as wages. Turbotax military edition Nonaccountable Plans A nonaccountable plan is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules listed earlier under Accountable Plans. Turbotax military edition In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan: Excess reimbursements you fail to return to your employer, and Reimbursement of nondeductible expenses related to your employer's business. Turbotax military edition See Reimbursement of nondeductible expenses , earlier, under Accountable Plans. Turbotax military edition An arrangement that repays you for business expenses by reducing the amount reported as your wages, salary, or other pay will be treated as a nonaccountable plan. Turbotax military edition This is because you are entitled to receive the full amount of your pay whether or not you have any business expenses. Turbotax military edition If you are not sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer. Turbotax military edition Reporting your expenses under a nonaccountable plan. Turbotax military edition   Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Turbotax military edition Your employer will report the total in box 1 of your Form W-2. Turbotax military edition    You must complete Form 2106 or 2106-EZ and itemize your deductions to deduct your expenses for travel, transportation, meals, or entertainment. Turbotax military edition Your meal and entertainment expenses will be subject to the 50% limit discussed in chapter 2. Turbotax military edition Also, your total expenses will be subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Turbotax military edition Example 1. Turbotax military edition Kim's employer gives her $1,000 a month ($12,000 total for the year) for her business expenses. Turbotax military edition Kim does not have to provide any proof of her expenses to her employer, and Kim can keep any funds that she does not spend. Turbotax military edition Kim is being reimbursed under a nonaccountable plan. Turbotax military edition Her employer will include the $12,000 on Kim's Form W-2 as if it were wages. Turbotax military edition If Kim wants to deduct her business expenses, she must complete Form 2106 or 2106-EZ and itemize her deductions. Turbotax military edition Example 2. Turbotax military edition Kevin is paid $2,000 a month by his employer. Turbotax military edition On days that he travels away from home on business, his employer designates $50 a day of his salary as paid to reimburse his travel expenses. Turbotax military edition Because his employer would pay Kevin his monthly salary whether or not he was traveling away from home, the arrangement is a nonaccountable plan. Turbotax military edition No part of the $50 a day designated by his employer is treated as paid under an accountable plan. Turbotax military edition Rules for Independent Contractors and Clients This section provides rules for independent contractors who incur expenses on behalf of a client or customer. Turbotax military edition The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers. Turbotax military edition You are considered an independent contractor if you are self-employed and you perform services for a customer or client. Turbotax military edition Accounting to Your Client If you received a reimbursement or an allowance for travel, entertainment, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. Turbotax military edition If you do not account to your client for these expenses, you must include any reimbursements or allowances in income. Turbotax military edition You must keep adequate records of these expenses whether or not you account to your client for these expenses. Turbotax military edition If you do not separately account for and seek reimbursement for meals and entertainment in connection with providing services for a client, you are subject to the 50% limit on those expenses. Turbotax military edition See 50% Limit in chapter 2. Turbotax military edition Adequate accounting. Turbotax military edition   As a self-employed person, you adequately account by reporting your actual expenses. Turbotax military edition You should follow the recordkeeping rules in chapter 5 . Turbotax military edition How to report. Turbotax military edition   For information on how to report expenses on your tax return, see Self-employed at the beginning of this chapter. Turbotax military edition Required Records for Clients or Customers If you are a client or customer, you generally do not have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf. Turbotax military edition However, you must keep records if: You reimburse the contractor for entertainment expenses incurred on your behalf, and The contractor adequately accounts to you for these expenses. Turbotax military edition Contractor adequately accounts. Turbotax military edition   If the contractor adequately accounts to you for entertainment expenses, you (the client or customer) must keep records documenting each element of the expense, as explained in chapter 5 . Turbotax military edition Use your records as proof for a deduction on your tax return. Turbotax military edition If entertainment expenses are accounted for separately, you are subject to the 50% limit on entertainment. Turbotax military edition If the contractor adequately accounts to you for reimbursed amounts, you do not have to report the amounts on an information return. Turbotax military edition Contractor does not adequately account. Turbotax military edition    If the contractor does not adequately account to you for allowances or reimbursements of entertainment expenses, you do not have to keep records of these items. Turbotax military edition You are not subject to the 50% limit on entertainment in this case. Turbotax military edition You can deduct the reimbursements or allowances as payment for services if they are ordinary and necessary business expenses. Turbotax military edition However, you must file Form 1099-MISC to report amounts paid to the independent contractor if the total of the reimbursements and any other fees is $600 or more during the calendar year. Turbotax military edition How To Use Per Diem Rate Tables This section contains information about the per diem rate substantiation methods available and the choice of rates you must make for the last 3 months of the year. Turbotax military edition The Two Substantiation Methods High-low method. Turbotax military edition   IRS notices list the localities that are treated under the high-low substantiation method as high-cost localities for all or part of the year. Turbotax military edition Notice 2012–63, available at www. Turbotax military edition irs. Turbotax military edition gov/irb/2012–42_IRB/ar12. Turbotax military edition html, lists the localities that are eligible for $242 ($65 meals and incidental expenses (M&IE)) per diem, effective October 1, 2012. Turbotax military edition For travel on or after October 1, 2012, all other localities within CONUS are eligible for $163 ($52 M&IE) per diem under the high-low method. Turbotax military edition   Notice 2013–65, available at www. Turbotax military edition irs. Turbotax military edition gov/pub/irs-drop/n-13–65. Turbotax military edition pdf, lists the localities that are eligible for $251 ($65 M&IE) per diem, effective October 1, 2013. Turbotax military edition For travel on or after October 1, 2013, the per diem for all other localities increased to $170 ($52 M&IE). Turbotax military edition Regular federal per diem rate method. Turbotax military edition   Regular federal per diem rates are published by the General Services Administration (GSA). Turbotax military edition Both tables include the separate rate for meals and incidental expenses (M&IE) for each locality. Turbotax military edition The rates listed for FY2013 at www. Turbotax military edition gsa. Turbotax military edition gov/perdiem are effective October 1, 2012 and those listed for FY2014 are effective October 1, 2013. Turbotax military edition The standard rate for all locations within CONUS not specifically listed for FY2013 is $123 ($77 for lodging and $46 for M&IE). Turbotax military edition For FY2014, this rate increased to $129 ($83 for lodging and $46 for M&IE). Turbotax military edition Transition Rules The transition period covers the last 3 months of the calendar year, from the time that new rates are effective (generally October 1) through December 31. Turbotax military edition During this period, you generally may change to the new rates or finish out the year with the rates you had been using. Turbotax military edition High-low method. Turbotax military edition   If you use the high-low substantiation method, when new rates become effective (generally October 1) you can either continue with the rates you used for the first part of the year or change to the new rates. Turbotax military edition However, you must continue using the high-low method for the rest of the calendar year (through December 31). Turbotax military edition If you are an employer, you must use the same rates for all employees reimbursed under the high-low method during that calendar year. Turbotax military edition   The new rates and localities for the high-low method are included each year in a notice that is generally published in mid-to-late-September. Turbotax military edition You can find the notice in the weekly Internal Revenue Bulletin (IRB) on the Internet at www. Turbotax military edition irs. Turbotax military edition gov/irb. Turbotax military edition Federal per diem rate method. Turbotax military edition   New CONUS per diem rates become effective on October 1 of each year and remain in effect through September 30 of the following year. Turbotax military edition Employees being reimbursed under the per diem rate method during the first 9 months of a year (January 1–September 30) must continue under the same method through the end of that calendar year (December 31). Turbotax military edition However, for travel by these employees from October 1 through December 31, you can choose to continue using the same per diem rates or use the new rates. Turbotax military edition   The new federal CONUS per diem rates are published each year, generally early in September, on the Internet. Turbotax military edition Go to www. Turbotax military edition gsa. Turbotax military edition gov/perdiem. Turbotax military edition Per diem rates for localities listed for FY2014 may change at any time. Turbotax military edition To be sure you have the most current rate, check www. Turbotax military edition gsa. Turbotax military edition gov/perdiem. Turbotax military edition Completing Forms 2106 and 2106-EZ This section briefly describes how employees complete Forms 2106 and 2106-EZ. Turbotax military edition Table 6-1 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. Turbotax military edition The instructions for the forms have more information on completing them. Turbotax military edition If you are self-employed, do not file Form 2106 or 2106-EZ. Turbotax military edition Report your expenses on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Turbotax military edition See the instructions for the form that you must file. Turbotax military edition Form 2106-EZ. Turbotax military edition   You may be able to use the shorter Form 2106-EZ to claim your employee business expenses. Turbotax military edition You can use this form if you meet all the following conditions. Turbotax military edition You are an employee deducting ordinary and necessary expenses attributable to your job. Turbotax military edition You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Turbotax military edition If you are claiming car expenses, you are using the standard mileage rate. Turbotax military edition Car expenses. Turbotax military edition   If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. Turbotax military edition These are generally figured on Form 2106, Part II, and then claimed on Form 2106, Part I, line 1, Column A. Turbotax military edition Car expenses using the standard mileage rate can also be figured on Form 2106-EZ by completing Part II and Part I, line 1. Turbotax military edition Information on use of cars. Turbotax military edition   If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. Turbotax military edition The information relates to the following items. Turbotax military edition Date placed in service. Turbotax military edition Mileage (total, business, commuting, and other personal mileage). Turbotax military edition Percentage of business use. Turbotax military edition After-work use. Turbotax military edition Use of other vehicles. Turbotax military edition Whether you have evidence to support the deduction. Turbotax military edition Whether or not the evidence is written. Turbotax military edition Employees must complete Form 2106, Part II, Section A, or Form 2106-EZ, Part II, to provide this information. Turbotax military edition Standard mileage rate. Turbotax military edition   If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Form 2106, Part II, Section B. Turbotax military edition The amount on line 22 (Section B) is carried to Form 2106, Part I, line 1. Turbotax military edition In addition, on Part 1, line 2, you can deduct parking fees and tolls that apply to the business use of the car. Turbotax military edition If you file Form 2106-EZ, complete Part I, line 1, for the standard mileage rate and line 2 for parking fees and tolls. Turbotax military edition See Standard Mileage Rate in chapter 4 for information on using this rate. Turbotax military edition Actual expenses. Turbotax military edition   If you claim a deduction based on actual car expenses, you cannot use Form 2106-EZ. Turbotax military edition You must complete Form 2106, Part II, Section C. Turbotax military edition In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you claim. Turbotax military edition   If you are still using a car that is fully depreciated, continue to complete Section C. Turbotax military edition Since you have no depreciation deduction, enter zero on line 28. Turbotax military edition In this case, do not complete Section D. Turbotax military edition Car rentals. Turbotax military edition   If you claim car rental expenses on Form 2106, line 24a, you may have to reduce that expense by an inclusion amount as described in chapter 4. Turbotax military edition If so, you can show your car expenses and any inclusion amount as follows. Turbotax military edition Compute the inclusion amount without taking into account your business use percentage for the tax year. Turbotax military edition Report the inclusion amount from (1) on Form 2106, Part II, line 24b. Turbotax military edition Report on line 24c the net amount of car rental expenses (total car rental expenses minus the inclusion amount computed in (1)). Turbotax military edition The net amount of car rental expenses will be adjusted on Form 2106, Part II, line 27, to reflect the percentage of business use for the tax year. Turbotax military edition Transportation expenses. Turbotax military edition   Show your transportation expenses that did not involve overnight travel on Form 2106, line 2, Column A, or on Form 2106-EZ, Part I, line 2. Turbotax military edition Also include on this line business expenses you have for parking fees and tolls. Turbotax military edition Do not include expenses of operating your car or expenses of commuting between your home and work. Turbotax military edition Employee business expenses other than meals and entertainment. Turbotax military edition   Show your other employee business expenses on Form 2106, lines 3 and 4, Column A, or Form 2106-EZ, lines 3 and 4. Turbotax military edition Do not include expenses for meals and entertainment on those lines. Turbotax military edition Line 4 is for expenses such as gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications. Turbotax military edition    If line 4 expenses are the only ones you are claiming, you received no reimbursements (or the reimbursements were all included in box 1 of your Form W-2), and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Turbotax military edition Claim these amounts directly on Schedule A (Form 1040), line 21. Turbotax military edition List the type and amount of each expense on the dotted lines and include the total on line 21. Turbotax military edition Meal and entertainment expenses. Turbotax military edition   Show the full amount of your expenses for business-related meals and entertainment on Form 2106, line 5, Column B. Turbotax military edition Include meals while away from your tax home overnight and other business meals and entertainment. Turbotax military edition Enter 50% of the line 8, Column B, meal and entertainment expenses on line 9, Column B. Turbotax military edition   If you file Form 2106-EZ, enter the full amount of your meals and entertainment on the line to the left of line 5 and multiply the total by 50%. Turbotax military edition Enter the result on line 5. Turbotax military edition Hours of service limits. Turbotax military edition   If you are subject to the Department of Transportation's “hours of service” limits (as explained earlier under Individuals subject to “hours of service” limits in chapter 2), use 80% instead of 50% for meals while away from your tax home. Turbotax military edition Reimbursements. Turbotax military edition   Enter on Form 2106, line 7 (you cannot use Form 2106-EZ) the amounts your employer (or third party) reimbursed you that were not reported to you in box 1 of your Form W-2. Turbotax military edition This includes any amount reported under code L in box 12 of Form W-2. Turbotax military edition Allocating your reimbursement. Turbotax military edition   If you were reimbursed under an accountable plan and want to deduct excess expenses that were not reimbursed, you may have to allocate your reimbursement. Turbotax military edition This is necessary when your employer pays your reimbursement in the following manner: Pays you a single amount that covers meals and/or entertainment, as well as other business expenses, and Does not clearly identify how much is for deductible meals and/or entertainment. Turbotax military edition You must allocate that single payment so that you know how much to enter on Form 2106, line 7, Column A and Column B. Turbotax military edition Example. Turbotax military edition Rob's employer paid him an expense allowance of $12,000 this year under an accountable plan. Turbotax military edition The $12,000 payment consisted of $5,000 for airfare and $7,000 for meals, entertainment, and car expenses. Turbotax military edition The employer did not clearly show how much of the $7,000 was for the cost of deductible meals and entertainment. Turbotax military edition Rob actually spent $14,000 during the year ($5,500 for airfare, $4,500 for meals and entertainment, and $4,000 for car expenses). Turbotax military edition Since the airfare allowance was clearly identified, Rob knows that $5,000 of the payment goes in Column A, line 7, of Form 2106. Turbotax military edition To allocate the remaining $7,000, Rob uses the worksheet from the Instructions for Form 2106. Turbotax military edition His completed worksheet follows. Turbotax military edition Reimbursement Allocation Worksheet (Keep for your records)   1. Turbotax military edition Enter the total amount of reimbursements your employer gave you that were not reported to you in box 1 of Form W-2 $7,000   2. Turbotax military edition Enter the total amount of your expenses for the periods covered by this reimbursement 8,500   3. Turbotax military edition Of the amount on line 2, enter your total expense for meals and entertainment 4,500   4. Turbotax military edition Divide line 3 by line 2. Turbotax military edition Enter the result as a decimal (rounded to at least three places) . Turbotax military edition 529   5. Turbotax military edition Multiply line 1 by line 4. Turbotax military edition Enter the result here and in Column B, line 7 3,703   6. Turbotax military edition Subtract line 5 from line 1. Turbotax military edition Enter the result here and in Column A, line 7 $3,297 On line 7 of Form 2106, Rob enters $8,297 ($5,000 airfare and $3,297 of the $7,000) in Column A and $3,703 (of the $7,000) in Column B. Turbotax military edition After you complete the form. Turbotax military edition   After you have completed your Form 2106 or 2106-EZ, follow the directions on that form to deduct your expenses on the appropriate line of your tax return. Turbotax military edition For most taxpayers, this is line 21 of Schedule A (Form 1040). Turbotax military edition However, if you are a government official paid on a fee basis, a performing artist, an Armed Forces reservist, or a disabled employee with impairment-related work expenses, see Special Rules , later. Turbotax military edition Limits on employee business expenses. Turbotax military edition   Your employee business expenses may be subject to either of the limits described next. Turbotax military edition They are figured in the following order on the specified form. Turbotax military edition 1. Turbotax military edition Limit on meals and entertainment. Turbotax military edition   Certain meal and entertainment expenses are subject to a 50% limit. Turbotax military edition If you are an employee, you figure this limit on line 9 of Form 2106 or line 5 of Form 2106-EZ. Turbotax military edition (See 50% Limit in chapter 2. Turbotax military edition ) 2. Turbotax military edition Limit on miscellaneous itemized deductions. Turbotax military edition   If you are an employee, deduct your employee business expenses (as figured on Form 2106 or 2106-EZ) on line 21 of Schedule A (Form 1040). Turbotax military edition Most miscellaneous itemized deductions, including employee business expenses, are subject to a 2%-of-adjusted-gross-income limit. Turbotax military edition This limit is figured on line 26 of Schedule A (Form 1040). Turbotax military edition 3. Turbotax military edition Limit on total itemized deductions. Turbotax military edition   If your adjusted gross income (line 38 of Form 1040) is more than $300,000 ($150,000 if you are married filing separately), the total of certain itemized deductions, including employee business expenses, may be limited. Turbotax military edition See your form instructions for information on how to figure this limit. Turbotax military edition Special Rules This section discusses special rules that apply only to Armed Forces reservists, government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses. Turbotax military edition Armed Forces Reservists Traveling More Than 100 Miles From Home If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Turbotax military edition The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. Turbotax military edition See Per Diem and Car Allowances , earlier, for more information. Turbotax military edition Any expenses in excess of these amounts can be claimed only as a miscellaneous itemized deduction subject to the 2% limit. Turbotax military edition Member of a reserve component. Turbotax military edition   You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve; the Army National Guard of the United States; the Air National Guard of the United States; or the Reserve Corps of the Public Health Service. Turbotax military edition How to report. Turbotax military edition   If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106 or Form 2106-EZ. Turbotax military edition Then include your expenses for reserve travel over 100 miles from home, up to the federal rate, from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Turbotax military edition Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21. Turbotax military edition   You cannot deduct expenses of travel that does not take you more than 100 miles from home as an adjustment to gross income. Turbotax military edition Instead, you must complete Form 2106 or 2106-EZ and deduct those expenses as an itemized deduction on Schedule A (Form 1040), line 21. Turbotax military edition Officials Paid on a Fee Basis Certain fee-basis officials can claim their employee business expenses whether or not they itemize their other deductions on Schedule A (Form 1040). Turbotax military edition Fee-basis officials are persons who are employed by a state or local government and who are paid in whole or in part on a fee basis. Turbotax military edition They can deduct their business expenses in performing services in that job as an adjustment to gross income rather than as a miscellaneous itemized deduction. Turbotax military edition If you are a fee-basis official, include your employee business expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Turbotax military edition Expenses of Certain Performing Artists If you are a performing artist, you may qualify to deduct your employee business expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Turbotax military edition To qualify, you must meet all of the following requirements. Turbotax military edition During the tax year, you perform services in the performing arts as an employee for at least two employers. Turbotax military edition You receive at least $200 each from any two of these employers. Turbotax military edition Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services. Turbotax military edition Your adjusted gross income is not more than $16,000 before deducting these business expenses. Turbotax military edition Special rules for married persons. Turbotax military edition   If you are married, you must file a joint return unless you lived apart from your spouse at all times during the tax year. Turbotax military edition If you file a joint return, you must figure requirements (1), (2), and (3) separately for both you and your spouse. Turbotax military edition However, requirement (4) applies to your and your spouse's combined adjusted gross income. Turbotax military edition Where to report. Turbotax military edition   If you meet all of the above requirements, you should first complete Form 2106 or 2106-EZ. Turbotax military edition Then you include your performing-arts-related expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Turbotax military edition   If you do not meet all of the above requirements, you do not qualify to deduct your expenses as an adjustment to gross income. Turbotax military edition Instead, you must complete Form 2106 or 2106-EZ and deduct your employee business expenses as an itemized deduction on Schedule A (Form 1040), line 21. Turbotax military edition Impairment-Related Work Expenses of Disabled Employees If you are an employee with a physical or mental disability, your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to most other employee business expenses. Turbotax military edition After you complete Form 2106 or 2106-EZ, enter your impairment-related work expenses from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 28, and identify the type and amount of this expense on the dotted line next to line 28. Turbotax military edition Enter your employee business expenses that are unrelated to your disability from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 21. Turbotax military edition Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to be able to work. Turbotax military edition You are disabled if you have: A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working. Turbotax military edition You can deduct impairment-related expenses as business expenses if they are: Necessary for you to do your work satisfactorily, For goods and services not required or used, other than incidentally, in your personal activities, and Not specifically covered under other income tax laws. Turbotax military edition Example 1. Turbotax military edition You are blind. Turbotax military edition You must use a reader to do your work. Turbotax military edition You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. Turbotax military edition The reader's services are only for your work. Turbotax military edition You can deduct your expenses for the reader as business expenses. Turbotax military edition Example 2. Turbotax military edition You are deaf. Turbotax military edition You must use a sign language interpreter during meetings while you are at work. Turbotax military edition The interpreter's services are used only for your work. Turbotax military edition You can deduct your expenses for the interpreter as business expenses. Turbotax military edition Prev  Up  Next   Home   More Online Publications
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Are My Social Security or Railroad Retirement Tier I Benefits Taxable?

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The Turbotax Military Edition

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