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Www dfas mil 18. Www dfas mil   Alimony Table of Contents IntroductionSpouse or former spouse. Www dfas mil Divorce or separation instrument. Www dfas mil Useful Items - You may want to see: General RulesMortgage payments. Www dfas mil Taxes and insurance. Www dfas mil Other payments to a third party. Www dfas mil Instruments Executed After 1984Payments to a third party. Www dfas mil Exception. Www dfas mil Substitute payments. Www dfas mil Specifically designated as child support. Www dfas mil Contingency relating to your child. Www dfas mil Clearly associated with a contingency. Www dfas mil How To Deduct Alimony Paid How To Report Alimony Received Recapture Rule Introduction This chapter discusses the rules that apply if you pay or receive alimony. Www dfas mil It covers the following topics. Www dfas mil What payments are alimony. Www dfas mil What payments are not alimony, such as child support. Www dfas mil How to deduct alimony you paid. Www dfas mil How to report alimony you received as income. Www dfas mil Whether you must recapture the tax benefits of alimony. Www dfas mil Recapture means adding back in your income all or part of a deduction you took in a prior year. Www dfas mil Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. Www dfas mil It does not include voluntary payments that are not made under a divorce or separation instrument. Www dfas mil Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. Www dfas mil Although this chapter is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. Www dfas mil To be alimony, a payment must meet certain requirements. Www dfas mil Different requirements generally apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. Www dfas mil This chapter discusses the rules for payments under instruments executed after 1984. Www dfas mil If you need the rules for payments under pre-1985 instruments, get and keep a copy of the 2004 version of Publication 504. Www dfas mil That was the last year the information on pre-1985 instruments was included in Publication 504. Www dfas mil Use Table 18-1 in this chapter as a guide to determine whether certain payments are considered alimony. Www dfas mil Definitions. Www dfas mil   The following definitions apply throughout this chapter. Www dfas mil Spouse or former spouse. Www dfas mil   Unless otherwise stated, the term “spouse” includes former spouse. Www dfas mil Divorce or separation instrument. Www dfas mil   The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. Www dfas mil This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). Www dfas mil Useful Items - You may want to see: Publication 504 Divorced or Separated Individuals General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. Www dfas mil Payments not alimony. Www dfas mil   Not all payments under a divorce or separation instrument are alimony. Www dfas mil Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained under Community Property in Publication 504, Payments to keep up the payer's property, or Use of the payer's property. Www dfas mil Payments to a third party. Www dfas mil   Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. Www dfas mil These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. Www dfas mil ), taxes, tuition, etc. Www dfas mil The payments are treated as received by your spouse and then paid to the third party. Www dfas mil Life insurance premiums. Www dfas mil   Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. Www dfas mil Payments for jointly-owned home. Www dfas mil   If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse, some of your payments may be alimony. Www dfas mil Mortgage payments. Www dfas mil   If you must pay all the mortgage payments (principal and interest) on a jointly-owned home, and they otherwise qualify as alimony, you can deduct one-half of the total payments as alimony. Www dfas mil If you itemize deductions and the home is a qualified home, you can claim one-half of the interest in figuring your deductible interest. Www dfas mil Your spouse must report one-half of the payments as alimony received. Www dfas mil If your spouse itemizes deductions and the home is a qualified home, he or she can claim one-half of the interest on the mortgage in figuring deductible interest. Www dfas mil Taxes and insurance. Www dfas mil   If you must pay all the real estate taxes or insurance on a home held as tenants in common, you can deduct one-half of these payments as alimony. Www dfas mil Your spouse must report one-half of these payments as alimony received. Www dfas mil If you and your spouse itemize deductions, you can each claim one-half of the real estate taxes and none of the home insurance. Www dfas mil    If your home is held as tenants by the entirety or joint tenants, none of your payments for taxes or insurance are alimony. Www dfas mil But if you itemize deductions, you can claim all of the real estate taxes and none of the home insurance. Www dfas mil Other payments to a third party. Www dfas mil   If you made other third-party payments, see Publication 504 to see whether any part of the payments qualifies as alimony. Www dfas mil Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. Www dfas mil Exception for instruments executed before 1985. Www dfas mil   There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. Www dfas mil A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. Www dfas mil A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. Www dfas mil   For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, get the 2004 version of Publication 504 at www. Www dfas mil irs. Www dfas mil gov/pub504. Www dfas mil Example 1. Www dfas mil In November 1984, you and your former spouse executed a written separation agreement. Www dfas mil In February 1985, a decree of divorce was substituted for the written separation agreement. Www dfas mil The decree of divorce did not change the terms for the alimony you pay your former spouse. Www dfas mil The decree of divorce is treated as executed before 1985. Www dfas mil Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. Www dfas mil Example 2. Www dfas mil Assume the same facts as in Example 1 except that the decree of divorce changed the amount of the alimony. Www dfas mil In this example, the decree of divorce is not treated as executed before 1985. Www dfas mil The alimony payments are subject to the rules for payments under instruments executed after 1984. Www dfas mil Alimony requirements. Www dfas mil   A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. Www dfas mil The payment is in cash. Www dfas mil The instrument does not designate the payment as not alimony. Www dfas mil Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. Www dfas mil There is no liability to make any payment (in cash or property) after the death of the recipient spouse. Www dfas mil The payment is not treated as child support. Www dfas mil Each of these requirements is discussed below. Www dfas mil Cash payment requirement. Www dfas mil   Only cash payments, including checks and money orders, qualify as alimony. Www dfas mil The following do not qualify as alimony. Www dfas mil Transfers of services or property (including a debt instrument of a third party or an annuity contract). Www dfas mil Execution of a debt instrument by the payer. Www dfas mil The use of the payer's property. Www dfas mil Payments to a third party. Www dfas mil   Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. Www dfas mil See Payments to a third party under General Rules, earlier. Www dfas mil   Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. Www dfas mil The payments are in lieu of payments of alimony directly to your spouse. Www dfas mil The written request states that both spouses intend the payments to be treated as alimony. Www dfas mil You receive the written request from your spouse before you file your return for the year you made the payments. Www dfas mil Payments designated as not alimony. Www dfas mil   You and your spouse can designate that otherwise qualifying payments are not alimony. Www dfas mil You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. Www dfas mil For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). Www dfas mil If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. Www dfas mil   Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. Www dfas mil The copy must be attached each year the designation applies. Www dfas mil Spouses cannot be members of the same household. Www dfas mil    Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. Www dfas mil A home you formerly shared is considered one household, even if you physically separate yourselves in the home. Www dfas mil   You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. Www dfas mil Exception. Www dfas mil   If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. Www dfas mil Table 18-1. Www dfas mil Alimony Requirements (Instruments Executed After 1984) Payments ARE alimony if all of the following are true: Payments are NOT alimony if any of the following are true: Payments are required by a divorce or separation instrument. Www dfas mil Payments are not required by a divorce or separation instrument. Www dfas mil Payer and recipient spouse do not file a joint return with each other. Www dfas mil Payer and recipient spouse file a joint return with each other. Www dfas mil Payment is in cash (including checks or money orders). Www dfas mil Payment is: Not in cash, A noncash property settlement, Spouse's part of community income, or To keep up the payer's property. Www dfas mil Payment is not designated in the instrument as not alimony. Www dfas mil Payment is designated in the instrument as not alimony. Www dfas mil Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. Www dfas mil Spouses legally separated under a decree of divorce or separate maintenance are members of the same household. Www dfas mil Payments are not required after death of the recipient spouse. Www dfas mil Payments are required after death of the recipient spouse. Www dfas mil Payment is not treated as child support. Www dfas mil Payment is treated as child support. Www dfas mil These payments are deductible by the payer and includible in income by the recipient. Www dfas mil These payments are neither deductible by the payer nor includible in income by the recipient. Www dfas mil Liability for payments after death of recipient spouse. Www dfas mil   If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony, whether made before or after the death. Www dfas mil If all of the payments would continue, then none of the payments made before or after the death are alimony. Www dfas mil   The divorce or separation instrument does not have to expressly state that the payments cease upon the death of your spouse if, for example, the liability for continued payments would end under state law. Www dfas mil Example. Www dfas mil You must pay your former spouse $10,000 in cash each year for 10 years. Www dfas mil Your divorce decree states that the payments will end upon your former spouse's death. Www dfas mil You must also pay your former spouse or your former spouse's estate $20,000 in cash each year for 10 years. Www dfas mil The death of your spouse would not terminate these payments under state law. Www dfas mil The $10,000 annual payments may qualify as alimony. Www dfas mil The $20,000 annual payments that do not end upon your former spouse's death are not alimony. Www dfas mil Substitute payments. Www dfas mil   If you must make any payments in cash or property after your spouse's death as a substitute for continuing otherwise qualifying payments before the death, the otherwise qualifying payments are not alimony. Www dfas mil To the extent that your payments begin, accelerate, or increase because of the death of your spouse, otherwise qualifying payments you made may be treated as payments that were not alimony. Www dfas mil Whether or not such payments will be treated as not alimony depends on all the facts and circumstances. Www dfas mil Example 1. Www dfas mil Under your divorce decree, you must pay your former spouse $30,000 annually. Www dfas mil The payments will stop at the end of 6 years or upon your former spouse's death, if earlier. Www dfas mil Your former spouse has custody of your minor children. Www dfas mil The decree provides that if any child is still a minor at your spouse's death, you must pay $10,000 annually to a trust until the youngest child reaches the age of majority. Www dfas mil The trust income and corpus (principal) are to be used for your children's benefit. Www dfas mil These facts indicate that the payments to be made after your former spouse's death are a substitute for $10,000 of the $30,000 annual payments. Www dfas mil Of each of the $30,000 annual payments, $10,000 is not alimony. Www dfas mil Example 2. Www dfas mil Under your divorce decree, you must pay your former spouse $30,000 annually. Www dfas mil The payments will stop at the end of 15 years or upon your former spouse's death, if earlier. Www dfas mil The decree provides that if your former spouse dies before the end of the 15-year period, you must pay the estate the difference between $450,000 ($30,000 × 15) and the total amount paid up to that time. Www dfas mil For example, if your spouse dies at the end of the tenth year, you must pay the estate $150,000 ($450,000 − $300,000). Www dfas mil These facts indicate that the lump-sum payment to be made after your former spouse's death is a substitute for the full amount of the $30,000 annual payments. Www dfas mil None of the annual payments are alimony. Www dfas mil The result would be the same if the payment required at death were to be discounted by an appropriate interest factor to account for the prepayment. Www dfas mil Child support. Www dfas mil   A payment that is specifically designated as child support or treated as specifically designated as child support under your divorce or separation instrument is not alimony. Www dfas mil The amount of child support may vary over time. Www dfas mil Child support payments are not deductible by the payer and are not taxable to the recipient. Www dfas mil Specifically designated as child support. Www dfas mil   A payment will be treated as specifically designated as child support to the extent that the payment is reduced either: On the happening of a contingency relating to your child, or At a time that can be clearly associated with the contingency. Www dfas mil A payment may be treated as specifically designated as child support even if other separate payments are specifically designated as child support. Www dfas mil Contingency relating to your child. Www dfas mil   A contingency relates to your child if it depends on any event relating to that child. Www dfas mil It does not matter whether the event is certain or likely to occur. Www dfas mil Events relating to your child include the child's: Becoming employed, Dying, Leaving the household, Leaving school, Marrying, or Reaching a specified age or income level. Www dfas mil Clearly associated with a contingency. Www dfas mil   Payments that would otherwise qualify as alimony are presumed to be reduced at a time clearly associated with the happening of a contingency relating to your child only in the following situations. Www dfas mil The payments are to be reduced not more than 6 months before or after the date the child will reach 18, 21, or local age of majority. Www dfas mil The payments are to be reduced on two or more occasions that occur not more than 1 year before or after a different one of your children reaches a certain age from 18 to 24. Www dfas mil This certain age must be the same for each child, but need not be a whole number of years. Www dfas mil In all other situations, reductions in payments are not treated as clearly associated with the happening of a contingency relating to your child. Www dfas mil   Either you or the IRS can overcome the presumption in the two situations above. Www dfas mil This is done by showing that the time at which the payments are to be reduced was determined independently of any contingencies relating to your children. Www dfas mil For example, if you can show that the period of alimony payments is customary in the local jurisdiction, such as a period equal to one-half of the duration of the marriage, you can overcome the presumption and may be able to treat the amount as alimony. Www dfas mil How To Deduct Alimony Paid You can deduct alimony you paid, whether or not you itemize deductions on your return. Www dfas mil You must file Form 1040. Www dfas mil You cannot use Form 1040A or Form 1040EZ. Www dfas mil Enter the amount of alimony you paid on Form 1040, line 31a. Www dfas mil In the space provided on line 31b, enter your spouse's social security number (SSN) or individual taxpayer identification number (ITIN). Www dfas mil If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. Www dfas mil Show the SSN or ITIN and amount paid to each other recipient on an attached statement. Www dfas mil Enter your total payments on line 31a. Www dfas mil You must provide your spouse's SSN or ITIN. Www dfas mil If you do not, you may have to pay a $50 penalty and your deduction may be disallowed. Www dfas mil For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. Www dfas mil How To Report Alimony Received Report alimony you received as income on Form 1040, line 11. Www dfas mil You cannot use Form 1040A or Form 1040EZ. Www dfas mil You must give the person who paid the alimony your SSN or ITIN. Www dfas mil If you do not, you may have to pay a $50 penalty. Www dfas mil Recapture Rule If your alimony payments decrease or end during the first 3 calendar years, you may be subject to the recapture rule. Www dfas mil If you are subject to this rule, you have to include in income in the third year part of the alimony payments you previously deducted. Www dfas mil Your spouse can deduct in the third year part of the alimony payments he or she previously included in income. Www dfas mil The 3-year period starts with the first calendar year you make a payment qualifying as alimony under a decree of divorce or separate maintenance or a written separation agreement. Www dfas mil Do not include any time in which payments were being made under temporary support orders. Www dfas mil The second and third years are the next 2 calendar years, whether or not payments are made during those years. Www dfas mil The reasons for a reduction or end of alimony payments that can require a recapture include: A change in your divorce or separation instrument, A failure to make timely payments, A reduction in your ability to provide support, or A reduction in your spouse's support needs. Www dfas mil When to apply the recapture rule. Www dfas mil   You are subject to the recapture rule in the third year if the alimony you pay in the third year decreases by more than $15,000 from the second year or the alimony you pay in the second and third years decreases significantly from the alimony you pay in the first year. Www dfas mil   When you figure a decrease in alimony, do not include the following amounts. Www dfas mil Payments made under a temporary support order. Www dfas mil Payments required over a period of at least 3 calendar years that vary because they are a fixed part of your income from a business or property, or from compensation for employment or self-employment. Www dfas mil Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments before the end of the third year. Www dfas mil Figuring the recapture. Www dfas mil   You can use Worksheet 1 in Publication 504 to figure recaptured alimony. Www dfas mil Including the recapture in income. Www dfas mil   If you must include a recapture amount in income, show it on Form 1040, line 11 (“Alimony received”). Www dfas mil Cross out “received” and enter “recapture. Www dfas mil ” On the dotted line next to the amount, enter your spouse's last name and SSN or ITIN. Www dfas mil Deducting the recapture. Www dfas mil   If you can deduct a recapture amount, show it on Form 1040, line 31a (“Alimony paid”). Www dfas mil Cross out “paid” and enter “recapture. Www dfas mil ” In the space provided, enter your spouse's SSN or ITIN. Www dfas mil Prev  Up  Next   Home   More Online Publications
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Www dfas mil Publication 15 - Main Content Table of Contents 1. Www dfas mil Employer Identification Number (EIN) 2. Www dfas mil Who Are Employees?Relief provisions. Www dfas mil Business Owned and Operated by Spouses 3. Www dfas mil Family Employees 4. Www dfas mil Employee's Social Security Number (SSN)Registering for SSNVS. Www dfas mil 5. Www dfas mil Wages and Other CompensationAccountable plan. Www dfas mil Nonaccountable plan. Www dfas mil Per diem or other fixed allowance. Www dfas mil 50% test. Www dfas mil Health Savings Accounts and medical savings accounts. Www dfas mil Nontaxable fringe benefits. Www dfas mil When fringe benefits are treated as paid. Www dfas mil Valuation of fringe benefits. Www dfas mil Withholding on fringe benefits. Www dfas mil Depositing taxes on fringe benefits. Www dfas mil 6. Www dfas mil TipsOrdering rule. Www dfas mil 7. Www dfas mil Supplemental Wages 8. Www dfas mil Payroll Period 9. Www dfas mil Withholding From Employees' WagesIncome Tax Withholding Social Security and Medicare Taxes Part-Time Workers 10. Www dfas mil Required Notice to Employees About the Earned Income Credit (EIC) 11. Www dfas mil Depositing TaxesWhen To Deposit How To Deposit Deposit Penalties 12. Www dfas mil Filing Form 941 or Form 944 13. Www dfas mil Reporting Adjustments to Form 941 or Form 944Current Period Adjustments Prior Period Adjustments Wage Repayments 14. Www dfas mil Federal Unemployment (FUTA) TaxSuccessor employer. Www dfas mil Household employees. Www dfas mil When to deposit. Www dfas mil Household employees. Www dfas mil Electronic filing by reporting agents. Www dfas mil 16. Www dfas mil How To Use the Income Tax Withholding TablesWage Bracket Method Percentage Method Alternative Methods of Income Tax Withholding How To Get Tax Help 1. Www dfas mil Employer Identification Number (EIN) If you are required to report employment taxes or give tax statements to employees or annuitants, you need an EIN. Www dfas mil The EIN is a nine-digit number the IRS issues. Www dfas mil The digits are arranged as follows: 00-0000000. Www dfas mil It is used to identify the tax accounts of employers and certain others who have no employees. Www dfas mil Use your EIN on all of the items you send to the IRS and SSA. Www dfas mil For more information, see Publication 1635, Employer Identification Number: Understanding Your EIN. Www dfas mil If you do not have an EIN, you may apply for one online. Www dfas mil Go to the IRS. Www dfas mil gov and click on the Apply for an EIN Online link under Tools. Www dfas mil 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. Www dfas mil Do not use an SSN in place of an EIN. Www dfas mil You should have only one EIN. Www dfas mil If you have more than one and are not sure which one to use, call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability). Www dfas mil Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Www dfas mil The IRS will tell you which number to use. Www dfas mil If you took over another employer's business (see Successor employer in section 9), do not use that employer's EIN. Www dfas mil If you have applied for an EIN but do not have your EIN by the time a return is due, file a paper return and write “Applied For” and the date you applied for it in the space shown for the number. Www dfas mil 2. Www dfas mil Who Are Employees? Generally, employees are defined either under common law or under statutes for certain situations. Www dfas mil See Publication 15-A for details on statutory employees and nonemployees. Www dfas mil Employee status under common law. Www dfas mil   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. Www dfas mil This is so even when you give the employee freedom of action. Www dfas mil What matters is that you have the right to control the details of how the services are performed. Www dfas mil See Publication 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee. Www dfas mil   Generally, people in business for themselves are not employees. Www dfas mil For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. Www dfas mil However, if the business is incorporated, corporate officers who work in the business are employees of the corporation. Www dfas mil   If an employer-employee relationship exists, it does not matter what it is called. Www dfas mil The employee may be called an agent or independent contractor. Www dfas mil It also does not matter how payments are measured or paid, what they are called, or if the employee works full or part time. Www dfas mil Statutory employees. Www dfas mil   If someone who works for you is not an employee under the common law rules discussed earlier, do not withhold federal income tax from his or her pay, unless backup withholding applies. Www dfas mil Although the following persons may not be common law employees, they are considered employees by statute for social security, Medicare, and FUTA tax purposes under certain conditions. Www dfas mil An agent (or commission) driver who delivers food, beverages (other than milk), laundry, or dry cleaning for someone else. Www dfas mil A full-time life insurance salesperson who sells primarily for one company. Www dfas mil A homeworker who works by guidelines of the person for whom the work is done, with materials furnished by and returned to that person or to someone that person designates. Www dfas mil A traveling or city salesperson (other than an agent-driver or commission-driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. Www dfas mil The orders must be for merchandise for resale or supplies for use in the customer's business. Www dfas mil The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging. Www dfas mil    Statutory nonemployees. Www dfas mil   Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. Www dfas mil They are generally treated as self-employed for all federal tax purposes, including income and employment taxes. Www dfas mil H-2A agricultural workers. Www dfas mil   On Form W-2, do not check box 13 (Statutory employee), as H-2A workers are not statutory employees. Www dfas mil Treating employees as nonemployees. Www dfas mil   You will generally be liable for social security and Medicare taxes and withheld income tax if you do not deduct and withhold these taxes because you treated an employee as a nonemployee. Www dfas mil You may be able to calculate your liability using special section 3509 rates for the employee share of social security and Medicare taxes and the federal income tax withholding. Www dfas mil The applicable rates depend on whether you filed required Forms 1099. Www dfas mil You cannot recover the employee share of social security, or Medicare tax, or income tax withholding from the employee if the tax is paid under section 3509. Www dfas mil You are liable for the income tax withholding regardless of whether the employee paid income tax on the wages. Www dfas mil You continue to owe the full employer share of social security and Medicare taxes. Www dfas mil The employee remains liable for the employee share of social security and Medicare taxes. Www dfas mil See Internal Revenue Code section 3509 for details. Www dfas mil Also see the Instructions for Form 941-X. Www dfas mil   Section 3509 rates are not available if you intentionally disregard the requirement to withhold taxes from the employee or if you withheld income taxes but not social security or Medicare taxes. Www dfas mil Section 3509 is not available for reclassifying statutory employees. Www dfas mil See Statutory employees , earlier in this section. Www dfas mil   If the employer issued required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Www dfas mil 2% plus 20% of the employee rate (see the Instructions for Form 941-X). Www dfas mil For Medicare taxes; employer rate of 1. Www dfas mil 45% plus 20% of the employee rate of 1. Www dfas mil 45%, for a total rate of 1. Www dfas mil 74% of wages. Www dfas mil For Additional Medicare Tax; 0. Www dfas mil 18% (20% of the employee rate of 0. Www dfas mil 9%) of wages subject to Additional Medicare Tax. Www dfas mil For income tax withholding, the rate is 1. Www dfas mil 5% of wages. Www dfas mil   If the employer did not issue required information returns, the section 3509 rates are: For social security taxes; employer rate of 6. Www dfas mil 2% plus 40% of the employee rate (see the Instructions for Form 941-X). Www dfas mil For Medicare taxes; employer rate of 1. Www dfas mil 45% plus 40% of the employee rate of 1. Www dfas mil 45%, for a total rate of 2. Www dfas mil 03% of wages. Www dfas mil For Additional Medicare Tax; 0. Www dfas mil 36% (40% of the employee rate of 0. Www dfas mil 9%) of wages subject to Additional Medicare Tax. Www dfas mil For income tax withholding, the rate is 3. Www dfas mil 0% of wages. Www dfas mil Relief provisions. Www dfas mil   If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. Www dfas mil To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. Www dfas mil You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. Www dfas mil See Publication 1976, Do You Qualify for Relief Under Section 530. Www dfas mil IRS help. Www dfas mil   If you want the IRS to determine whether a worker is an employee, file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Www dfas mil Voluntary Classification Settlement Program (VCSP). Www dfas mil   Employers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to voluntarily reclassify their workers as employees for future tax periods may be eligible to participate in the VCSP if certain requirements are met. Www dfas mil To apply, use Form 8952, Application for Voluntary Classification Settlement Program (VCSP). Www dfas mil For more information visit IRS. Www dfas mil gov and enter “VCSP” in the search box. Www dfas mil Business Owned and Operated by Spouses If you and your spouse jointly own and operate a business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Www dfas mil See Publication 541, Partnerships, for more details. Www dfas mil The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees. Www dfas mil Exception—Qualified joint venture. Www dfas mil   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. Www dfas mil 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). Www dfas mil   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. Www dfas mil Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable. Www dfas mil   Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally do not need an EIN. Www dfas mil 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. Www dfas mil Generally, filing as a qualified joint venture will not increase the spouses' total tax owed on the joint income tax return. Www dfas mil 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. Www dfas mil    Note. Www dfas mil If your spouse is your employee, not your partner, see One spouse employed by another in section 3. Www dfas mil   For more information on qualified joint ventures, visit IRS. Www dfas mil gov and enter “qualified joint venture” in the search box. Www dfas mil Exception—Community income. Www dfas mil   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. Www dfas mil S. Www dfas mil possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. Www dfas mil You may still make an election to be taxed as a qualified joint venture instead of a partnership. Www dfas mil See Exception—Qualified joint venture , earlier. Www dfas mil 3. Www dfas mil Family Employees Child employed by parents. Www dfas mil   Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Www dfas mil If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. Www dfas mil However, see Covered services of a child or spouse , later in this section. Www dfas mil Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to FUTA tax. Www dfas mil Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child is not regularly employed to do such work. Www dfas mil One spouse employed by another. Www dfas mil   The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. Www dfas mil However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes. Www dfas mil Covered services of a child or spouse. Www dfas mil   The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for: A corporation, even if it is controlled by the child's parent or the individual's spouse; A partnership, even if the child's parent is a partner, unless each partner is a parent of the child; A partnership, even if the individual's spouse is a partner; or An estate, even if it is the estate of a deceased parent. Www dfas mil Parent employed by son or daughter. Www dfas mil   When the employer is a son or daughter employing his or her parent the following rules apply. Www dfas mil Payments for the services of a parent in the son’s or daughter’s (the employer’s) trade or business are subject to income tax withholding and social security and Medicare taxes. Www dfas mil Payments for the services of a parent not in the son’s or daughter’s (the employer’s) trade or business are generally not subject to social security and Medicare taxes. Www dfas mil    Social security and Medicare taxes do apply to payments made to a parent for domestic services if all of the following apply: The parent is employed by his or her son or daughter; The son or daughter (the employer) has a child or stepchild living in the home; The son or daughter (the employer) is a widow or widower, divorced, or living with a spouse who, because of a mental or physical condition, cannot care for the child or stepchild for at least 4 continuous weeks in a calendar quarter; and The child or stepchild is either under age 18 or requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition. Www dfas mil   Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided. Www dfas mil 4. Www dfas mil Employee's Social Security Number (SSN) You are required to get each employee's name and SSN and to enter them on Form W-2. Www dfas mil This requirement also applies to resident and nonresident alien employees. Www dfas mil You should ask your employee to show you his or her social security card. Www dfas mil The employee may show the card if it is available. Www dfas mil Do not accept a social security card that says “Not valid for employment. Www dfas mil ” A social security number issued with this legend does not permit employment. Www dfas mil You may, but are not required to, photocopy the social security card if the employee provides it. Www dfas mil If you do not provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. Www dfas mil See Publication 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN. Www dfas mil Applying for a social security card. Www dfas mil   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. Www dfas mil You can get Form SS-5 at SSA offices, by calling 1-800-772-1213, or from the SSA website at www. Www dfas mil socialsecurity. Www dfas mil gov/online/ss-5. Www dfas mil html. Www dfas mil The employee must complete and sign Form SS-5; it cannot be filed by the employer. Www dfas mil 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. Www dfas mil Applying for a social security number. Www dfas mil   If you file Form W-2 on paper and your employee applied for an SSN but does not have one when you must file Form W-2, enter “Applied For” on the form. Www dfas mil If you are filing electronically, enter all zeros (000-00-000) in the social security number field. Www dfas mil 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. Www dfas mil Furnish copies B, C, and 2 of Form W-2c to the employee. Www dfas mil Up to 25 Forms W-2c for each Form W-3c, Transmittal of Corrected Wage and Tax Statements, may now be filed per session over the Internet, with no limit on the number of sessions. Www dfas mil For more information, visit the SSA's Employer W-2 Filing Instructions & Information webpage at www. Www dfas mil socialsecurity. Www dfas mil gov/employer. Www dfas mil Advise your employee to correct the SSN on his or her original Form W-2. Www dfas mil Correctly record the employee's name and SSN. Www dfas mil   Record the name and number of each employee as they are shown on the employee's social security card. Www dfas mil 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. Www dfas mil 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. Www dfas mil If the SSA issues the employee a replacement card after a name change, or a new card with a different social security number after a change in alien work status, file a Form W-2c to correct the name/SSN reported for the most recently filed Form W-2. Www dfas mil It is not necessary to correct other years if the previous name and number were used for years before the most recent Form W-2. Www dfas mil IRS individual taxpayer identification numbers (ITINs) for aliens. Www dfas mil   Do not accept an ITIN in place of an SSN for employee identification or for work. Www dfas mil An ITIN is only available to resident and nonresident aliens who are not eligible for U. Www dfas mil S. Www dfas mil employment and need identification for other tax purposes. Www dfas mil You can identify an ITIN because it is a nine-digit number, beginning with the number “9” with either a “7” or “8” as the fourth digit and is formatted like an SSN (for example, 9NN-7N-NNNN). Www dfas mil    An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN. Www dfas mil 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. Www dfas mil Do not use an ITIN in place of an SSN on Form W-2. Www dfas mil Verification of social security numbers. Www dfas mil   Employers and authorized reporting agents can use the Social Security Number Verification Service (SSNVS) to instantly verify up to 10 names and SSNs (per screen) at a time, or submit an electronic file of up to 250,000 names and SSNs and usually receive the results the next business day. Www dfas mil Visit www. Www dfas mil socialsecurity. Www dfas mil gov/employer/ssnv. Www dfas mil htm for more information. Www dfas mil Registering for SSNVS. Www dfas mil   You must register online and receive authorization from your employer to use SSNVS. Www dfas mil To register, visit SSA's website at www. Www dfas mil ssa. Www dfas mil gov/employer and click on the Business Services Online link. Www dfas mil Follow the registration instructions to obtain a user identification (ID) and password. Www dfas mil You will need to provide the following information about yourself and your company. Www dfas mil Name. Www dfas mil SSN. Www dfas mil Date of birth. Www dfas mil Type of employer. Www dfas mil EIN. Www dfas mil Company name, address, and telephone number. Www dfas mil Email address. Www dfas mil   When you have completed the online registration process, SSA will mail a one-time activation code to your employer. Www dfas mil You must enter the activation code online to use SSNVS. Www dfas mil 5. Www dfas mil Wages and Other Compensation Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. Www dfas mil The pay may be in cash or in other forms. Www dfas mil It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. Www dfas mil It does not matter how you measure or make the payments. Www dfas mil Amounts an employer pays as a bonus for signing or ratifying a contract in connection with the establishment of an employer-employee relationship and an amount paid to an employee for cancellation of an employment contract and relinquishment of contract rights are wages subject to social security, Medicare, and FUTA taxes and income tax withholding. Www dfas mil Also, compensation paid to a former employee for services performed while still employed is wages subject to employment taxes. Www dfas mil More information. Www dfas mil   See section 6 for a discussion of tips and section 7 for a discussion of supplemental wages. Www dfas mil Also, see section 15 for exceptions to the general rules for wages. Www dfas mil Publication 15-A provides additional information on wages, including nonqualified deferred compensation, and other compensation. Www dfas mil Publication 15-B provides information on other forms of compensation, including: Accident and health benefits, Achievement awards, Adoption assistance, Athletic facilities, De minimis (minimal) benefits, Dependent care assistance, Educational assistance, Employee discounts, Employee stock options, Employer-provided cell phones, Group-term life insurance coverage, Health Savings Accounts, Lodging on your business premises, Meals, Moving expense reimbursements, No-additional-cost services, Retirement planning services, Transportation (commuting) benefits, Tuition reduction, and Working condition benefits. Www dfas mil Employee business expense reimbursements. Www dfas mil   A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees' business expenses. Www dfas mil How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. Www dfas mil If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement. Www dfas mil   These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee. Www dfas mil Accountable plan. Www dfas mil   To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. Www dfas mil They must have paid or incurred deductible expenses while performing services as your employees. Www dfas mil The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. Www dfas mil They must substantiate these expenses to you within a reasonable period of time. Www dfas mil They must return any amounts in excess of substantiated expenses within a reasonable period of time. Www dfas mil   Amounts paid under an accountable plan are not wages and are not subject to income, social security, Medicare, and FUTA taxes. Www dfas mil   If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. Www dfas mil This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time. Www dfas mil   A reasonable period of time depends on the facts and circumstances. Www dfas mil Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Www dfas mil Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days. Www dfas mil Nonaccountable plan. Www dfas mil   Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Www dfas mil Your payments are treated as paid under a nonaccountable plan if: Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses, You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or You pay an amount as a reimbursement you would have otherwise paid as wages. Www dfas mil   See section 7 for more information on supplemental wages. Www dfas mil Per diem or other fixed allowance. Www dfas mil   You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. Www dfas mil In these cases, your employee is considered to have accounted to you if your reimbursement does not exceed rates established by the Federal Government. Www dfas mil The 2013 standard mileage rate for auto expenses was 56. Www dfas mil 5 cents per mile. Www dfas mil The rate for 2014 is 56 cents per mile. Www dfas mil   The government per diem rates for meals and lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Www dfas mil Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). Www dfas mil   If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. Www dfas mil This excess amount is subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Www dfas mil Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L. Www dfas mil ” Wages not paid in money. Www dfas mil   If in the course of your trade or business you pay your employees in a medium that is neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind. Www dfas mil ” Payments in kind may be in the form of goods, lodging, food, clothing, or services. Www dfas mil Generally, the fair market value of such payments at the time they are provided is subject to federal income tax withholding and social security, Medicare, and FUTA taxes. Www dfas mil   However, noncash payments for household work, agricultural labor, and service not in the employer's trade or business are exempt from social security, Medicare, and FUTA taxes. Www dfas mil Withhold income tax on these payments only if you and the employee agree to do so. Www dfas mil Nonetheless, noncash payments for agricultural labor, such as commodity wages, are treated as cash payments subject to employment taxes if the substance of the transaction is a cash payment. Www dfas mil Moving expenses. Www dfas mil   Reimbursed and employer-paid qualified moving expenses (those that would otherwise be deductible by the employee) paid under an accountable plan are not includible in an employee's income unless you have knowledge the employee deducted the expenses in a prior year. Www dfas mil Reimbursed and employer-paid nonqualified moving expenses are includible in income and are subject to employment taxes and income tax withholding. Www dfas mil For more information on moving expenses, see Publication 521, Moving Expenses. Www dfas mil Meals and lodging. Www dfas mil   The value of meals is not taxable income and is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the meals are furnished for the employer's convenience and on the employer's premises. Www dfas mil The value of lodging is not subject to income tax withholding and social security, Medicare, and FUTA taxes if the lodging is furnished for the employer's convenience, on the employer's premises, and as a condition of employment. Www dfas mil    “For the convenience of the employer” means you have a substantial business reason for providing the meals and lodging other than to provide additional compensation to the employee. Www dfas mil For example, meals you provide at the place of work so that an employee is available for emergencies during his or her lunch period are generally considered to be for your convenience. Www dfas mil   However, whether meals or lodging are provided for the convenience of the employer depends on all of the facts and circumstances. Www dfas mil A written statement that the meals or lodging are for your convenience is not sufficient. Www dfas mil 50% test. Www dfas mil   If over 50% of the employees who are provided meals on an employer's business premises receive these meals for the convenience of the employer, all meals provided on the premises are treated as furnished for the convenience of the employer. Www dfas mil If this 50% test is met, the value of the meals is excludable from income for all employees and is not subject to federal income tax withholding or employment taxes. Www dfas mil For more information, see Publication 15-B. Www dfas mil Health insurance plans. Www dfas mil   If you pay the cost of an accident or health insurance plan for your employees, including an employee's spouse and dependents, your payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding. Www dfas mil Generally, this exclusion also applies to qualified long-term care insurance contracts. Www dfas mil However, for income tax withholding, the value of health insurance benefits must be included in the wages of S corporation employees who own more than 2% of the S corporation (2% shareholders). Www dfas mil For social security, Medicare, and FUTA taxes, the health insurance benefits are excluded from the wages only for employees and their dependents or for a class or classes of employees and their dependents. Www dfas mil See Announcement 92-16 for more information. Www dfas mil You can find Announcement 92-16 on page 53 of Internal Revenue Bulletin 1992-5. Www dfas mil Health Savings Accounts and medical savings accounts. Www dfas mil   Your contributions to an employee's Health Savings Account (HSA) or Archer medical savings account (MSA) are not subject to social security, Medicare, or FUTA taxes, or federal income tax withholding if it is reasonable to believe at the time of payment of the contributions they will be excludable from the income of the employee. Www dfas mil To the extent it is not reasonable to believe they will be excludable, your contributions are subject to these taxes. Www dfas mil Employee contributions to their HSAs or MSAs through a payroll deduction plan must be included in wages and are subject to social security, Medicare, and FUTA taxes and income tax withholding. Www dfas mil However, HSA contributions made under a salary reduction arrangement in a section 125 cafeteria plan are not wages and are not subject to employment taxes or withholding. Www dfas mil For more information, see the Instructions for Form 8889, Health Savings Accounts (HSAs). Www dfas mil Medical care reimbursements. Www dfas mil   Generally, medical care reimbursements paid for an employee under an employer's self-insured medical reimbursement plan are not wages and are not subject to social security, Medicare, and FUTA taxes, or income tax withholding. Www dfas mil See Publication 15-B for an exception for highly compensated employees. Www dfas mil Differential wage payments. Www dfas mil   Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and represent all or a portion of the wages the individual would have received from the employer if the individual were performing services for the employer. Www dfas mil   Differential wage payments are wages for income tax withholding, but are not subject to social security, Medicare, or FUTA taxes. Www dfas mil Employers should report differential wage payments in box 1 of Form W-2. Www dfas mil For more information about the tax treatment of differential wage payments, visit IRS. Www dfas mil gov and enter “employees in a combat zone” in the search box. Www dfas mil Fringe benefits. Www dfas mil   You generally must include fringe benefits in an employee's gross income (but see Nontaxable fringe benefits next). Www dfas mil The benefits are subject to income tax withholding and employment taxes. Www dfas mil Fringe benefits include cars you provide, flights on aircraft you provide, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Www dfas mil In general, the amount you must include is the amount by which the fair market value of the benefits is more than the sum of what the employee paid for it plus any amount the law excludes. Www dfas mil There are other special rules you and your employees may use to value certain fringe benefits. Www dfas mil See Publication 15-B for more information. Www dfas mil Nontaxable fringe benefits. Www dfas mil   Some fringe benefits are not taxable (or are minimally taxable) if certain conditions are met. Www dfas mil See Publication 15-B for details. Www dfas mil The following are some examples of nontaxable fringe benefits. Www dfas mil Services provided to your employees at no additional cost to you. Www dfas mil Qualified employee discounts. Www dfas mil Working condition fringes that are property or services the employee could deduct as a business expense if he or she had paid for it. Www dfas mil Examples include a company car for business use and subscriptions to business magazines. Www dfas mil Certain minimal value fringes (including an occasional cab ride when an employee must work overtime and meals you provide at eating places you run for your employees if the meals are not furnished at below cost). Www dfas mil Qualified transportation fringes subject to specified conditions and dollar limitations (including transportation in a commuter highway vehicle, any transit pass, and qualified parking). Www dfas mil Qualified moving expense reimbursement. Www dfas mil See Moving expenses , earlier in this section, for details. Www dfas mil The use of on-premises athletic facilities, if substantially all of the use is by employees, their spouses, and their dependent children. Www dfas mil Qualified tuition reduction an educational organization provides to its employees for education. Www dfas mil For more information, see Publication 970, Tax Benefits for Education. Www dfas mil Employer-provided cell phones provided primarily for a noncompensatory business reason. Www dfas mil   However, do not exclude the following fringe benefits from the income of highly compensated employees unless the benefit is available to other employees on a nondiscriminatory basis. Www dfas mil No-additional-cost services. Www dfas mil Qualified employee discounts. Www dfas mil Meals provided at an employer operated eating facility. Www dfas mil Reduced tuition for education. Www dfas mil  For more information, including the definition of a highly compensated employee, see Publication 15-B. Www dfas mil When fringe benefits are treated as paid. Www dfas mil   You may choose to treat certain noncash fringe benefits as paid by the pay period, by the quarter, or on any other basis you choose as long as you treat the benefits as paid at least once a year. Www dfas mil You do not have to make a formal choice of payment dates or notify the IRS of the dates you choose. Www dfas mil You do not have to make this choice for all employees. Www dfas mil You may change methods as often as you like, as long as you treat all benefits provided in a calendar year as paid by December 31 of the calendar year. Www dfas mil See Publication 15-B for more information, including a discussion of the special accounting rule for fringe benefits provided during November and December. Www dfas mil Valuation of fringe benefits. Www dfas mil   Generally, you must determine the value of fringe benefits no later than January 31 of the next year. Www dfas mil Before January 31, you may reasonably estimate the value of the fringe benefits for purposes of withholding and depositing on time. Www dfas mil Withholding on fringe benefits. Www dfas mil   You may add the value of fringe benefits to regular wages for a payroll period and figure withholding taxes on the total, or you may withhold federal income tax on the value of the fringe benefits at the optional flat 25% supplemental wage rate. Www dfas mil However, see Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages during the calendar year in section 7. Www dfas mil   You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide. Www dfas mil You must, however, withhold social security and Medicare taxes on the use of the vehicle. Www dfas mil See Publication 15-B for more information on this election. Www dfas mil Depositing taxes on fringe benefits. Www dfas mil   Once you choose when fringe benefits are paid, you must deposit taxes in the same deposit period you treat the fringe benefits as paid. Www dfas mil To avoid a penalty, deposit the taxes following the general deposit rules for that deposit period. Www dfas mil   If you determine by January 31 you overestimated the value of a fringe benefit at the time you withheld and deposited for it, you may claim a refund for the overpayment or have it applied to your next employment tax return. Www dfas mil See Valuation of fringe benefits , earlier. Www dfas mil If you underestimated the value and deposited too little, you may be subject to a failure-to-deposit penalty. Www dfas mil See section 11 for information on deposit penalties. Www dfas mil   If you deposited the required amount of taxes but withheld a lesser amount from the employee, you can recover from the employee the social security, Medicare, or income taxes you deposited on his or her behalf, and included in the employee's Form W-2. Www dfas mil However, you must recover the income taxes before April 1 of the following year. Www dfas mil Sick pay. Www dfas mil   In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness or injury. Www dfas mil These amounts are sometimes paid by a third party, such as an insurance company or an employees' trust. Www dfas mil In either case, these payments are subject to social security, Medicare, and FUTA taxes. Www dfas mil Sick pay becomes exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for the employer. Www dfas mil The payments are always subject to federal income tax. Www dfas mil See Publication 15-A for more information. Www dfas mil 6. Www dfas mil Tips Tips your employee receives from customers are generally subject to withholding. Www dfas mil Your employee must report cash tips to you by the 10th of the month after the month the tips are received. Www dfas mil The report should include tips you paid over to the employee for charge customers, tips the employee received directly from customers, and tips received from other employees under any tip-sharing arrangement. Www dfas mil Both directly and indirectly tipped employees must report tips to you. Www dfas mil No report is required for months when tips are less than $20. Www dfas mil Your employee reports the tips on Form 4070, Employee's Report of Tips to Employer, or on a similar statement. Www dfas mil The statement must be signed by the employee and must include: The employee's name, address, and SSN, Your name and address, The month or period the report covers, and The total of tips received during the month or period. Www dfas mil Both Forms 4070 and 4070-A, Employee's Daily Record of Tips, are included in Publication 1244, Employee's Daily Record of Tips and Report to Employer. Www dfas mil You are permitted to establish a system for electronic tip reporting by employees. Www dfas mil See Regulations section 31. Www dfas mil 6053-1(d). Www dfas mil Collecting taxes on tips. Www dfas mil   You must collect income tax, employee social security tax, and employee Medicare tax on the employee's tips. Www dfas mil The withholding rules for withholding an employee's share of Medicare tax on tips also apply to withholding the Additional Medicare Tax once wages and tips exceed $200,000 in the calendar year. Www dfas mil If an employee reports to you in writing $20 or more of tips in a month, the tips are also subject to FUTA tax. Www dfas mil   You can collect these taxes from the employee's wages or from other funds he or she makes available. Www dfas mil See Tips treated as supplemental wages in section 7 for more information. Www dfas mil Stop collecting the employee social security tax when his or her wages and tips for tax year 2014 reach $117,000; collect the income and employee Medicare taxes for the whole year on all wages and tips. Www dfas mil You are responsible for the employer social security tax on wages and tips until the wages (including tips) reach the limit. Www dfas mil You are responsible for the employer Medicare tax for the whole year on all wages and tips. Www dfas mil File Form 941 or Form 944 to report withholding and employment taxes on tips. Www dfas mil Ordering rule. Www dfas mil   If, by the 10th of the month after the month for which you received an employee's report on tips, you do not have enough employee funds available to deduct the employee tax, you no longer have to collect it. Www dfas mil If there are not enough funds available, withhold taxes in the following order. Www dfas mil Withhold on regular wages and other compensation. Www dfas mil Withhold social security and Medicare taxes on tips. Www dfas mil Withhold income tax on tips. Www dfas mil Reporting tips. Www dfas mil   Report tips and any collected and uncollected social security and Medicare taxes on Form W-2 and on Form 941, lines 5b, 5c, and 5d (Form 944, lines 4b, 4c, and 4d). Www dfas mil Report an adjustment on Form 941, line 9 (Form 944, line 6), for the uncollected social security and Medicare taxes. Www dfas mil Enter the amount of uncollected social security tax and Medicare tax on Form W-2, box 12, with codes “A” and “B. Www dfas mil ” Do not include any uncollected Additional Medicare Tax in box 12 of Form W-2. Www dfas mil See section 13 and the General Instructions for Forms W-2 and W-3. Www dfas mil   Revenue Ruling 2012-18 provides guidance for employers regarding social security and Medicare taxes imposed on tips, including information on the reporting of the employer share of social security and Medicare taxes under section 3121(q), the difference between tips and service charges, and the section 45B credit. Www dfas mil See Revenue Ruling 2012-18, 2012-26 I. Www dfas mil R. Www dfas mil B. Www dfas mil 1032, available at www. Www dfas mil irs. Www dfas mil gov/irb/2012-26_IRB/ar07. Www dfas mil html. Www dfas mil Allocated tips. Www dfas mil   If you operate a large food or beverage establishment, you must report allocated tips under certain circumstances. Www dfas mil However, do not withhold income, social security, or Medicare taxes on allocated tips. Www dfas mil   A large food or beverage establishment is one that provides food or beverages for consumption on the premises, where tipping is customary, and where there were normally more than 10 employees on a typical business day during the preceding year. Www dfas mil   The tips may be allocated by one of three methods—hours worked, gross receipts, or good faith agreement. Www dfas mil For information about these allocation methods, including the requirement to file Forms 8027 electronically if 250 or more forms are filed, see the Instructions for Form 8027. Www dfas mil For information on filing Form 8027 electronically with the IRS, see Publication 1239. Www dfas mil Tip Rate Determination and Education Program. Www dfas mil   Employers may participate in the Tip Rate Determination and Education Program. Www dfas mil The program primarily consists of two voluntary agreements developed to improve tip income reporting by helping taxpayers to understand and meet their tip reporting responsibilities. Www dfas mil The two agreements are the Tip Rate Determination Agreement (TRDA) and the Tip Reporting Alternative Commitment (TRAC). Www dfas mil A tip agreement, the Gaming Industry Tip Compliance Agreement (GITCA), is available for the gaming (casino) industry. Www dfas mil To get more information about TRDA and TRAC agreements, see Publication 3144, Tips on Tips. Www dfas mil Additionally, visit IRS. Www dfas mil gov and enter “MSU tips” in the search box to get more information about GITCA, TRDA, or TRAC agreements. Www dfas mil 7. Www dfas mil Supplemental Wages Supplemental wages are wage payments to an employee that are not regular wages. Www dfas mil They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Www dfas mil Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. Www dfas mil How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages. Www dfas mil See Regulations section 31. Www dfas mil 3402(g)-1 for additional guidance for wages paid after January 1, 2007. Www dfas mil Also see Revenue Ruling 2008-29, 2008-24 I. Www dfas mil R. Www dfas mil B. Www dfas mil 1149, available at www. Www dfas mil irs. Www dfas mil gov/irb/2008-24_IRB/ar08. Www dfas mil html. Www dfas mil Withholding on supplemental wages when an employee receives more than $1 million of supplemental wages from you during the calendar year. Www dfas mil   Special rules apply to the extent supplemental wages paid to any one employee during the calendar year exceed $1 million. Www dfas mil If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 39. Www dfas mil 6% (or the highest rate of income tax for the year). Www dfas mil Withhold using the 39. Www dfas mil 6% rate without regard to the employee's Form W-4. Www dfas mil In determining supplemental wages paid to the employee during the year, include payments from all businesses under common control. Www dfas mil For more information, see Treasury Decision 9276, 2006-37 I. Www dfas mil R. Www dfas mil B. Www dfas mil 423, available at www. Www dfas mil irs. Www dfas mil gov/irb/2006-37_IRB/ar09. Www dfas mil html. Www dfas mil Withholding on supplemental wage payments to an employee who does not receive $1 million of supplemental wages during the calendar year. Www dfas mil   If the supplemental wages paid to the employee during the calendar year are less than or equal to $1 million, the following rules apply in determining the amount of income tax to be withheld. Www dfas mil Supplemental wages combined with regular wages. Www dfas mil   If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period. Www dfas mil Supplemental wages identified separately from regular wages. Www dfas mil   If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages. Www dfas mil If you withheld income tax from an employee's regular wages in the current or immediately preceding calendar year, you can use one of the following methods for the supplemental wages. Www dfas mil Withhold a flat 25% (no other percentage allowed). Www dfas mil If the supplemental wages are paid concurrently with regular wages, add the supplemental wages to the concurrently paid regular wages. Www dfas mil 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. Www dfas mil Figure the income tax withholding as if the total of the regular wages and supplemental wages is a single payment. Www dfas mil Subtract the tax withheld from the regular wages. Www dfas mil Withhold the remaining tax from the supplemental wages. Www dfas mil If there were other payments of supplemental wages paid during the payroll period made before the current payment of supplemental wages, aggregate all the payments of supplemental wages paid during the payroll period with the regular wages paid during the payroll period, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wage payments, and withhold the remaining tax. Www dfas mil If you did not withhold income tax from the employee's regular wages in the current or immediately preceding calendar year, use method 1-b. Www dfas mil This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages. Www dfas mil Regardless of the method you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes. Www dfas mil Example 1. Www dfas mil You pay John Peters a base salary on the 1st of each month. Www dfas mil He is single and claims one withholding allowance. Www dfas mil In January he is paid $1,000. Www dfas mil Using the wage bracket tables, you withhold $50 from this amount. Www dfas mil In February, he receives salary of $1,000 plus a commission of $2,000, which you combine with regular wages and do not separately identify. Www dfas mil You figure the withholding based on the total of $3,000. Www dfas mil The correct withholding from the tables is $338. Www dfas mil Example 2. Www dfas mil You pay Sharon Warren a base salary on the 1st of each month. Www dfas mil She is single and claims one allowance. Www dfas mil Her May 1 pay is $2,000. Www dfas mil Using the wage bracket tables, you withhold $188. Www dfas mil On May 14 she receives a bonus of $1,000. Www dfas mil Electing to use supplemental wage withholding method 1-b, you: Add the bonus amount to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 = $3,000). Www dfas mil Determine the amount of withholding on the combined $3,000 amount to be $338 using the wage bracket tables. Www dfas mil Subtract the amount withheld from wages on the most recent base salary pay date (May 1) from the combined withholding amount ($338 – $188 = $150). Www dfas mil Withhold $150 from the bonus payment. Www dfas mil Example 3. Www dfas mil The facts are the same as in Example 2, except you elect to use the flat rate method of withholding on the bonus. Www dfas mil You withhold 25% of $1,000, or $250, from Sharon's bonus payment. Www dfas mil Example 4. Www dfas mil The facts are the same as in Example 2, except you elect to pay Sharon a second bonus of $2,000 on May 28. Www dfas mil Using supplemental wage withholding method 1-b, you: Add the first and second bonus amounts to the amount of wages from the most recent base salary pay date (May 1) ($2,000 + $1,000 + $2,000 = $5,000). Www dfas mil Determine the amount of withholding on the combined $5,000 amount to be $781 using the wage bracket tables. Www dfas mil Subtract the amounts withheld from wages on the most recent base salary pay date (May 1) and the amounts withheld from the first bonus payment from the combined withholding amount ($781 – $188 – $150 = $443). Www dfas mil Withhold $443 from the second bonus payment. Www dfas mil Tips treated as supplemental wages. Www dfas mil   Withhold income tax on tips from wages earned by the employee or from other funds the employee makes available. Www dfas mil If an employee receives regular wages and reports tips, figure income tax withholding as if the tips were supplemental wages. Www dfas mil If you have not withheld income tax from the regular wages, add the tips to the regular wages. Www dfas mil Then withhold income tax on the total. Www dfas mil If you withheld income tax from the regular wages, you can withhold on the tips by method 1-a or 1-b discussed earlier in this section under Supplemental wages identified separately from regular wages. Www dfas mil Vacation pay. Www dfas mil   Vacation pay is subject to withholding as if it were a regular wage payment. Www dfas mil When vacation pay is in addition to regular wages for the vacation period, treat it as a supplemental wage payment. Www dfas mil If the vacation pay is for a time longer than your usual payroll period, spread it over the pay periods for which you pay it. Www dfas mil 8. Www dfas mil Payroll Period Your payroll period is a period of service for which you usually pay wages. Www dfas mil When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. Www dfas mil No regular payroll period. Www dfas mil   When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Www dfas mil Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. Www dfas mil If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of: The last wage payment made during the same calendar year, The date employment began, if during the same calendar year, or January 1 of the same year. Www dfas mil Employee paid for period less than 1 week. Www dfas mil   When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. Www dfas mil If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. Www dfas mil You then figure withholding based on the daily or miscellaneous period. Www dfas mil 9. Www dfas mil Withholding From Employees' Wages Income Tax Withholding Using Form W-4 to figure withholding. Www dfas mil   To know how much federal income tax to withhold from employees' wages, you should have a Form W-4 on file for each employee. Www dfas mil 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. Www dfas mil Advise your employees to use the IRS Withholding Calculator on the IRS website at www. Www dfas mil irs. Www dfas mil gov/individuals for help in determining how many withholding allowances to claim on their Forms W-4. Www dfas mil   Ask all new employees to give you a signed Form W-4 when they start work. Www dfas mil Make the form effective with the first wage payment. Www dfas mil If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances. Www dfas mil Form in Spanish. Www dfas mil   You can provide Formulario W-4(SP), Certificado de Exención de Retenciones del Empleado, in place of Form W-4, to your Spanish-speaking employees. Www dfas mil For more information, see Publicación 17(SP), El Impuesto Federal sobre los Ingresos (Para Personas Físicas). Www dfas mil The rules discussed in this section that apply to Form W-4 also apply to Formulario W-4(SP). Www dfas mil Electronic system to receive Form W-4. Www dfas mil   You may establish a system to electronically receive Forms W-4 from your employees. Www dfas mil See Regulations section 31. Www dfas mil 3402(f)(5)-1(c) for more information. Www dfas mil Effective date of Form W-4. Www dfas mil   A Form W-4 remains in effect until the employee gives you a new one. Www dfas mil When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. Www dfas mil If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. Www dfas mil 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. Www dfas mil A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year. Www dfas mil Successor employer. Www dfas mil   If you are a successor employer (see Successor employer , later in this section), secure new Forms W-4 from the transferred employees unless the “Alternative Procedure” in section 5 of Revenue Procedure 2004-53 applies. Www dfas mil See Revenue Procedure 2004-53, 2004-34 I. Www dfas mil R. Www dfas mil B. Www dfas mil 320, available at www. Www dfas mil irs. Www dfas mil gov/irb/2004-34_IRB/ar13. Www dfas mil html. Www dfas mil Completing Form W-4. Www dfas mil   The amount of any federal income tax withholding must be based on marital status and withholding allowances. Www dfas mil Your employees may not base their withholding amounts on a fixed dollar amount or percentage. Www dfas mil However, an employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4. Www dfas mil Employees may claim fewer withholding allowances than they are entitled to claim. Www dfas mil They may wish to claim fewer allowances to ensure they have enough withholding or to offset the tax on other sources of taxable income not subject to withholding. Www dfas mil See Publication 505, Tax Withholding and Estimated Tax, for more information about completing Form W-4. Www dfas mil Along with Form W-4, you may wish to order Publication 505 for use by your employees. Www dfas mil Do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. Www dfas mil If they require additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals, or by using the Electronic Federal Tax Payment System (EFTPS) to make estimated tax payments. Www dfas mil Exemption from federal income tax withholding. Www dfas mil   Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. Www dfas mil See the Form W-4 instructions for more information. Www dfas mil However, the wages are still subject to social security and Medicare taxes. Www dfas mil See also Invalid Forms W-4 , later in this section. Www dfas mil   A Form W-4 claiming exemption from withholding is effective when it is filed with the employer and only for that calendar year. Www dfas mil 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. Www dfas mil If the employee does not give you a new Form W-4 by February 15, begin withholding based on the last Form W-4 for the employee that did not claim an exemption from withholding or, if one was not filed, then withhold tax as if he or she is single with zero withholding allowances. Www dfas mil If the employee provides a new Form W-4 claiming exemption from withholding on February 16 or later, you may apply it to future wages but do not refund any taxes already withheld. Www dfas mil Withholding income taxes on the wages of nonresident alien employees. Www dfas mil   In general, you must withhold federal income taxes on the wages of nonresident alien employees. Www dfas mil However, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for exceptions to this general rule. Www dfas mil Also see section 3 of Publication 51 (Circular A), Agricultural Employer's Tax Guide, for guidance on H-2A visa workers. Www dfas mil Withholding adjustment for nonresident alien employees. Www dfas mil   For 2014, apply the procedure discussed next to figure the amount of income tax to withhold from the wages of nonresident alien employees performing services within the United States. Www dfas mil Nonresident alien students from India and business apprentices from India are not subject to this procedure. Www dfas mil Instructions. Www dfas mil   To figure how much income tax to withhold from the wages paid to a nonresident alien employee performing services in the United States, use the following steps. Www dfas mil Step 1. Www dfas mil   Add to the wages paid to the nonresident alien employee for the payroll period the amount shown in the chart below for the applicable payroll period. Www dfas mil    Amount to Add to Nonresident Alien Employee's Wages for Calculating Income Tax Withholding Only   Payroll Period Add Additional     Weekly $ 43. Www dfas mil 30     Biweekly 86. Www dfas mil 50     Semimonthly 93. Www dfas mil 80     Monthly 187. Www dfas mil 50     Quarterly 562. Www dfas mil 50     Semiannually 1,125. Www dfas mil 00     Annually 2,250. Www dfas mil 00     Daily or Miscellaneous (each day of the payroll period) 8. Www dfas mil 70   Step 2. Www dfas mil   Use the amount figured in Step 1 and the number of withholding allowances claimed (generally limited to one allowance) to figure income tax withholding. Www dfas mil Determine the value of withholding allowances by multiplying the number of withholding allowances claimed by the appropriate amount from Table 5. Www dfas mil Percentage Method—2014 Amount for One Withholding Allowance shown on page 41. Www dfas mil If you are using the Percentage Method Tables for Income Tax Withholding, provided on pages 43–44, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure the income tax withholding. Www dfas mil If you are using the Wage Bracket Method for Income Tax Withholding, provided on pages 45–64, use the amount figured in Step 1 and the number of withholding allowances to figure income tax withholding. Www dfas mil The amounts from the chart above are added to wages solely for calculating income tax withholding on the wages of the nonresident alien employee. Www dfas mil The amounts from the chart should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Www dfas mil Also, the amounts from the chart do not increase the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Www dfas mil This procedure only applies to nonresident alien employees who have wages subject to income tax withholding. Www dfas mil Example. Www dfas mil An employer using the percentage method of withholding pays wages of $500 for a biweekly payroll period to a married nonresident alien employee. Www dfas mil The nonresident alien has properly completed Form W-4, entering marital status as “single” with one withholding allowance and indicating status as a nonresident alien on Form W-4, line 6 (see Nonresident alien employee's Form W-4 , later in this section). Www dfas mil The employer determines the wages to be used in the withholding tables by adding to the $500 amount of wages paid the amount of $86. Www dfas mil 50 from the chart under Step 1 ($586. Www dfas mil 50 total). Www dfas mil The employer then applies the applicable tables to determine the income tax withholding for nonresident aliens (see Step 2 ). Www dfas mil Reminder: If you use the Percentage Method Tables for Income Tax Withholding, reduce the amount figured in Step 1 by the value of withholding allowances and use that reduced amount to figure income tax withholding. Www dfas mil The $86. Www dfas mil 50 added to wages for calculating income tax withholding is not reported on Form W-2, and does not increase the income tax liability of the employee. Www dfas mil Also, the $86. Www dfas mil 50 added to wages does not affect the social security tax or Medicare tax liability of the employer or the employee, or the FUTA tax liability of the employer. Www dfas mil Supplemental wage payment. Www dfas mil   This procedure for determining the amount of income tax withholding does not apply to a supplemental wage payment (see section 7) if the 39. Www dfas mil 6% mandatory flat rate withholding applies or if the 25% optional flat rate withholding is being used to calculate income tax withholding on the supplemental wage payment. Www dfas mil Nonresident alien employee's Form W-4. Www dfas mil   When completing Forms W-4, nonresident aliens are required to: Not claim exemption from income tax withholding, Request withholding as if they are single, regardless of their actual marital status, Claim only one allowance (if the nonresident alien is a resident of Canada, Mexico, or South Korea, or a student or business apprentice from India, he or she may claim more than one allowance), and Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4. Www dfas mil   If you maintain an electronic Form W-4 system, you should provide a field for nonresident aliens to enter nonresident alien status in lieu of writing “Nonresident Alien” or “NRA” above the dotted line on line 6. Www dfas mil 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. Www dfas mil Form 8233. Www dfas mil   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. Www dfas mil See Publication 515 for details. Www dfas mil IRS review of requested Forms W-4. Www dfas mil   When requested by the IRS, you must make original Forms W-4 available for inspection by an IRS employee. Www dfas mil You may also be directed to send certain Forms W-4 to the IRS. Www dfas mil 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. Www dfas mil 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. Www dfas mil The IRS may also require you to submit copies of Form W-4 to the IRS as directed by Treasury Decision 9337, 2007-35 I. Www dfas mil R. Www dfas mil B. Www dfas mil 455, which is available at www. Www dfas mil irs. Www dfas mil gov/irb/2007-35_IRB/ar10. Www dfas mil html. Www dfas mil When we refer to Form W-4, the same rules apply to Formulario W-4(SP), its Spanish translation. Www dfas mil After submitting a copy of a requested Form W-4 to the IRS, continue to withhold federal income tax based on that Form W-4 if it is valid (see Invalid Forms W-4 , later in this section). Www dfas mil However, if the IRS later notifies you in writing the employee is not entitled to claim exemption from withholding or a claimed number of withholding allowances, withhold federal income tax based on the effective date, marital status, and maximum number of withholding allowances specified in the IRS notice (commonly referred to as a "lock-in letter